Thursday, March 30, 2017

House Judiciary Committee Passes Bill to Restructure Copyright Office

On March 29, the U.S. House Judiciary Committee passed H.R. 1695, the Register of Copyrights Selection and Accountability Act of 2017. The Committee's vote is a positive step toward modernizing the Copyright Office. H.R. 1695 would bring needed restructuring to the Office by making the Register of Copyrights appointed by the President – rather than by the Librarian of Congress – and subject to Senate confirmation.

Discussing H.R. 1695 in a March 23 Media Advisory, Free State Foundation President Randolph J. May stated that the adoption of such legislation "will provide the Office with the autonomy that is needed to overcoming administrative and technological obstacles that now keep the Office from carrying out its key registration and recordation functions as efficiently and effectively as it should." FSF President May and I further described the need for Copyright Office modernization and the economic benefits of updating its administrative functions in a January 31 letter to the Committee.

H.R. 1695, which is sponsored by Chairman Bob Goodlatte and Ranking Member John Conyers, has strong bipartisan backing. In passing H.R. 1695, the Committee amended the bill to establish a selection committee comprised of Congressional leaders and the Librarian of Congress to recommend a slate of three or more potential nominees for Register to the President. The Committee also amended the bill to provide that the Register can be removed only for cause. These amendments are compatible with Copyright Office's status as a legislative agency, and also consistent with H.R. 1695's overall purpose in restructuring the Office to give it increased institutional autonomy.

Having been approved by the Committee, the Register of Copyrights Selection and Accountability Act of 2017 will hopefully receive further timely consideration in the House. 

Five Reasons Why the FCC Should End Its BDS Rate-Control Proceeding

The FCC's rate regulation proceeding for business data services (BDS), a source of special interest pleading for a decade, already has caused significant harm by its seemingly unending life. The BDS market is fast changing and now competitive. New rate controls on these broadband services would harm the development of further competition and undermine investment in new technologies.
The Commission should at long last close its wayward BDS proceeding.
BDS services – also called special access services – use dedicated broadband network facilities to deliver high volumes of data, usually with performance quality guarantees. Such services are typically used by business enterprises, not residential consumers. Often, BDS providers and business customers negotiate over prices and other terms of service.
Here are five reasons why new FCC rate controls on BDS providers would be bad policy and why the Commission should close its BDS proceeding:
1. Competition in the BDS market makes new rate controls unjustifiable. Encouraged by a series of FCC forbearance orders that exempted advanced BDS technologies like Ethernet from legacy regulations, incumbent BDS providers have made significant investments in BDS network upgrades. Cable operators have entered the market, gained significant market share, and compete effectively with incumbent BDS providers. Non-cable competitors also provide BDS services. Not surprisingly, the Commission has made no findings of market power abuse that would provide analytic support for rate controls—a particularly intrusive form of regulation. And while certain specific locations may be less competitive than others, as competition continues to develop more ubiquitously, it would be inordinately costly and administratively infeasible to regulate rates on a building-by-building basis.               
2. The BDS proceeding is mired in special interest pleading. Continuous lobbying by certain mostly non-facilities-based BDS competitors spurred and sustains the Commission's ongoing dalliance with possible new rate controls. Special interest pleaders seek regulation-induced price cuts on wholesale access to their market rivals' network facilities for resale to business customers. The Commission, if it values competitive neutrality and institutional integrity, should not needlessly give special pleaders opportunity to obtain rent-seeking privileges at the expense of their market rivals. 
3. New rate controls will discourage competitors from investing in their own networks. When BDS competitors are able to lease access to their rivals' facilities at below-market rates mandated by regulators, such competitors are discouraged from investing in their own networks. Rate controls thus threaten to induce scarcities in the supply of advanced network infrastructure and create artificially high prices. 
4. New rate controls will reduce BDS provider investment in fiber broadband network upgrades.  By requiring BDS providers to give market rivals access to their network facilities at artificially low prices, rate-regulated providers will have reduced ability to recover costs. With lower returns, such BDS providers will have fewer resources to invest in fiber and other network upgrades that would better serve customers and provide critical backhaul support for 5G wireless deployments. 
5. The BDS competitive landscape is advancing too quickly for the FCC even to gather and assess up-to-date relevant data. With new entrants, new technologies, and new deployments, the BDS market has changed significantly over the decade-plus lifespan of the Commission's proceeding.  And the BDS market will continue to change. The Commission will be unable to maintain up-to-date comprehensive BDS data that reflects actual competitive realities. Its prior massive burdensome data collection effort required incumbent and competing cable BDS providers to submit enormous amounts of specific proprietary data concerning facilities, locations, and the like – for 2013. That data is already becoming outdated, and will surely become more so even if the Commission decides to impose new rate controls. 
The Commission should not pursue new rate controls for BDS providers. Instead, it should let market competition, innovation, and investment continue unimpeded. The BDS proceeding has dragged on far too long. It's time for the Commission to end it.

