Senate Hearing Highlights Healthy Wireless Marketplace

On February 26, the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing entitled, “An Examination of Competition in the Wireless Market.” Testifying witnesses included Eric Graham, Senior Vice President, Strategic Relations at Cellular South, Inc., Roslyn Layton, Ph.D. Fellow at Aalborg University in Denmark, Randal Milch, Executive Vice President and General Counsel at Verizon, Jonathan Spalter, Chairman, Mobile Future, Kathleen O’Brien Ham, Vice President, Federal Regulatory Affairs at T-Mobile, and Matthew Wood, Policy Director at Free Press. The witnesses represented diverse perspectives on the wireless ecosystem.

Most witnesses and Senator Mike Lee observed that the wireless marketplace is “fiercely competitive,” and that competition is driven by massive investment and innovation. Verizon’s Randal Milch cited impressive figures reflecting the healthy state of the wireless ecosystem. For instance, the wireless industry invested more than $34 billion in 2013, and has invested over $300 billion since 2001, not including investments in spectrum. Further, the wireless sector has produced 1.6 million new jobs from 2007 – 2011 while many other sectors were experiencing some of the lowest employment rates in years. Overall, the wireless economy is responsible for $2 billion in economic activity and will generate over $1 trillion in economic growth over the next five years.

In addition to impressive investment and growth, the use of creative marketing strategies, business practices, and aggressive infrastructure improvement by wireless providers evidence a healthy, competitive marketplace. More than 90% of U.S. consumers have a choice of three or more providers. And these providers are making aggressive moves to keep and gain customers. From January to September 2013, the telecommunications sector spent $7 billion in advertizing while other segments vastly decreased their marketing spending. T-Mobile alone 4.4 million new subscribers in 2013 (1.6 million added in the fourth quarter of 2013 alone) and built out its virtually non-existent 4G LTE network to cover 20 million people currently. Such practices are clear indicators of tough rivalry and healthy competition in the marketplace.

Not surprisingly, witnesses from Free Press and Cellular South in particular warned that these figures have been the result of regulatory intervention by the FCC and DOJ and not the free market. They also claimed that the market has been characterized by an “acute lack of sustainable competition in the wireless industry” since 2009, citing the fact that AT&T and Verizon between them have more than a 60% share of wireless consumers. But this figure does not accurately represent the true state of competition in the wireless sector.

Today, the market is defined by disruptive technologies and the state of competition is not necessarily reflected by the number of competitors in a given traditional service sector. For instance, Roslyn Layton reported that mobile services may provide their customers with a package of voice, data, and SMS services, but consumers are increasingly using their data subscriptions to access competing communications services like Skype and Facebook and WhatsApp (OTT services). Today Microsoft and Facebook have the largest market caps of any mobile service provider, at $310 and $175 billion respectively. Ms. Layton concludes this shows that while AT&T and Verizon may have grown, this change motivated innovators to create new platforms and technologies that disrupt the competitive landscape and deliver services to consumers in new ways. And the market is to thank for this, not the FCC or the DOJ.

So despite the testimony of the naysayers, the facts and statistics showing the fierce rivalry, steady investment and innovation in the wireless sector presented delivered a clear message: the best way to promote the continued investment, innovation and growth in wireless is to allow the free market to drive the existing virtuous cycle. As Mobile Future Chairman Jonathan Spalter stated, “It would be pure folly” for the government to try to proscribe a regulatory framework based on non-existing market failures. Instead, an approach characterized by regulatory restraint and humility has fostered, and will continue to promote the competitive wireless ecosystem that exists today. As Senator Lee stated, “we must keep our focus on protecting competition, not protecting competitors.”

Here Comes Another Katrina

Batten down the hatches and get out of the wind's way. Windy hyperbole, that is! 

Here comes another Katrina. 

No, thankfully, I don't mean another Hurricane Katrina. I'm only raising a warning about Katrina vanden Heuvel's op-ed regarding the proposed Comcast – Time Warner Cable merger published last Friday in the Washington Post. 

Ms. vanden Heuvel is already certain that, in her elegant language, the proposed merger doesn't pass the "smell test." When the merger was announced, I said in a statement that it would get close government scrutiny, and that it should. But I also said the assessment should be based on facts and not overheated rhetoric. By this standard, I'd say Ms. vanden Heuvel's op-ed fails the smell test. 

In what is a pretty short piece, here are some key examples of claims that are misleading or off-base: 

Ms. van Heuvel asserts the merged company would have "virtual monopoly cable control" over news and public service programming in various locales like Chicago, New York, Philadelphia, Los Angeles, and other large cities. In an era of media abundance, this statement is preposterous on its face. By referring to monopoly "cable" control, I guess Ms. vanden Heuvel supposes she is clever. But I'd say too clever by half. 

