U.S. Should Reduce Tax Rates Across the Board

Today, the Tax Foundation published the 2017 International Tax Competitiveness Index, which finds that the United States ranks 30^th out of 35 OECD countries in tax competitiveness and tax neutrality. Specifically, the U.S. ranks 35^th in corporate taxes. Given that the U.S. has not reduced its federal corporate tax rate from 35% since the early 1990s, Congress should lower this rate as soon as possible to encourage additional economic activity.

The United States also ranks 29^th in property taxes, 25^th in individual taxes, and 33^rd in international tax rules. Although the U.S. does rank 4^th in consumption taxes, its unnecessarily high corporate rate harms its overall ranking. The combined U.S. corporate tax rate (including state and local corporate taxes) is 39%, which is significantly higher than the OECD average of 25%.

Congress and state and local policymakers should address this issue by reducing corporate rates and simplifying the U.S. tax code. The Index says that a simple, competitive, and neutral tax code contains low marginal tax rates with few economic distortions and “promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.” To avoid losing businesses and capital to countries with lower tax rates, the U.S. should reduce tax rates across the board.

FCC Approves CenturyLink/Level 3 Merger

Yesterday, the FCC issued a Memorandum Opinion and Order approving of the transfer of various licenses and authorizations from Level 3 Communications to CenturyLink, Inc. As FSF Scholars have explained in various blogs and Perspectives, merger reviews at the FCC often take too long and this one was no exception. However, this approved merger, valued at $34 billion, will enable CenturyLink/Level 3 to deliver pro-competitive benefits in the video and broadband markets.

It appears that some merger conditions were imposed but I will refrain from commenting on those until I have the chance to review them. For now, I will commend the Commission for its decision to approve this pro-consumer transaction. In his statement, Commissioner Brendan Carr said the merger will “promote the public interest and benefit consumers” by “allowing the merged firm to operate as a more efficient and stronger competitor against larger providers.”

For more on benefits of this merger, please read the following:

Seth Cooper, “CenturyLink/Level3 Merger Should Bring Pro-Competitive Public Benefits,” Perspectives from FSF Scholars, Vol.12, No. 3 (January 13, 2017).

Seth Cooper, “Focus on CenturyLink/Level 3 Merger Benefits Should Lead to Prompt Review in States,” FSF Blog (March 6, 2017).

Michael Horney, “FCC Should Complete CenturyLink-Level 3 Merger Review Soon,” FSF Blog (September 14, 2017).

Michael Horney, “California Public Utilities Commission Approves CenturyLink and Level 3 Merger,” FSF Blog (October 13, 2017). 

Randolph May, “CenturyLink Will Become More Heavily Business Focused,” FSF Blog (December 1, 2016).

The Case for Keeping VoIP Free from Legacy Regulation

Successful transitions to IP-based communications technologies depend on innovative services remaining unburdened by regulatory restrictions. Before the U.S. Court of Appeals for the Eighth Circuit is the question of whether VoIP services will remain largely free from state legacy regulation.

Back in May, the U.S. District Court for the District of Minnesota sensibly concluded that Charter’s Spectrum Voice – a VoIP offering – “engages in net protocol conversion, and that this feature renders it an ‘information service’ under applicable legal and administrative precedent.” Minnesota regulators appealed the decision in Charter Advanced Services (MN) v. Lange to the Eighth Circuit.

In a prior blog post, I described how the District Court’s reasoning bolsters the FCC’s Restoring Internet Freedom proposal to reclassify broadband Internet access services as “information services” under Title I of the Communications Act. As the District Court ruled, “transforming” functional capabilities bring an offering within the scope of Title I’s information service definition. Comments filed by the Free State Foundation in the Restoring Internet Freedom proceeding explained that broadband Internet access services involve even more transforming, processing, and other functional capabilities to end user subscribers, consistent with Title I classification.

Aside from its implications for FCC broadband Internet policy, the District Court was surely correct in deciding the question squarely at issue in Charter Advanced. VoIP offerings that alter the protocol by which subscriber information is transmitted in order to provide additional functionality to subscribers transform and process that information – and thereby come within Title I’s definition of “information services.”

The merits of the District Court’s decision are ably defended in a legal brief that Charter filed at the Eighth Circuit on October 19. As Charter’s brief points out, court precedents support a Title I conclusion regarding VoIP. Four prior District Courts similarly concluded that IP-to-TDM network protocol conversion transforms and processes information within the meaning of Title I.