Prior FSF publications on the FCC's BDS rate-control proceeding:
Seth L. Cooper, "FCC Should Finally Close its Proceeding on Business Data Services," FSF Blog (March 22, 2017).
Seth L. Cooper, "Proposed BDS Rate Controls Are Anti-Investment, Arbitrary, and Fact-Challenged, "Perspectives from FSF Scholars, Vol. 11, No. 40 (November 14, 2016).
Reply Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (August 9, 2016).
Randolph J. May and Seth L. Cooper, "The FCC's Special Access Proposal Is Infected With Special Pleading," Perspectives from FSF Scholars, Vol. 11, No. 26 (July 15, 2016).
Seth L. Cooper, “FCC's New Regulations Threaten Broadband Investment,” The Hill (October 17, 2016).
Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (June 28, 2016).
Michael J. Horney, "The FCC Cannot Proceed in the BDS Proceeding with a Flawed Analysis," Perspectives from FSF Scholars, Vol. 11, No. 17 (June 6, 2016). 
Randolph J. May, "The FCC's Flawed Understanding of Competition," Real Clear Markets (March 11, 2016).
Randolph J. May, "Special Access: A Special FCC Debacle in the Making," FSF Blog (December 17, 2013).
Seth L. Cooper, "FCC Inviting An Especially Big Mess On Special Access," FSF Blog (October 31, 2012).

Tuesday, March 28, 2017

House Votes to Repeal FCC's Problem-Riddled Privacy Rules

The U.S. House of Representatives approved a resolution to repeal the FCC's restrictive and uneven broadband privacy rules. House Resolution 230 is based on the Congressional Review Act (CRA), and sponsored by Rep. Mike Burgess. The Senate passed a similar resolution on March 23. Presidential approval of the repeal is now expected.
The FCC's broadband privacy rules saddled broadband Internet service providers (ISPs) – but not other online service providers that collect consumer information – with intrusive requirements. The Commission provided no justification for such lopsided rules and such restrictions would have had the effect of reducing available choices for consumers. Significant policy flaws with the Commission's privacy rules were addressed in further detail in several prior Free State Foundation publications listed below. In addition, those rules were legally suspect. The Commission's primary source of claimed authority for adopting them – Section 622 – specifically addressed subscriber information collected exclusively by telephone service providers.

Professor Daniel Lyons, a member of FSF's Board of Academic Advisors, also offered an excellent analysis of the FCC's problematic rules and the way forward in his Perspectives from FSF Scholars paper, "The Right Way to Protect Privacy Throughout the Internet Ecosystem."
Once the Commission's broadband privacy rules are repealed, the agency can adopt a more sensible set of privacy standards that mirror those applied by the Federal Trade Commission. In today's convergent digital marketplace, there is no reason to think that consumers want different online privacy standards to apply to the collection and use of personal information depending simply on whether the service provider is an ISP or "edge" provider. As a follow-up to the CRA repeal of the FCC's broadband privacy rules, Congress should consider legislation to establish the FTC as the common enforcer of a common set of privacy standards for all online service providers.

Prior FSF publications on FCC privacy policy:

Daniel A. Lyons, "The Right Way to Protect Privacy Throughout the Internet Ecosystem," Perspectives from FSF Scholars, Vol. 12, No. 10 (March 24, 2017)
Reply Comments of the Free State Foundation – Petitions for Reconsideration, Protecting the Privacy of Customers of Broadband And Other Telecommunications Services (March 16, 2017).