As I explained in my recent Washington Examiner piece – "Cable Merger Shows How Legacy Language Leads to Outdated Policy" – it is easy to distort proper regulatory analysis and merger reviews by resorting to legacy language that has little to do with current marketplace realities. A current reality is that Comcast and Time Warner Cable don't compete with each other in any material way, so if the two are allowed to combine, there will be no reduction in the number of marketplace competitors or consumer choice. 

Another current reality is that there is no such thing as a "cable monopoly," except possibly in a very limited number of locales, and certainly not in the cities Ms. vanden Heuvel names. This is because no matter how much Ms. vanden Heuvel and self-styled consumer advocates may proclaim otherwise, the proper market for assessing the merger's competitive impact is the broader broadband marketplace. And in this market, the "cable" companies compete with the "telephone" companies like AT&T, Verizon, CenturyLink, and Frontier; "satellite" companies like DIRECTV and DISH TV; "fiber" companies like Google Fiber, which, by the way, just announced it is proposing to serve as many as 34 more cities in addition to the three already served; and the various wireless broadband operators. These broadband competitors generally offer Internet data, video, and voice services, either bundled together in various packages or singly. 

In other words, the real competition that Comcast and Time Warner Cable confront is not from each other, but rather from other broadband providers all seeking to serve, with their differing technological platforms and service offerings, ever-changing, heterogeneous consumer demand for high-speed broadband. 

Perhaps not surprisingly, but nevertheless significantly, Ms. vanden Heuvel's op-ed never mentions AT&T, Verizon, DISH, DIRECTV, Sprint, T-Mobile, Google, or any other marketplace broadband competitor of Comcast and Time Warner Cable. 

Next, Ms. vanden Heuvel is concerned that the combined company will be able to "exact price concessions from content providers, forcing some out of business, limiting innovation and variety." She is especially worried in this regard about "discrimination" against Netflix, perhaps because she fears her Netflix subscription price will rise as quickly as a house of cards can crumble. 

Ms. vanden Heuvel shouldn't worry too much. I wonder whether she knows that little 'ol Netflix now has as many subscribers, around 30 million, as Comcast and Time Warner Cable combined, and that on any given night, one-third of the usage on the Internet in the U.S. is attributable to Netflix streaming videos. Together with Google's YouTube, these two major video providers are responsible, on average, for about 50% of Internet usage on any given night. 

Now, if Ms. vanden Heuvel were an economist, rather than a polemicist, she likely would be less inclined to worry about Netflix, which has seen the price of its stock more than double over the past year. Indeed, she might even begin to ask questions about what economists call "two-sided" pricing plans. Under two-sided pricing, Netflix, Google, and other so-called "edge" providers with large amounts of video traffic might pay more for carriage of their traffic to defray the costs incurred by the various broadband providers in building out, maintaining, and constantly upgrading their high-speed networks. After all, don't forget that the need for such constant expansion and upgrading is driven to a significant extent by the exponential increase in the amount of video traffic carried on the Internet providers' facilities – back to Netflix again. 

Anyway, Ms. vanden Heuvel need not worry too much about Netflix for another reason. Although she suggests that "net neutrality" is under assault – I confess to being an accessory to the assault! – she doesn't acknowledge that Comcast has pledged that it, along with Time Warner Cable, will continue to adhere to the net neutrality condition to which Comcast agreed when the FCC approved its merger with NBC Universal in 2011. These net neutrality prohibitions remain in effect until 2018. 

Finally, Ms. vanden Heuvel claims that consumers will suffer if the merger goes through and the U.S. "already suffers from worse Internet service, speed and affordability than other developed countries." Perhaps it may be literally true that the U.S. trails one or another "developed" country in one of the dimensions she cites. But I suspect this is another case of Ms. vanden Heuvel trying to be clever by half with her language. The reality is that the U.S. is in the very top tier of developed countries – especially given the geography and land mass size of America, say, as opposed to a South Korea or a Belgium – in deployment and adoption of broadband. Indeed, the U.S. ranks in the top tier of developed countries with respect to the delivery of high broadband speeds at affordable prices. 

As far back as 2007 I wrote a piece about what I called the "talking broadband down" crowd, which was led, vociferously, by then-FCC Commissioner Michael Copps, who despite mounting evidence to the contrary, is still pushing the same tired line. As I explained in 2007, the real aim of the "talking broadband down" crowd was to use distorted assertions that the U.S. was lagging to justify an activist  pro-regulatory agenda. That agenda has not changed. 

Without reciting here all the statistics that show U.S. leadership, I will simply refer you to Roslyn Layton's fine new report examining the broadband performance of European Union countries. Ms. Layton, a visiting fellow at the American Enterprise Institute and an Internet economist at Aalborg University in Copenhagen, Denmark, shows, by various key measures, that the EU countries now lag behind the U.S. with regard to broadband. And Ms. Layton shows that E.U. leaders recognize they are lagging behind. 

