Friday, October 31, 2014

Lifeline Service Should Not Be Subject to State 911 Fees

TracFone Wireless has just filed an “Emergency Petition for an Declaratory Ruling,” asking the FCC to declare that states may not impose 911 taxes and fees on low-income customers who receive TracFone’s Lifeline wireless service at no charge. TracFone wants the FCC to preempt enforcement of such state laws as inconsistent with the Constitution’s Supremacy Clause and the Communications Act.

I’ve argued, on both policy and legal grounds, against the notion that the Commission can or should preempt state bans on municipal provision of broadband services. But, with TracFone’s petition, the Commission has before it what appears to be a good candidate for preemption if it is looking for one.

Putting aside the legal question, which TracFone’s lawyers address in the petition, it seems to me a matter of common sense – or sound policy, if you prefer – that the FCC should not allow states to impose taxes or fees on no-charge Lifeline service that the FCC has sanctioned by rule for the purpose of promoting access to communications services for those who otherwise cannot afford service.

As readers of this space know, I am no fan of FCC regulations and programs that have outlived their usefulness or which no longer serve a purpose in today’s competitive communications environment. But for well over a decade I have been supportive of maintaining an effective, well-run Lifeline program as a safety net to help ensure access to communications services by low-income persons. (I’ve also urged that the FCC take measures to help ensure the program is run, to the extent possible, without fraud and abuse.) 

Here’s the problem: Under Commission rules, eligible carriers like TracFone and others receive $9.25 per month per enrolled Lifeline customer from the FCC’s Universal Service Fund as long as this full amount is passed along to Lifeline subscribers. TracFone provides its qualifying subscribers with no-charge monthly service. This includes a specified amount of airtime minutes. Now, two states, Alabama and Indiana, propose to impose 911 taxes or fees on the Lifeline service. In the case of Alabama, the tax is $1.75 per month. This tax obviously represents a large percentage (19%) of the Lifeline benefit valued at $9.25. While Indiana’s monthly fee of $.50 is less, it is not insignificant.

Imposing 911 taxes and fees on a service provided at no charge to low-income consumers under a federal program intended to enhance their access to communications services seems illogical. One way of the other, whether the state contemplates that the fee will be paid directly by the consumer or by the provider on the consumer’s behalf, the amount of funds available to support Lifeline services is diminished. It is even possible that imposition of such fees may cause providers like TracFone to cease providing Lifeline service in states that impose such fees. This would frustrate the purpose of the federal government’s Lifeline program.

Certainly, provision of E911 service is important and must be supported in one way or another. But the route followed by Alabama and Indiana does not seem like the proper way to go about it. In the interest of achieving the federal objective of the Lifeline program, it would seem to make sense for states to exempt Lifeline service subscribers from responsibility for payment of any 911 fees or taxes.

Unless Alabama and Indiana rescind their requirements for imposing 911 fees on Lifeline service, and other states forbear from adopting such fees, the Commission should take up TracFone’s petition and consider it with dispatch.

Thursday, October 30, 2014

Thanks – But Don’t Stop Now!

By Deborah Taylor Tate

A relatively small article which recently appeared under Communications Daily’s section entitled “Notebook” certainly deserves more ink and some applause.

As taxpayers, advocates, and attorneys, we often complain about the inefficiencies of government but rarely say “thank you” when someone – in this case, Diane Cornell, Special Counsel to the Chairman of the FCC – actually tackles the problem head on. With all that is before the Federal Communications Commission, it takes a truly dedicated public servant (and maybe a little bit of an “APA nerd”) to initiate and take on the thankless job of changing processes across all the various bureaus at the FCC that go unquestioned and thus unchanged for decades.

Around the year 2000, I did much the same thing at the state level as Chairman of the Tennessee Regulatory Authority cleaning out over 1,000 stagnant, moot, and often irrelevant dockets. Reviewing internal administrative processes, stale complaints, and thousands of pages of legal briefs is no fun. However, not doing it is a disservice to the public and the entities being regulated.

Over the past few months, Ms. Cornell established a “consent docket,” something I have been advocating for almost a decade. The numbers of closures and dismissals have been substantial – over 700 in several bureaus and a 26% reduction in the backlog in the Wireless Bureau alone. (Especially since the Wireless Bureau has some pretty daunting issues such as the upcoming spectrum auctions on its plate.)