Michael J. Horney, "FCC Privacy Rules Would Harm Consumers by Creating Barriers for ISP Advertising," Perspectives from FSF Scholars, Vol. 11, No. 28 (August 3, 2016).
Comments of the Free State Foundation, Regarding Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, (May 31, 2016).

Seth L. Cooper, "FCC's Internet Privacy Power Grab Unsupported by Law," FSF Blog (October 23, 2015).

Randolph J. May and Seth L. Cooper, "Any New Privacy Regime Should Mean An End to FCC Privacy Powers," Perspectives from FSF Scholars, Vol. 7, No. 9 (April 5, 2012).

New FTC Task Force Will Focus on Occupational Licensing

The Acting Chair of the Federal Trade Commission (FTC), Maureen Ohlhausen, says that occupational licenses are a “particularly egregious example of this erosion in economic liberty” and she recently implemented a task force at the Commission to help reduce the burden imposed by occupational licenses.
In a speech at the George Mason Law Review’s 20th Annual Antitrust Symposium, FTC Acting Chair Ohlhausen discussed how unnecessary occupational licenses can have a negative effect on consumers:
The public safety and health rationale for regulating many of those occupations ranges from dubious to ridiculous. Consumers can, and do, easily evaluate the quality of interior designers, make-up artists, hair-braiders, and others. I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows. Market dynamics will naturally weed out those who provide a poor service, without danger to the public. For many other occupations, the costs of added regulation limit the number of providers and drive up prices. These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services.  
In response to the proliferation of unnecessary occupational licenses that has occurred throughout the United States, Acting Chair Ohlhausen created the Economic Liberty Task Force with a particular focus on occupational licensing regulations. The Task Force will work with Governors and state and local leaders to analyze how such regulations impact competition and consumer choice.
In a July 2015 blog, I specifically discussed how Maryland’s occupational licensing regime is harming poor people in two ways. First, the licenses restrict labor competition, harming poor entrepreneurs who cannot afford the mandated training and licensing fees. Second, the reduction in labor competition increases prices that disproportionately harm the poorest consumers. Of course, occupational licensing harms all consumers with higher prices and lower productivity because the barriers to entry created by licenses discourage competition from outside entrepreneurs.
Moreover, the Obama Administration published a July 2015 report entitled “Occupational Licensing: A Framework for Policymakers” which said that “by one estimate, licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars.”
Thank you to FTC Acting Chair Maureen Ohlhausen for creating the Economic Liberty Task Force. Hopefully, Maryland and other states will work with the Task Force to reduce the overall burden of occupational licensing.

Thursday, March 23, 2017

Senate Passes Resolution to Repeal FCC's Problematic Privacy Rules

The U.S. Senate has now passed legislation to repeal the FCC’s flawed broadband privacy rules. S.J.R. 34 is based on the Congressional Review Act, and sponsored by Sen. Jeff Flake. The Senate’s passage of S.J.R. 34 is a welcome step toward establishing a single set of sound standards for online privacy that would apply to all online service providers.
The Commission arbitrarily imposed its intrusive privacy rules on broadband Internet broadband service providers, but not on other online service providers that collect personal information. Its rules include a problematic opt-in mandate only for ISPs seeking access to consumer information. That onerous opt-in mandate will confuse consumers and restrict the choices and amount of information that would otherwise be made available to them. Under the rules, the Commission also retains authority to review discounts and other so-called “pay for privacy” offers – but with no clear set of factors to guide its review. Such an open-ended review authority will also discourage new offerings that could benefit consumers. And the Commission’s broadband privacy rules far exceed the agency’s lawful authority under Section 222.  
These significant policy and legal shortcomings of the FCC’s broadband privacy rules were described more extensively in Reply Comments submitted to the Commission by Free State President Randolph May and I on March 16. Our Reply Comments were filed in response to Petitions for Reconsideration of the Broadband Privacy Order (2016) – which the Commission is now evaluating. Of course, reconsideration of the Order by the Commission would be a moot point if S.J.R. 34 is passed by Congress and signed by the President.