In sum, the government's review of the proposed Comcast – Time Warner Cable merger has not yet even begun, and I've said the merger deserves close scrutiny. My purpose here is not to endorse the merger, but rather to argue that such scrutiny ought to be based on facts, and not on overwrought hyperbole that bears little resemblance to current marketplace reality. 

With that purpose in mind, you are duly warned that here comes another Katrina, this one bringing windy hyperbole.

Googling More Cities With Fiber

On February 19, Google announced on its official blog that it has invited cities in nine metro areas around the U.S. – 34 cities total – to work with the company on bringing Google Fiber to those new markets. It is encouraging that Google is starting the process of expanding fiber to as many as 34 new locales, even though the company acknowledges it is unlikely that Google Fiber will actually enter all of these markets. I expect that the lessons from Google’s other fiber projects in Kansas City, Austin, and Provo will help Google succeed in bringing more ultra-fast networks to still more localities. 

The main challenges Google will confront in deploying its technology involve access to existing infrastructure and infrastructure maps, and expediting construction permits. Of course, other providers, whether cable, telephone companies, or wireless operators have always confronted these obstacles too – probably to a greater degree. 

Local governments should facilitate Google’s fiber deployment by reforming their processes, if necessary, to remove any unnecessary barriers to market entry. It is important, however, that whatever treatment or advantages a municipality offers to Google be offered to all other market competitors. As I said in a blog last October, providers like Verizon, Comcast, and any others should be able to “avail themselves of the same local streamlined, expedited processes available to Google.” And the same obligations that apply to these other private sector providers, such as requirements for build-out, should apply to Google. 

Google’s decision to expand its broadband networks to new cities is a welcome development. Communities certainly can benefit from high-capacity broadband facilities as consumer demand for faster Internet continues to grow. Additionally, Google's entry will increase competition in the markets it enters, and more competition is a good thing. 

As long as Google is not favored over similarly situated broadband providers, the Google Fiber initiative to build out ultra high-speed broadband networks is positive. And if Google's initiative serves to spur local governments to reform their regulatory and permitting processes to facilitate easier entry and network build-outs, this is surely positive too. 

Ending Lopsided Legacy Broadband Regulation Is Imperative

On January 30, the FCC green-lighted geographic trials in which incumbent voice providers will offer all-IP technologies in place of copper-based legacy telephone service. In its IP Transition Order, the Commission stated its intent to “act with dispatch,” and to “facilitate the momentum of technological advances that are already occurring.”

The FCC staked out the right approach to promoting the transition to all-IP networks. But that same sense of urgency needs to infuse the Commission’s broader responsibilities that bear on the IP transition.

The FCC is not proactively using its forbearance and waiver authorities to free next-generation technologies from legacy regulations. And if not eliminated, legacy regulations will continue to serve as a harmful counterweight to broadband deployment and competition. Now that the groundwork for IP transition trials is set, FCC forbearance from legacy regulation of broadband-related services remains part of the unfinished business of the IP transition.

In its IP Transition Order the FCC explained:

Modernizing communications networks can dramatically reduce network costs, allowing providers to serve customers with increased efficiencies that can lead to improved and innovative product offerings and lower prices. It also catalyzes further investments in innovation that both enhance existing products and unleash new services, applications and devices, thus powering economic growth. The lives of millions of Americans could be improved by the direct and spillover effects of the technology transitions, including innovations that cannot even be imagined today.

Indeed, the consumer welfare benefits resulting from modernizing communications networks should be obvious. Even a cursory view of the dynamic changes that have taken place over the last two decades in the advanced communications market confirms this. Competitive broadband Internet services have appeared. Old phone monopolies have disappeared. Consumer choice in IP-based services is now abundant.

But despite digital age advances in competitive choice and technology, too many legacy telephone regulations remain in force. Outdated, unnecessary, and often arbitrarily-enforced, such restrictions are actually putting a drag on the increasingly IP-based world.   

A case in point is FCC’s unjustifiable, selective regulation of CenturyLink’s broadband enterprise services. 

Businesses with special communications and information technology needs often seek out enterprise broadband services to meet those needs. Typically, such businesses are savvy customers, willing to consider competing offers for the best customizable deal. The national broadband enterprise services market has over two dozen competing providers. Because the enterprise broadband market is highly competitive, there are no dominant carriers. The enterprise broadband services offered by all traditional incumbent voice carriers were relieved from legacy telephone regulations more than years ago – all except for CenturyLink, that is.

Inexplicably, some of CenturyLink's Ethernet and other broadband enterprise offerings are still subject to dominant carrier and Computer Inquiry tariff obligations. This leaves CenturyLink stuck with dominant carrier restrictions on its ability to offer flat-rate pricing on a nationwide basis to potential customers. Tariff obligations require CenturyLink to give the public advance notice of its price offerings, giving rivals a jump in luring enterprise customers.