However, the job is not done. There needs to be an established and regular “spring cleaning” which is not dependent on a single individual’s proactivity. Ms. Cornell will need to accomplish this by encouraging the Chairman and full Commission to adopt administrative processes that will become official and institutionalized. While the FCC will never be able to keep up with the speed of technology, at least it could become more efficient internally – sua sponte.

In addition to my congratulations, I am still hopeful that the FCC will accept another important recommendation: establish more pathways for formal mediation and alternative dispute resolution – recognized by courts and even other federal agencies as successful ways to streamline decision-making and reduce the cost and time of litigation and appeals.

Everyone wins, including the FCC.

Of course, the true efficiencies of the agency could be recognized if the FCC refrained from delving into issues, regulation, and rulemaking beyond its clear legal authority.

Ms. Cornell, the bureau chiefs, and the FCC staff should be thanked for spearheading this effort toward increased government efficiency throughout the agency. And, for realizing that sometimes some pretty good ideas can come from across the aisle.

New Study Shows Same Results Regarding Maryland’s Poor Business Tax Climate

The Tax Foundation released its 2015 State Business Tax Climate Index on Tuesday. Unfortunately, Maryland has not improved its ranking since the 2014 index came out. (See this press release.)
Maryland ranks 40th in overall business tax climate for the second year in a row. The index also ranks Maryland at 16th in corporate tax structure, 45th in individual income tax structure, 8th in sales tax structure, 41st in property tax structure, and 21st in unemployment insurance tax structure.
Free State Foundation scholars have written many times in the past, including several times this year, about how Maryland’s perennially high tax rates have led to businesses and residents moving out of the state (see here, here, and here). The Tax Foundation’s 2015 index provides additional evidence for why businesses might leave the state as Maryland’s neighboring states (Virginia, West Virginia, Delaware, and Pennsylvania) all rank higher. (See the chart below.)

Taken from a previous FSF blog:
“It is not just businesses possibly migrating into Virginia or other neighboring states that should be of concern. Businesses that remain in Maryland could be operating more efficiently if [tax rates] were lower.”
It is important that Maryland’s governor and legislators act to lower tax rates across the board. This would attract new businesses and encourage entrepreneurial activity and innovation – and serve to retain businesses that otherwise might move away from Maryland. These changes to the tax code would quickly improve Maryland’s business climate and, in doing so, stimulate more start-up businesses, skilled employees, investment, and consumer spending.

Wednesday, October 29, 2014

Title II Would Not Ban Paid Prioritization

Paid prioritization might be the most discussed topic in the Net Neutrality debate. The problem is that many of the people discussing it do not actually understand it. Paid prioritization is the act of edge providers paying Internet Service Providers (ISPs) for priority delivery over last-mile broadband networks. (For example, Netflix could pay Verizon a fee so high-definition video traffic is given a higher priority over other traffic on Verizon’s network.) However, there is no evidence that paid prioritization is occurring at this time.
Last week, FCC Commissioner Ajit Pai led the “Forum on Internet Regulation” at Texas A&M University’s Bush School of Government and Public Service. One of the panelists, Stewart Youngblood, an Ambassador at the Dallas Entrepreneur Center, said he primarily supports imposing Title II regulation on ISPs because Title II would ban paid prioritization. But this is not actually the case. I do not want to pick on Mr. Youngblood specifically because the view he expressed is a common misconception among Title II advocates. But I do wish to make a point so that this issue is better understood.
Daniel Lyons, a member of FSF’s Board of Academic Advisors, published a helpful article about this topic in July. The semantics of the issue come from Section 202 of Title II which prohibits common carrier telecommunications providers (as ISPs would be classified under Title II but currently are not) from engaging in “unreasonable discrimination.” While Mr. Youngblood and other Title II advocates almost certainly would describe paid prioritization as unreasonable discrimination, Professor Lyons argues that they should not do so:
[Section 202] does not require that the telecommunications provider offer only a single class of service to all people. Rather, it only prohibits discrimination among ‘like’ services – services that a customer may view as ‘functionally equivalent.’ In other words, we need to separate differentiation (offering different products at different prices) from discrimination (offering the same product at different prices).
Because priority delivery is a different product from traditional “best efforts” delivery, it can be provided under Title II so long as the price for such prioritization is the same for all edge providers choosing the same option. In his article, Professor Lyons makes an apt, easily understandable comparison to a modern-day common carrier: 
The Postal Service is required to offer first-class delivery to any interested shipper, at the same price. But this does not prohibit it from offering priority delivery or express mail at a premium to those shippers who need their packages delivered more quickly than traditional first-class mail would permit (or to charge less for those willing to accept longer delays).
Just as price differentiation is permitted for mail delivery services, it likely would be permitted under Title II for data delivery services, as long as each delivery service and corresponding price is the same for all takers of the service.
The price differentiation of delivery services allows for data to be delivered to the Internet users who value it the most. With or without Title II regulations, consumer welfare likely would increase if some edge providers offered some forms of paid prioritization that consumers value. At the moment, consumers who do not use applications that require low latency or high bandwidth such as Skype and Netflix, respectively, are subsidizing the consumers who do use them. This is because ISPs sometimes give priority to these types of applications as a means of network management in order to avoid congestion and ensure quality service to their subscribers. But since subscribers are not charged by per megabit use, the low-use subscribers generally are subsidizing the high-use subscribers. Therefore, if edge providers, whose content requires low latency or high bandwidth, paid for the priority delivery, the higher costs they impose could be levied on users of those applications, as opposed to ISPs levying the costs on all consumers.
If ISPs were classified as common carriers under Title II, paid prioritization presumably would not be considered “unreasonable discrimination” if the priority service were offered to all edge providers on the same terms. And more importantly, it is likely that, overall, consumers would benefit from such prioritization because ISPs would increase economic efficiency by responding to consumer demands through price differentiation.