Hopefully, the U.S. House of Representatives will follow the Senate’s lead and promptly consider repealing the FCC’s broadband privacy rules under the CRA. Repeal of the FCC’s broadband privacy rules is a necessary first step toward establishing a sound policy for online privacy. Ultimately, the FTC should become the common enforcer of online privacy, applying the same basic standards to all online service providers.  

Free Market Orientation Spurs Unlimited Data Plans

Unlimited data plans are back with all four major mobile providers in the United States. In my view, it is no coincidence that announcements regarding such unlimited plans were made shortly after FCC Chairman Ajit Pai indicated his disposition for relying on free market-oriented communications policy approaches.
On February 3, 2017, Chairman Pai announced that the FCC would close its investigation into mobile providers’ free data offerings. On February 12, 2017, Verizon announced that it was launching a number of unlimited data plans. A day later, T-Mobile updated its existing unlimited plan to include high-definition video streaming. A day after T-Mobile’s announcement, Sprint announced very similar updates to its existing unlimited plan. And then two days after Sprint’s updates, AT&T expanded the reach of its unlimited data plan to all consumers, which was previously available to only U-Verse and DirecTV subscribers.
During his keynote speech at the Mobile World Congress on February 28, 2017, Chairman Pai summed up the mobile market’s response to his decision to end the FCC’s investigation:
Earlier this month, for example, we ended the FCC’s investigation into so-called “zero-rating,” or free data offerings. Free data plans have proven to be popular among consumers, particularly those with low incomes, because they allow consumers to enjoy content without data limits or charges. They have also enhanced competition. Nonetheless, the FCC had put these plans under the regulatory microscope. It claimed that they were anti-competitive, would lead to the end of unlimited data plans, or otherwise limit online access. But the truth is that consumers like getting something for free, and they want their providers to compete by introducing innovative offerings. Our recent decision simply respected consumers’ preference.
The best evidence of the wisdom of our new approach is what happened afterward. In the days following our decision, all four national wireless providers in the United States announced new unlimited data plans or expanded their existing ones. Consumers are now benefiting from these offers—offers made possible by a competitive marketplace. And remember: Preemptive government regulation did not produce that result. The free market did.
Some critics of Chairman Pai’s policies say that the recent announcements regarding unlimited data plans are not related to the FCC’s decision to end the investigation of free data programs. Instead, they claim that competition is responsible for the emergence of these plans. But I think it is both.
In this instance, the emergence of free data programs and unlimited data plans are direct results of dynamic competition and permissionless innovation. Unlimited data plans are only profitable when mobile providers are able to effectively manage their networks and efficiently deliver data to consumers. The reestablishment of unlimited data plans over the last month is an indication that mobile providers recognize that the FCC, under Chairman Pai’s leadership, will not be monitoring and second-guessing every decision they make experimenting with new business models as they seek to be responsive to consumer demands.
The use of unlimited data plans will increase significantly the amount of data consumers use. And while mobile providers are updating their networks constantly to improve the speeds and quality of connections, the emergence of these plans does not improve automatically the capacity of mobile networks. So as long as there is a shortage between the amount of data consumers demand and the amount of spectrum allocated for private use, mobile providers will need to engage in network management techniques in order to allocate data efficiently to all consumers. (See this February 2017 blog regarding the projected growth in consumer demand and mobile data traffic.)
Unfortunately, network management practices could violate the Network Neutrality rules established in the Open Internet Order. Before the adoption of the Open Internet Order and soon thereafter when the Order was under appeal, the uncertainty of its imposition discouraged broadband providers from making major network investments. Chairman Pai opposed the adoption of the Open Internet Order while he was Commissioner in February 2015 and recently reiterated that the Order had a direct negative impact on broadband capital investment. Preemptive regulations often have unintended consequences that increase the costs of performing day-to-day business practices, like network management. While the Open Internet Order includes an allowance of “reasonable network management,” if the FCC construes the scope of its review for reasonableness too broadly, and divorces from marketplace realities, then innovative business models like unlimited data plans will be chilled.
But despite that the Open Internet Order is still in effect, Chairman Pai’s statements and actions have created more certainty among broadband providers that the new Commission will not burden ISPs unnecessarily with more costly regulations. As a result, providers are willing to bear the costs of network management that come with offering unlimited data plans because they are less concerned about being hit with enforcement actions for performing such day-to-day business practices.
Free data offerings and unlimited data plans give consumers multiple cost-effective options for accessing more mobile data and online content. But these innovative offerings would not have emerged if not for permissionless innovation and dynamic competition in the mobile broadband market. Of course, the Open Internet Order still needs to be curtailed substantially to avoid further uncertainty and to lessen the regulatory costs that may discourage providers from creating new and innovative services. Also, regulatory barriers at the state and local levels should be reduced or eliminated to encourage additional broadband investment.
All that said, in my view, it is no coincidence that mobile broadband providers now are willing to offer consumers unlimited data plans as Chairman Pai leads the new FCC toward a free market-oriented approach to communications policy.

