FSF Files Reply Comments to Restore Internet Freedom

Today, the Free State Foundation submitted its reply comments for the Restoring Internet Freedom proceeding, debunking many claims made by pro-regulatory organizations in the initial round of comments. In our reply comments, we make the following arguments: the Title II Order had a negative impact on broadband investment, broadband services are functionally integrated Title I “information services,” the broadband market is comprised of dynamic and intermodal competition, broadband privacy jurisdiction should return to the FTC, and the FCC should implement a cost-benefit analysis.

John Eggerton posted a nice summary of our reply comments on Multichannel News. Please share!

"The Next Google"

In advance of the filing of reply comments in the FCC’s Restoring Internet Freedom proceeding (a.k.a. the “net neutrality proceeding”), I’ve been thinking about the “next Google.”

You know the one to which I’m referring. I’ve been in countless debates regarding net neutrality regulation over the past decade when a Google representative – arguing in favor of stringent net neutrality regulation – has said: “We’re not concerned about Google because we’re big enough to protect ourself. We’re concerned about the next Google.”

Other pro-net neutrality advocates, mimicking Google, often invoke the “next Google” as justification for their pro-regulatory position. For example, in a blog published on April 29, 2014, then-FCC Chairman Tom Wheeler said he would impose Title II public utility regulation to protect the “next Google.”

Even President Obama adopted the meme in August 2014, declaring: “[T]he position of my administration, as well as a lot of the companies here, is that you don’t want to start getting a differentiation in how accessible the Internet is to different users. You want to leave it open so the next Google and the next Facebook can succeed.”

Worrying about the next Google or the next Facebook got me thinking about an article published in the Wall Street Journal on August 9, 2017, titled, “The New Copycats: How Facebook Squashes Competition from Startups.” Read it yourself if you want a real basis for worrying about the “next Google” or “next Facebook.”

Here are just a couple of excerpts:

“Silicon Valley is dominated by a few titans, a development that’s fundamentally altering the nature of America’s startup culture. While it’s as easy as ever to start a company, it is getting harder to grow fast enough and big enough to avoid getting either acquired or squashed by one of the behemoths.”

“The deep pockets of giants such as Facebook, Alphabet Inc.’s’ Google, Apple Inc. and Amazon make it increasingly difficult for startups to compete and stay independent. The four firms have a combined market capitalization of almost $2.5 trillion, a rough equivalent to the annual gross domestic product of France.”

The article details the strategies and tactics employed by Facebook, Google, and the other Silicon Valley behemoths (to stick with the WSJ’s terminology) to either squash any emerging rivals, or to buy them out. Hence, if you are truly concerned about the “next Google” or the “next Facebook,” what you should worry about – much more than net neutrality – is how Google and Facebook use their undisputed market dominance, along with their “squash or acquire” tactics, to block emerging competitive threats from gaining a real foothold.

Scott Cleland, who closely tracks the financial results and market activities of the Silicon Valley titans, reported in a recent blog that public data show that Google, Amazon, and Facebook have acquired approximately 350 potential competitors to “ensure no innovative ‘garage startup’ has a plausible competitive opportunity to seriously threaten the Internet cartel’s dominance.” And he concluded:

The most recent data from second quarter 2017 earnings show that Google and Facebook have a digital advertising cartel that commands 96% of all digital advertising growth. The analysis shows that it isn’t broadband providers that content providers must fear will engage in anti-competitive or discriminatory behavior, it is the Google-Facebook ad cartel.”

Not surprisingly, there are increasing calls for antitrust or other government authorities to investigate and sanction – or even regulate as public utilities – Google and Facebook, and perhaps other Internet behemoths (to stick with the WSJ’s terminology.) I’m not advocating such action here. In my view, in a dynamic market environment such as that presented by the present Internet ecosystem, caution is warranted before either antitrust or regulatory remedies are imposed. The costs to innovation and investment to “de-FANG-ing” the Internet giants may well outweigh the benefits.

What I am actually advocating is this: The next time you hear the “next Google” invoked as a justification for imposing stringent, inflexible net neutrality regulation (whether by “Title II” or any other name), please take such ritual incantation with a big grain of salt.

Here is what I think that Google, Facebook, Amazon, and the other Silicon Valley giants really may be worried about. That absent rigid net neutrality anti-discrimination mandates, emerging competitors might have an opportunity to strike deals with Internet service providers that give them the opportunity to differentiate themselves with innovative market offerings that appeal to new consumer demands. Or that absent an absolute ban on paid prioritization, new entrants might have an opportunity to strike deals with Internet service providers that allow them more readily to offer innovative new applications. An absolute ban on paid prioritization may prohibit start-ups from giving assurances regarding the speed and reliability of proposed offerings that are necessary to attract investors and consumers.