Unfortunately, the FCC is not proactively using its forbearance and waiver authorities to free next-generation technologies from legacy regulations. In 2012, CenturyLink petitioned the FCC for forbearance relief. The proceeding failed to turn up any evidence that CenturyLink possessed market power. But the FCC pressed CenturyLink for additional information – a thinly veiled signal that the Commission was unlikely to grant forbearance. Not surprisingly, CenturyLink withdrew its petition. 

Now CenturyLink is again seeking forbearance relief from legacy regulation of its broadband enterprise services. FCC Chairman Wheeler should make granting justified forbearance relief on a timely basis a priority.

Rule of law considerations also warrant forbearance relief. As it now stands, one major provider of enterprise broadband services is placed at a significant regulatory disadvantage compared to all competitors. This is unequal treatment under the law, plain and simple. Judicial precedents applying the Administrative Procedures Act’s “arbitrary and capricious” standard make clear that agencies cannot treat like cases differently. Rather, agencies must apply the same criteria to all parties that petition for exemptions.

Finally, there are regrettable but important lessons to be learned from FCC’s record of foot-dragging on forbearance relief. The Section 10 regulatory forbearance process, particularly when applied in light of the Commission’s procedures, still treats legacy regulation as the default position. By placing the burden on market competitors to obtain regulatory relief, the process tends inherently to preserve the status quo rather than lead to prompt reform. 

A new Communications Act must reverse that presumption. Where markets are competitive, free markets should be the default approach. The burden should be on the regulators or pro-regulation parties to offer evidence justifying government intervention and restrictions. Actual evidence of market power and likely consumer harm should supply the deciding criteria under a new Communications Act.

The FCC needs to bring the same urgency to its elimination of legacy regulation of broadband services as it demonstrated in approving experimental trials. Putting an end to its unnecessary and arbitrarily-applied regulation of enterprise broadband services would serve as a solid first step. For now FCC forbearance from legacy regulation of broadband-related services is unfinished business of the IP transition. Forbearance should become an IP transition imperative.

Governments Do Not Compete

Here's another good piece by Scott Cleland, this one on government broadband overbuilds. Scott is right about this: "Governments do not 'compete' with companies. Governments tax, limit, police and judge companies."

It is possible there are some places and in some cases where, in light of the economics, no private sector firm will step forward to provide broadband service. But absent those cases, there is no justification for government to "compete" with the private firms. As the saying goes, inevitably, there won't be a "level playing field."

Read Scott's piece for his argument as to why this is so.

FCC Wades into the Newsroom

FCC Commissioner Ajit Pai has an important piece in today's Wall Street Journal entitled "FCC Wades into the Newsroom." [subscription required].

Even in today's age of media abundance, the FCC can't resist the notion that part of its job is to ensure that the media -- in this case even the print media which, thankfully, it doesn't directly regulate -- are covering certain issues sufficiently and in a balanced way. The Commission says that right now it is only gathering information -- just investigating --  but the history of the FCC shows that often this is a prelude to trying to implement some new regulatory scheme or another.

Many of the FCC's regulations are outdated and don't fit today's competitive communications environment. They should be jettisoned. But those that involve content regulation, or even the threat of content regulation, run up against First Amendment rights and are especially pernicious.

Commissioner Pai's op-ed calls attention to a matter at the FCC that bears close attention.

Cisco’s Annual Data Report Highlights the Importance of Sound Spectrum Policy

On February 5, Cisco released its Global Data Traffic Forecast Update, 2013 - 2018. These reports, undertaken by Cisco annually, have proven to be valuable tools for understanding and forecasting shifts in data traffic.

This year’s report shows impressive growth in the adoption, usage, and number of mobile devices worldwide. But each of these metrics varied dramatically by region. North America led the world in nearly all categories of growth, including traffic, data usage, and “smart” device adoption.

While such leadership is evidence of a strong digital economy, it also highlights the growing demand for spectrum. And this continually growing spectrum demand emphasizes the importance of sound spectrum policy decisions by the FCC to ensure positive trends like those reported by Cisco continue.

According to Cisco, global mobile data traffic increased by 81 percent in 2013, rebounding from a slowed rate of growth in 2012. In 2013, global mobile data traffic reached 1.5 exabytes per month, increasing from 820 petabytes per month at the end of 2012. This traffic is nearly 18 times the traffic of the entire global Internet in 2000. Emerging market regions like the Middle east and Africa all doubled mobile data traffic in 2013. Mobile data traffic in more mature markets like North America and the Asia Pacific region grew by 77 and 86 percent respectively.

Cisco projects that global mobile data traffic will grow nearly 11-fold between 2013 and 2018, increasing to 15.9 exabytes per month by 2018, as the chart from Cisco’s report shows below.