Wednesday, March 22, 2017

FCC Should Finally Close its Proceeding on Business Data Services

In late January, FCC Chairman Ajit Pai wisely withdrew the Commission’s proposal for subjecting certain business data services (BDS) to onerous price controls. As described in my Perspectives from FSF Scholars paper, “Proposed BDS Rate Controls Are Anti-Investment, Arbitrary, and Fact-Challenged,” the misguided proposal would have diverted financial resources of regulated BDS providers away from construction of new fiber facilities. Although withdrawal of the BDS price control proposal is highly commendable, the BDS proceeding remains open. A problematic recent order by the FCC’s Wireline Competition Bureau points to the need for the Commission to finally close its BDS dockets.
The March 15 order granted California Public Utility Commission (PUC) staff’s significantly-belated request for access to confidential proprietary data collected by the FCC in the proceeding. Previously, the FCC required BDS providers turn over massive amounts of information regarding their service locations and facilities. But now that the rate control proposal has been withdrawn and no new rounds of comments are scheduled, the FCC should at long last close the BDS proceeding. At the very least, the confidential data access request should be held in abeyance until such time as the FCC makes a more definitive decision about what to do next regarding BDS.

The request for confidential data is rather dubious given that the California PUC never requested access to that information during the proceeding’s comment periods. Nor did the California PUC file public comments with the FCC. Why seek such data now? The California PUC staff request for access to confidential BDS data is also odd given that California Public Utilities Code Section 710 provides that the state regulatory agency “shall not exercise regulatory jurisdiction or control over Voice over Internet Protocol and Internet Protocol enabled services,” except in certain limited circumstances.
FCC closure of its BDS proceeding will prevent future dubious requests from other parties for access to sensitive proprietary data. FSF President Randolph May and I have previously described how “The FCC’s Special Access Proposal Is Infected With Special Pleading.” The FCC should not expand opportunities for special pleading by prolonging other parties’ ability to access BDS providers’ confidential information.

Moreover, closure of the BDS dockets constitutes the soundest policy approach to promoting investment and competition in the market. As the Free State Foundation’s comments in the BDS proceeding explained:
Given market advancements and ongoing competitive entry and investment, the wisest and preferred course of action is for the Commission to refrain from imposing new regulatory burdens on BDS services. Cable operators are investing significant amounts of private capital to compete in the BDS marketplace. Such investments pose far better potential for enhancing BDS competition and consumer welfare than new regulation.

Prior FSF writings on the FCC's BDS regulatory proceeding:
Seth L. Cooper, “Proposed BDS Rate Controls Are Anti-Investment, Arbitrary, and Fact-Challenged,” Perspectives from FSF Scholars, Vol. 11, No. 40 (November 14, 2016). 
Reply Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (August 9, 2016). 
Randolph J. May and Seth L. Cooper, “The FCC’s Special Access Proposal Is Infected With Special Pleading,” Perspectives from FSF Scholars, Vol. 11, No. 26 (July 15, 2016). 
Comments of the Free State Foundation, Regarding Business Data Services in an Internet Protocol Environment (June 28, 2016).