If you really believe that Google is worried about the “next Google” not emerging, I’ve got a bridge I’d like to sell you at a bargain price. Don’t get me wrong: I’m not saying that Google should be worried about protecting the next Google – only that it’s fanciful to think that it is. When Google claims to be, that’s reason enough to question the validity of whatever proposition it’s peddling.

One final thought: Google – back when it truly was the “next Google” – emerged and grew to achieve market dominance at a time when no heavy-handed net neutrality regulations, much less Title II public utility regulations, were in place governing Internet service providers’ practices.

Verizon Gives Consumers More Options for Unlimited Data

Earlier this week, Verizon unveiled three new options for unlimited data plans: Go Unlimited, Beyond Unlimited, and Business Unlimited. Go Unlimited starts at $75 per month and video is “DVD-quality” – standard-definition on phones (480p) and high-definition (HD) on tablets (720p). Beyond Unlimited starts at $85 per month and supports HD for phones and tablets (720p for phones and 1080p for tablets). Go Unlimited and Beyond Unlimited both provide monthly discounts for each additional line, but the Business Unlimited plan gives customers flat monthly rates. Verizon is also introducing an unlimited option for customers on prepaid plans. (See the chart below.)

Some people are criticizing Verizon for limiting the video quality in some of the new plans, but Verizon is upfront and transparent about the details of each offering. In response to pro-regulatory advocates who state that Verizon’s new plans violate net neutrality principles, Free State Foundation President Randolph May stated:

"Whether the new plans violate 'net neutrality' depends of course on who defines how strictly and in what context the plans are offered. Aside from definitional constructs, I'd say that this type of differentiation is good for consumers, considered overall, and what is expected in a competitive marketplace. This is also a good example of why the FTC should handle these issues that really relate to how plans are marketed to consumers."

Many pro-regulatory advocates also have criticized mobile providers for offering free data services instead of offering unlimited data plans. But as I stated in a February 2017 blog, it was not until FCC Chairman Ajit Pai ended the investigation of free data services and established an environment of permissionless innovation that mobile providers were willing to offer unlimited data plans. Of course, with permissionless innovation in a dynamically competitive marketplace, Verizon has tripled its consumer-friendly options for unlimited data plans.

In general, more options for unlimited data plans, as well as free data services, give consumers the freedom to choose the option which best fits their preferences and cost allocations. This type of marketplace freedom spurs consumer demand for online content and encourages additional innovation and investment in broadband networks.

Maryland Could Be Future Hub of Data Economy

The Center for Data Innovation recently published a report entitled “The Best States for Data Innovation,” ranking the U.S. states on their ability to foster data innovation. The report also discusses how technological advancements, like faster computing, better algorithms, and more robust communication networks, have made it easier to collect, store, analyze, use, and disseminate data. These advancements have led to the emergence of the data economy: an economy in which success depends on how effectively firms can leverage data to generate insights and unlock value.

Maryland ranks third overall among the fifty states and leads in several categories. Given Maryland’s high ranking, if Governor Larry Hogan – with the General Assembly’s help –continues his efforts to improve Maryland’s business climate and fiscal situation, Maryland could become the national hub of the data economy.

Here are some notable categories where Maryland ranks in the top 10:

• Enabling technology platforms: Maryland ranks 1^st.

• Broadband access: Maryland ranks 3^rd.

• The availability of machine-readable data on public-transit systems: Maryland ranks 3^rd.

• Using data to develop human and business capital: Maryland ranks 6^th.

• Maryland has one of the highest percentages of science, technology, engineering, and math (STEM) degrees, ranking 7^th overall.

• Maryland has the highest number of jobs in the country related to statistics and the second highest number of jobs related to data-science.

• Maryland also was one of the first states to enact an open-data policy, allowing residents and businesses to have access to government datasets.

The report says: “The widespread adoption of data analytics and artificial intelligence is expected to contribute hundreds of billions of dollars to U.S. GDP in the coming years in sectors such as finance, transportation, and manufacturing, while unlocking new opportunities to improve outcomes in fields such as education and health care.” For Maryland, fostering data innovation will continue to attract more economic activity and job creation into the state, establishing Maryland as a hub of the data economy and providing innovations in medicine, education, and transportation for its residents.

As I stated in a July 2017 blog, Maryland has struggled with achieving fiscal responsibility in the past. But new leadership under Governor Hogan has started to reform Maryland’s business climate. If successful, efforts to eliminate unnecessary regulations and lower burdensome taxes and fees will attract jobs and economic activity into the state, increase Maryland’s tax base, and reduce its long-term debt. Alleviating the burden of long-term debt for residents and businesses will spur additional economic activity within Maryland and attract more data-intensive businesses that value Maryland’s emerging data economy.