In North America, consumers utilize more data than the rest of the world, averaging 1.38 GB per month in 2013, compared to just 185 MB in the Middle East and Africa. This trend is only expected to continue, as North America is a region that is projected to have the fastest growth in connections to mobile devices that access mobile networks. The North America and the Asia Pacific regions will account for nearly two-thirds of global mobile traffic by 2018. 

The report finds that the increasing number of wireless devices is one of the primary contributors to global data growth. Cisco projects that by the end of 2014 there will be more mobile-connected devices than people in the world. Consumers added over half a billion mobile devices and connections in 2013, making the global device and connection total 7 billion in 2013. As noted above, North America leads growth in this metric too, with the region projected to increase in mobile device connections at a 12 percent compounded annual growth rate.

Globally, mobile devices and connections are projected to grow to 10.2 billion by 2018. This will be comprised of approximately 8.2 billion personal mobile devices, and 2 billion machine-to-machine (M2M) connections. Over half of all devices connected to the mobile network will be “smart” by 2018, as the chart below shows. “Smart” devices have advanced computing and multimedia capabilities and a minimum of 3G connectivity. Again, North America is projected to lead growth in this area, with its regional share of smart devices and connections increasing from 65 to over 90 percent between 2013 and 2018.  Western and Central Europe fall second and third, with projected regional share of smart devices reaching 83 and 61 percent of total devices, respectively.

Cisco reports that the transition to smart devices is accompanied by an evolution to higher-generation connectivity. This fuels rapid production and adoption of advanced multimedia applications, and contributes to increased mobile and Wi-Fi traffic. By 2018, mobile video is projected to generate over 69 percent of mobile traffic by 2018, contributing to the 90 percent of total mobile data traffic accounted for by all cloud applications which include streaming audio, online gaming, social networking, web browsing and online storage.

In turn, the need for efficient bandwidth and network management drives 4G deployment and adoption worldwide. Japan and Korea are predicted to lead 4G deployment; Cisco estimates that 56 percent of Japan’s connections will be 4G by 2018, and 54 percent of Korea’s. North America is projected to have 51 percent of its mobile devices and connections with 4G capability by 2018, but it is expected to lead the world in its share of total global 4G connections.

Additionally, the marked growth of machine-to-machine (M2M) connections and wearable devices will also continue to drive mobile data traffic growth. Over the next five years, Cisco projects M2M and wearable connections will grow from 341 million to over 2 billion, and those will transition from predominantly 2G (71 percent) today toward 3G (51 percent) and 4G (14 percent) by 2018, as the chart below shows. For wearables, Cisco estimates that the number of devices will grow 8-fold by 2018, increasing from 22 to 177 million. Traffic from these devices is projected to grow an amazing 36-fold between 2013 and 2018, reaching 61 petabytes a month. Again, North America currently leads the world in this category, with 42 percent of the global share of wearables. North America is also slated to lead growth in this area, despite experiencing a decrease in relative share over the next five years as other regions adopt wearable device technology.  

The global growth in mobile connections, devices, and traffic, and the evolution and emergence of new technologies over the past year exemplify the strength and vitality of the digital economy worldwide. Cisco’s valuable work tracking these metrics provides a crucial resource that informs the decisions of carriers, vendors, innovators, investors, and policymakers alike. 

Clearly, Cisco’s latest report shows that North America leads the world in many growth categories. Although it is important to acknowledge this progress, it is imperative that policy-makers consider the implications of these findings. The report provides evidence of the exponential growth in data traffic, devices, applications, adoption of smart devices, and the accompanying demand for more spectrum. The North American region has by far the highest data use per month in the world, and the fastest growing number of devices with advanced computing and multimedia capabilities. Given Cisco’s projections, making more licensed and unlicensed spectrum available will be increasingly necessary.

The FCC has an important role to play in ensuring the continued growth and development of the mobile market. It is essential that the Commission not take for granted the way in which this progress has benefited consumers and fueled the development and deployment of new networks and technologies. Making more spectrum available for licensed and Wi-Fi offerings will help meet the constantly growing consumer demand for advanced services and devices demonstrated throughout Cisco’s report.

Successfully executing the upcoming incentive auction and framing forward-thinking broadband policy that reflects the robust and rapidly changing digital economy will be challenging. But approaching these proceedings with an understanding of the extent of mobile data growth and the resulting need for additional spectrum will be crucial to promoting future U.S. leadership in mobile broadband.

Cisco’s report is a valuable resource for all, and especially for communications policymakers.  

Getting the Lifeline Program on “Trac”: TracFone’s Request for Lifeline Program Reforms

On January 22, TracFone filed a petition for waiver of Lifeline program rules that it claims inhibit the Federal Communications Commission’s ability to ensure that carriers conduct thorough, accountable, and transparent eligibility determinations. And on January 31, the agency issued a notice soliciting comments on TracFone's petition.