Tuesday, October 21, 2014

Another Court Recognizes State Copyright Protections in Pre-72 Sound Recordings

It’s a basic premise of law that a person has a right to the fruits of his or her own labors. For sound recording authors and investors, royalty payments are the fruits they receive in exchange for licensing public performances of their sound recordings. Two new judicial rulings reflect this understanding in state copyright law. 
On October 14, a California trial court concluded – correctly – that state law protects public performance copyrights for sound recordings made prior to 1972. Less than a month ago, a similar ruling on state copyright protection in pre-1972 sound recordings was issued by a federal court in California. This double confirmation of state copyright protection will likely be persuasive in future court cases grappling with the unique treatment of pre-1972 sound recordings under federal and state laws.

In the Copyright Act of 1976, Congress largely preempted state copyright law. But Section 301(c) of the Act left state jurisdiction intact regarding rights in sound recordings fixed prior to February 15, 1972. California Civil Code § 980 declares that authors of original works have “exclusive ownership” in their pre-1972 sound recordings. The scope of that “exclusive ownership” in pre-1972 sound recordings is now the subject of federal and state court rulings in California.

At issue in both Flo & Eddie v. Sirius XM and in Capitol Records v. Sirius XM is transmission of songs recorded prior to 1972. Sirius XM is a popular, nationwide satellite radio service and a subscription-based Internet digital radio service. For several years, Sirius XM has played pre-1972 recordings without paying public performance royalties.
The September 22 decision of the U.S. District Court for the District of Central California in Flo & Eddie v. Sirius XM was the subject of my recent Perspectives from FSF Scholars paper. In “Court Ruling Reaffirming State Copyright Protections Should Prompt Congress to Consider RESPECT Act,” I described how the decision vindicates intellectual property (IP) rights by recognizing that pre-1972 sound recording owners are entitled to proceeds of their creative efforts and investments. By its plain reading of federal law and logical application of state law, the District Court ruled in Flo & Eddie v. Sirius XM that a public performance right was part of the ownership interest of sound recordings fixed before 1972. And I characterized the District Court’s ruling as persuasive authority for future cases.
Now, in Capitol Records v. Sirius XM, California Superior Court Judge Mary Strobel explained that “[w]hile a federal trial court opinion is not binding on this court, the court finds the logic applied in that order interpreting Civil Code § 980 to be persuasive.” Accordingly, “the legislature intended the only limitation on ownership rights of pre-1972 recordings to be the ‘cover’ exception. The court concludes that the exclusive ownership right in pre-1972 recordings includes a public performance right, as not specifically excluded.”
The California Superior Court’s ruling was issued in response to a Capitol Records’ motion for a jury instruction. No jury has yet been convened in the case. So the final outcome of Capitol Records v. Sirius XM is yet to be determined. But the California Superior Court’s ruling answers a critical question of law in the case. That is, state law copyright protections in pre-1972 sound recordings include the exclusive right of sound recording authors to publicly perform their recordings.