As the report states:

While data-driven innovation is a global phenomenon, some regions are better poised to enjoy the resulting benefits because they have invested in and supported the conditions necessary to succeed in the data economy. This is also true within the United States, where some states are actively building the necessary foundation for a thriving data economy and others are lagging. Decisions made today that affect the extent to which a state participates in the data economy will have long-term implications for its future growth, as data plays an increasingly larger role in many different sectors across the economy. Early adopters will benefit more quickly from using data to address a multitude of challenges, and by positioning themselves at the forefront of data-driven innovation; they also will be able to grow and attract data-driven companies in a wide range of sectors that will make them the future hubs of the data economy.

The Center for Data Innovation’s report says that some of Maryland’s high-level statisticians and data-scientists may reside in the state for federal government employment. Nevertheless, with this valuable resident workforce, Maryland’s data economy already has an advantage over other states. Governor Hogan and the Maryland General Assembly should continue to reduce regulatory and tax barriers that could inhibit data-intensive businesses from locating in the state.

Governor Hogan and other state leaders should be commended for their efforts to foster data innovation within the state. State leaders should be proud, but not content, with Maryland’s 3^rd overall ranking. There is no reason why Maryland cannot become the United States’ future hub of the data economy.

Antitrust Provides a More Reasonable Framework for Net Neutrality Regulation

Yesterday, the Free State Foundation published a new Perspectives from FSF Scholars entitled “Antitrust Provides a More Reasonable Framework for Net Neutrality Regulation” by Joshua Wright, a member of FSF’s Board of Academic Advisors and a former Commissioner at the Federal Trade Commission. Professor Wright discusses why using antitrust, instead of Title II regulation, would provide sufficient regulatory oversight of broadband providers by examining vertical agreements on a case-by-case basis while also encouraging investment and fostering competition.

Congressman's Sensenbrenner's Music Licensing Bill

Last month, Congressman Jim Sensenbrenner introduced the Transparency in Music Licensing and Ownership Act, which would require the Register of Copyrights to establish and maintain a publicly-available searchable database for music and sound recordings. In introducing the bill, Congressman Sensenbrenner said: “Streamlining the music licensing process into one, easily accessible database is a straightforward way to help our nation’s business owners while ensuring copyright owners are fairly compensated for their work.”

Congressman Sensenbrenner deserves credit for highlighting a problem that deserves attention. But his proposed solution – a new database built, operated, maintained, and updated by the government – is not the right solution. Government agencies, including specifically the Copyright Office within the Library of Congress, do not have a good track record of building and maintaining databases. The private sector can do this job more effectively and efficiently.

Here’s the problem that Mr. Sensenbrenner’s bill is attempting to address. When a commercial business, like a radio station or restaurant, wants to play certain songs or recordings, it must receive a license from the copyright holder. But not infrequently businesses do not know who to pay for the license to play or perform the music. The lack of such information can facilitate copyright infringement, thus harming artists and discouraging musical creation. Whatever difficulty exists in obtaining accurate information regarding copyright ownership also may leave businesses open to lawsuits for infringement.

To address this information deficit problem, businesses should have access to an up-to-date, comprehensive, and easily searchable database of musical works and recordings. The objective of Rep. Sensenbrenner’s bill, to streamline the music licensing process by creating such a database, is a proper one. But his proposal is not the most efficient of effective way to establish and maintain such a database.

Rep. Sensenbrenner’s bill would require the Register of Copyrights to create and maintain the database. But the Copyright Office does not have a good record when it comes to performing the most basic tasks assigned to it in connection with carrying out its copyright responsibilities –  registering copyrights and recording copyright transfers. It doesn’t make sense that in today’s digital age, the Copyright Office’s records, under the control of the Librarian of Congress, are still searchable on microfiche. That’s one reason why, on numerous occasions, Free State Foundation scholars have contended the Copyright Office should be restructured to allow it to act independently of the Librarian of Congress. (See here, here and here.) Then, hopefully, it will be better able to perform the basic registration and recordation functions that are vital to enabling the negotiation and free market exchange of the rights to artists’ creations.

Even though the Transparency in Music Licensing and Ownership Act proposes to provide the Register of Copyrights with updated technology resources and additional staff to create and maintain the new musical works database, given the Copyright Office’s heretofore lackluster record regarding efforts to modernize its existing copyright-related databases and computer technology, and the government’s overall failures regarding the creation and operation of digital databases,  it would be preferable for the private sector to undertake the task. Recalling the difficulties with the Healthcare.gov database and website and various Veterans Administration databases and websites does not inspire confidence in the government’s abilities in this area.

So, give Congressman Sensenbrenner credit for highlighting a problem that needs to be addressed. But it needs to be addressed in the proper way – and that’s for a private sector entity with acknowledged expertise in the music licensing field to lead an effort to contract with an independent entity for the establishment and operation of a searchable database of all copyrighted musical works and sound recordings. This private sector solution almost certainly will be the most effective, efficient, sustainable, and least costly means to achieving Rep. Sensenbrenner’s objective.