Reforms that help ensure Lifeline subsidies are distributed only to eligible applicants, based on a proper application review process, will help achieve the commendable goals of the program. Unlike those parts of the USF program that distribute subsidies in a more indiscriminate fashion, like the high-cost fund, Lifeline provides targeted subsidies to those in need who meet income eligibility requirements. The Lifeline program is worthwhile, but it can only be sustained if it is administered efficiently and with minimal levels of fraud and abuse. That's why reforms like those proposed by TracFone are necessary to improve the Lifeline program and to maintain public confidence that Lifeline funds are not being wasted.

TracFone’s petition discusses several Lifeline program rules that should be reformed in order to increase transparency and efficiency in the eligibility review process. Specifically, TracFone asks the Commission to allow Eligible Telecommunications Carriers (“ETC”) to retain income-based and program-based eligibility documentation. The current rules require ETCs to conduct a review of subscriber eligibility, but the rules do not require proof that the review actually occurred, or of what evidence the review was based upon. In fact, the rules prohibit ETCs from retaining documentation used to determine a subscriber’s eligibility. As such, TracFone seems to have a point when it claims the rules provide no means by which the Commission or USAC can verify that ETCs have actually conducted a review, or that the review was based on the proper documentation to determine Lifeline eligibility.

By now, the Commission should be aware of its problematic rules which erect unnecessary barriers to efficient subscriber eligibility determinations. TracFone filed an Emergency Petition on May 30, 2012 asking the Commission to amend its rules to allow ETCs to retain program-based eligibility documentation. The Commission sought comment on TracFone’s petition, and all but one commenter supported the proposed amendment. The Commission has not acted on TracFone’s petition seeking to end the existing inconsistencies between the rules regarding review requirements and document retention, but it should. Doing so would further promote accountability and transparency in the Lifeline program eligibility determination process.

The Commission commendably has taken some positive steps toward decreasing fraud and abuse of the Lifeline program under the Lifeline Reform Order. The Commission developed the National Lifeline Accountability Database (“NLAD”), which will be available for ETCs to verify applicants’ Lifeline eligibility for Maryland on February 13, 2014 and for additional states on a rolling basis. This database will help identify duplicate claims for Lifeline service. But if the database fails to identify such instances, ETCs may have to initiate a redundant inquiry concerning an applicant’s eligibility, because the current rules prohibit ETCs from retaining eligibility documentation from the original application review process. As such, while the NLAD should constitute an improvement for the Lifeline program, the Commission needs to do more.

At the end of 2013, the FCC’s Office of the Managing Director announced that the universal service contribution factor for the first quarter of 2014 is 16.4%. This is even higher than the 15.6% contribution factor for the fourth quarter of 2013. In contrast, at the end of 2000, the contribution factor was not even 6%. In effect, the 16.4% fee constitutes a tax paid by every consumer of interstate and international telecommunications services, including the low-income persons the Lifeline program is designed to benefit. The dramatic increase in the size of the USF fund since 2000 – and the concomitant increase in the size of the USF fee – largely has been driven by the increase in the size of the high cost fund. As FSF’s Randolph May and Seth Cooper stated in their comments filed in August 2011 and June 2013, “the end game for the Commission's comprehensive USF reforms should be the eventual elimination, say, in ten years, of all high-cost fund subsidies." Then, the Commission should aim to limit USF support to targeted and explicit subsidy programs, such as Lifeline.

From its inception in 1985, the Lifeline program has provided much-needed resources for low-income persons. The program has helped narrow the connectivity gap between low-income and non-low income households. As Chairwoman Clyburn stated in her address to the New America Foundation on September 12, 2013, 80 percent of low-income households had telephone service in 1984, compared with 95 percent of non-low-income households. That 15 percent gap shrunk to approximately 4 percent in 2012. A well-run Lifeline program can meet its intended purpose of giving access to low-income consumers. This would mitigate the need for broader, more indiscriminate subsidies, such as the high-cost fund subsidies. However, positive aspects of the program, like many programs that provide government subsidies, can easily be overshadowed if the programs turn out to be riddled with waste, fraud, and abuse. The Lifeline program will suffer loss of public support unless the Commission continues to reform it.

While the Commission has taken positive steps to reduce abuse, there is still much work to be done to ensure that the Lifeline program is run efficiently and effectively if it is to fulfill its mission to give low-income Americans access to the vital communications tools of the digital age. That's why the proposals contained TracFone's latest petition, and similar ones, should be given prompt consideration by the Commission.  