Thursday, March 16, 2017

Open Letter Supports Strong Copyright System

On March 14, 2017, the Copyright Alliance and CreativeFuture sent an open letter to elected officials expressing the intrinsic need for a strong copyright system that promotes and rewards creativity. The letter has been signed by over 70,000 creators, organizations, and individuals who support a strong copyright system that protects the rights of creators and entrepreneurs.
The letter asserts that freedom of speech and freedom of expression are fundamental to strong intellectual property rights, stating that efforts to diminish the rights of creators in the name of “free speech” are cynical and dishonest. While the letter clearly recognizes that the Internet has launched many creative platforms and has eased the distribution of copyrighted works, it has also been used to harm creativity with acts of online piracy. The letter welcomes enforcement of existing copyright laws and voluntary industry initiatives to help combat online piracy, but unfortunately, some organizations have tried to block these efforts in order to serve their own agendas.
Lastly, the letter states: “The creative community stands united in support of a copyright system that will continue to make the United States the global leader in the creative arts and the global paradigm for free expression.” With core copyright industries adding more than $1.2 trillion in economic activity to the U.S. GDP in 2016, it is clear that a strong copyright system encourages investment and innovation in the economy, ultimately benefiting consumers who value creative content.
Copyright protection is a bipartisan issue. Elected officials from both parties should work to preserve the creative economy and diminish online activities that harm creativity.

Monday, March 13, 2017

Verizon Now Offering Zero-Rated FIOS Content

Last week, Verizon announced a new pro-consumer offering which would allow customers to stream content from the Verizon FIOS application without it counting towards their monthly data caps. Verizon’s offering is a direct response to AT&T’s zero-rated plan offering DIRECTV content and T-Mobile’s Binge On plan, which offers a variety of video applications that can be streamed without counting towards the consumer's mobile data.
With video content comprising 60% of all mobile data traffic in the United States, the emergence of these consumer-friendly offerings demonstrate a dynamically competitive mobile broadband market. Moreover, FCC Chairman Ajit Pai recently dropped the Commission’s investigation of zero-rated programs, encouraging more competition among mobile providers to offer these pro-consumer plans.

Saturday, March 11, 2017

Consolidated/FairPoint Merger Merits Proper and Prompt Review in States

The proposed merger between Consolidated Communications and FairPoint Communications, if approved by regulators, would likely enhance competition for broadband services. So far, the transaction has sailed through federal agency reviews. Yet the proposed Consolidated/FairPoint merger still faces parallel reviews by several state public utility commissions (PUCs). Surely, the transaction deserves state PUC reviews that are timely and focused on likely competitive effects.
In a transaction worth $1.5 billion, Consolidated Communications and FairPoint Communications would combine their fiber networks, thereby expanding their Ethernet footprint and serving multi-location enterprise broadband customers as well as wireless backhaul customers with faster speeds and better reliability. The proposed Consolidated/FairPoint merger poses no apparent downside for residential or business customers of voice or broadband services. The two providers do not compete head-to-head anywhere. And neither party to the merger ranked in the top 10 for Ethernet ports in the U.S. at mid-year 2016.
Not surprisingly, the transaction speedily received antitrust clearance by the Federal Trade Commission. A review by the Federal Communications Commission, which elicited only one public comment, will likely be concluded in short order. However, the proposed Consolidated/FairPoint must still undergo a multiplicity of regulatory reviews by state PUCs. It has been reported that the transaction must receive approval in 17 states.
Mergers that are pro-competitive on their face should not be slowed down by numerous and overlapping reviews by federal and state regulatory agencies. More particularly, parallel state PUC reviews of merging telecommunications providers ought to consider only merger-specific competitive effects and be conducted in a timely manner. State PUC merger reviews that fail to follow such a course are highly problematic. As I explained in a March 6 blog post regarding the proposed CenturyLink/Level 3 merger:
State PUC regulators can succumb in merger reviews to many of the temptations that have plagued FCC reviews. Regulators can become preoccupied with non-merger specific issues and use their leverage to impose regulatory conditions on their approval that are unrelated to the transaction or perhaps more fit for industry-wide rulemakings.

Going forward, state PUCs reviewing the proposed Consolidated/FairPoint merger should consider only the transaction’s competitive impact. State PUCs should not impose unnecessary conditions and they should conclude their reviews promptly.