Strong IP Protection Leads to Economic Growth and Innovation, Just as Our Founding Fathers Said – Part II

As I discussed in my last blog in this series, the Global Intellectual Property Center of the Chamber of Commerce held a conference last week to celebrate the launch of its Second Annual International IP Index, Charting the Course. The proposals included in the Index and in the presentations by conference panelists delivered the same unified message: Strong IP protection systems lead to economic growth and innovation.

Senator Orrin Hatch delivered a keynote presentation at the event. He focused on the importance of strong intellectual property protections like other panelists, but he was the only presenter to focus on the constitutional basis for intellectual property protection. Senator Hatch recognized that the strong IP system in the U.S., which leads the world in the latest Index, is firmly rooted in the beliefs of our Founding Fathers and is “woven throughout the fabric of our nation”:

Our Founding Fathers believed intellectual property to be so fundamental to America’s future prosperity that they explicitly granted Congress the constitutional authority to protect it … The fact is, strong intellectual property rights [are] a tool of economic growth, not an impediment. It is a simple truth – countries that strengthen their intellectual property rights regimes enjoy economic benefits. They attract more investment, more technology transfers, increased innovation, and, ultimately, more prosperity for their citizens. Yet, despite these fundamental truths, intellectual property protections around the globe are continually at risk.

Our Founding Fathers recognized the role that intellectual property protection would play in our future and they have been proven right. As our innovators continue to advance and compete globally, now, more than ever, the United States must heed the wisdom of our Founders and bring this lesson to the forefront of our trade policies. It is through strong protection of innovation that we developed as a nation, and it is through the protection of innovation that our nation will continue to thrive in the international arena.

While the value of strong IP protections may be gaining support in the U.S., there is still strong anti-IP sentiment both at home and abroad. Here in the U.S., some argue for weaker IP protections, and point to disruptive technologies which challenge traditional notions of content ownership and patentable innovation. These developments have indeed strained the existing IP framework, and action may be required to form a better IP framework for the digital age. The Index recognizes that the U.S. struggles in these areas, identifying issues like inconsistent applications of limitations and exceptions to copyrights and related rights and ambiguity concerning ISP obligation to respond to trademark holder notice of infringement as “key areas of weakness.”

Anti-IP sentiment is particularly strong abroad in many of the countries that ranked low on the GIPC’s Index. Those countries, like India and China, advocate for the free sharing of copyrightable or patentable works by arguing that doing so is for the “public good.” In fact, the opposite is true — IP protections create incentives for creation and innovation, which serve the public good. Elaine Wu, Attorney-Advisor at the U.S. Patent and Trademark Office and Michael Schlesinger, Counsel at the International Intellectual Property Alliance, particularly focused on the problem of anti-property rights rhetoric abroad. They recognized that government officials perpetuate this backwards perspective, because the voices of authors and inventors are not heard.

Anti-IP advocates should heed the message of Senator Hatch and recognize that strong IP rights established by the Founding Fathers have produced economic growth and innovation. Further, as FSF scholars have observed in Perspectives and blogs, James Madison’s theory that “the public good fully coincides … with the claims of individuals” should provide the foundation for IP protection frameworks. This statement from Federalist No. 43 expresses the idea that an IP system can serve the public good by meeting the public’s demand for information access, content sharing, and use of new inventions or products while also providing strong protection for authors’ and inventors’ rights.

In order to help other countries around the world improve their economies and the lives of their citizens, it is helpful to present facts and figures that demonstrate the positive effects of strong IP protection. And it is also important to recognize the constitutional roots of intellectual property protection. The Founding Fathers intended that one of the government’s primary purposes be to protect property rights. This protection for the works of authors and inventors has produced the positive economic impact discussed in the GIPC’s Index and by GIPC panelists.

As Senator Hatch urged, heeding the wisdom of our Founding Fathers by retaining a strong IP system will provide incentives for creation of all kinds of valuable works – ranging from literary works and music on the one hand to practical new products and services on the other. This, in turn, will fuel further innovation and economic development for generations to come.

Calling for Fast Action on FCC’s Wireless Infrastructure Proposal

Thanks to the recent holiday season, tablet devices saw continued, explosive growth. CNET reports nearly 77 million iPads, Kindles and other tablets shipped in the last quarter of 2013 alone. And the more than 217 million tablets that shipped in 2013 marked a more than 50 percent annual increase. These tablet numbers have significant implications for wireless. As Cisco predicted in its Global Mobile Data Traffic Forecast Update, 2012–2017, "[t]he amount of mobile data traffic generated by tablets in 2017 (1.3 exabytes per month) will be 1.5 times higher than the total amount of global mobile data traffic in 2012 (885 petabytes per month). Cisco forecasted that “[g]lobal mobile data traffic will increase 13-fold between 2012 and 2017.”

How will the U.S. economy meet the mobile data demand multiplier effects of tablets, smartphones, and the Internet-of-things? The answer to that question depends, in no small part, on adopting policies to reduce regulatory barriers to investment in new infrastructure needed to carry exponentially growing data traffic. 

In its Wireless Competition Reports, the FCC has identified local government permit processing as the significant regulatory constraint faced by wireless infrastructure providers that need to add or modify cell sites. Right now the FCC has prime opportunity to better ensure the future competitive standing of the U.S. economy and to promote welfare of American wireless consumers by reducing that constraint.

The FCC is taking public comments today on its rulemaking proposal to promote market investment in wireless broadband infrastructure. The Commission seeks to reduce the cost and delay to wireless infrastructure providers that results from both federal and local regulatory approval processes. Reducing those burdens and establishing clearer and more expeditious permitting processes would encourage more rapid and less expensive deployment of infrastructure technologies that support wireless broadband services. This would mean better service quality options for wireless services and, potentially, reduced prices.

Wireless infrastructure providers shoulder unnecessary environmental regulatory burdens in deploying distributed antenna systems (DAS), small cells, and temporary towers. Wisely, the FCC is seeking to reduce some of those burdens.

With regard to DAS or other small-scale wireless technologies that have little or no discernable environmental impact, the FCC should expedite its environmental review process. And temporary cell towers that involve little to no excavation or light and that are of limited height and duration deserve to be free from FCC pre-construction environmental notice requirements.

Section 706 of the Communications Act charges the FCC to “remove barriers to infrastructure investment.” Unnecessary environmental regulations regarding small-scale wireless technologies and temporary towers are precisely the kinds of barriers Congress tasked the Commission to remove. Here the Commission should grant the relief it has proposed – and do so on an accelerated basis.

Wireless infrastructure providers seeking to collocate antennas on existing cell sites or to construct new towers or base stations have also been mired in costly and lengthy processes at the local level. But the FCC is taking positive steps to address such problems. The Commission is now proposing to clarify the standards by which local governments process and approve collocation and siting applications. 

Section 6409(a)(1), enacted as part of the Spectrum Act, provides that a local government “may not deny, and shall approve,” a modification to an existing tower or base station that “does not substantially change” its physical dimensions. Collocating an additional antenna on an existing site typically results in little or no change. So the FCC should adopt a shorter clock for a local government to decide on whether to accept or reject an application. In particular, the Commission should reduce the 90-day period that the Wireless Bureau currently presumes to be a reasonable time to consider collocation applications. A 60- or 45-day window is time enough, given the nature of the applications. And even then a local government that claims it is unable to review a particular collocation application would have opportunity to rebut that presumption with case-specific evidence before a court of law.

There is evidence that local governments have delayed decision-making on collocation and new siting applications by claiming that applications are “incomplete.” In some instances, local governments have instead put off any decision by issuing repeated requests for extra information from wireless infrastructure providers. Current FCC rules toll the time period in which local governments must act on collocation or new siting applications if, within 30 days of the application’s filing, the local government provides notice that specific information is needed to complete the application. The Commission should shore up the current rules to prohibit administrative abuse of the applications process.

Among other things, the FCC should consider limiting the tolling of the timeframe for local government action on applications to one request for specific, additional information. Suppose a wireless infrastructure provider offers information in response to a local government request but the local government again maintains the application is incomplete. The local government could simply deny the application, within the specified time period, on that basis. A court of law could then consider whether the application is complete or the local government acted arbitrarily. The FCC could provide that a judicial finding of arbitrary denial of a collocation or new siting application involving application completion results in such an application being deemed granted by operation of law.

A “deemed granted” remedy would finally put teeth to the FCC's rules for timely decisionmaking on collocation and new site applications. Indeed, the Commission should also spell out that failure of local governments to act on collocation or new siting applications within specified timeframes should result in applications being deemed granted by operation of law. Such finality would effectively counteract any incentives for local governments to put off having to decide whether to accept or reject applications.

In addition to addressing local government obstinacy, a “deemed granted” remedy could also avoid lengthy and equally expensive lawsuits. Litigation over individual wireless tower siting applications ranges from several months to a handful of years to resolve. In the meantime, financial resources that could be going into infrastructure instead go to lawyers, consultants, and others involved in the litigation. And a lack of new wireless infrastructure leaves consumers without upgraded wireless broadband services.

By clarifying and tightening its procedural rules regarding collocation and new siting applications, the FCC can tackle costly administrative delay problems. At the same time, it can leave to local governments the authority to decide whether or not such applications satisfy substantive standards.

Building and upgrading thousands of more wireless sites will be critical to supporting the demands of wireless broadband consumers in the very near future. With its proposed rulemaking, the FCC now has an excellent opportunity to reduce burdens resulting from unnecessary environmental regulations. And the Commission is in prime position to reduce administrative delays and legal costs stemming from collocation and new cell siting permitting processes.

The FCC should follow through on its wireless infrastructure rulemaking proposal, and do so fast.