And because Spectrum Voice is an information service, Minnesota’s regulation is preempted. Charter’s brief rightly references the 8th Circuit’s holding in Minnesota Public Utilities Commission v. FCC (2007) that “any state regulation of an information service conflicts with the federal policy of nonregulation.” State legacy regulation of VoIP services would frustrate federal policy behind Title I, which the Eighth Circuit previously described as: “[A]llowing providers of information services to burgeon and flourish in an environment of free give-and-take of the market place without the need for and possible burden of rules, regulations and licensing requirements.”

Next-generation technology transitions have benefitted from the overwhelming movement in the states toward non-regulation of VoIP. Charter’s brief cited Dr. Sherry Lichtenberg’s findings that, as of July 2015, “44 states had specifically eliminated oversight of VoIP and other IP-enabled services.” The Minnesota regulators’ power grab is an outlier that ought to be rebuffed, not repeated. Hopefully, the Eighth Circuit will vindicate the non-regulatory Title I information services holding in Charter Advanced Services (MN) v. Lange and help preserve a pro-innovation environment for VoIP services.

SPEED Act Would Promote Broadband Deployment in Underserved Areas

On October 19, 2017, Senators Roger Wicker (R-MS) and Catherine Cortez (D-NV) introduced the Streamlining Permitting to Enable Efficient Deployment of Broadband Infrastructure Act of 2017 (SPEED Act), which would expedite federal permitting processes for the deployment of next-generation broadband technologies. Specifically, the bill would exempt from environmental and historic reviews currently required by the FCC and other federal agencies for proposed broadband deployment in public rights-of-way areas. This regulatory relief would promote the expansion of broadband access in rural and underserved areas.

The introduction of this legislation was praised by FCC Commissioner Michael O’Rielly who said: "This bipartisan effort to ease and accelerate the deployment of broadband technology would put an end to some of the excessive delays industry experiences when siting facilities." Moreover, Kelly Cole, Senior Vice President of Government Affairs at CTIA, stated: “This legislation will streamline the federal regulatory review process for wireless infrastructure and pave the way for significant investment in next-generation 5G wireless. Quick passage of this legislation will improve access to jobs, education and healthcare for Americans in rural and urban communities in Mississippi and Nevada, and across the country.” (See October 20 edition of TRDaily.)

Unnecessary regulations impede efforts to expand broadband deployment and negatively impact broadband investment. We commend Senators Wicker and Cortez for their bipartisan effort to remove unnecessary federal regulations and to promote broadband deployment in underserved areas, creating access for Americans on the wrong side of the digital divide.

Michigan Legislature Holds Hearing on Bills to Streamline Private Broadband Deployment

A bipartisan group of state representatives in Michigan introduced a package of bills that would limit fees, streamline permits, prohibit public funds from being spent on municipal broadband projects, and generally make it easier for private network providers to ensure high-speed Internet services.

The bills in the package are HB 5096, to cap the amount local government can charge broadband providers for rights-of-way; HB 5097, to cap the fee a county can charge a broadband provider for repair or maintenance in a right of way and also limit the bonding requirements that can be imposed; HB 5098, which would impose notification requirements for a local government or state agency that requires an Internet provider to temporarily move wires or other infrastructure due to roadwork or other projects, and prohibit charging the provider a permit fee to do the required work; and HB 5099, which would prevent local governments in the state from using public funds to pay for the cost of providing Internet service.

I had the opportunity to appear before the Michigan House Committee on Communications and Technology on October 24, 2017. I commend Committee Chair Michele Hoitenga for convening the hearing on the proposed bills. My testimony before the committee is available here.

California Governor Vetoed Small Cell Legislation

On October 16, 2017, California Governor Jerry Brown vetoed a bill that would have expedited the deployment of small cell infrastructure throughout the state. Hopefully, if he gets another opportunity, Governor Brown will reconsider his position and sign a new version of this bill which would facilitate deployment of 5G wireless technology.

Senate Bill 649 would have streamlined the process for obtaining permits to install small cell infrastructure, limited the fees that local governments could charge wireless providers, and constrained the ability of local governments to reject wireless deployment plans. Small cell deployment is necessary for the implementation of 5G wireless networks, the next generation of wireless networks with speeds 10 times faster than 4G.  If the bill had not been vetoed, this legislation would have encouraged many billions of dollars in investment and economic activity throughout the state of California in addition to enhancing public safety and everyday “livability” for the state’s residents.

An Accenture Strategy report estimates that 5G technology will create $275 billion in investment, 3 million jobs, and $500 billion in gross domestic product throughout the United States. With California’s economy comprising roughly one-eighth of the U.S. economy, Governor Brown’s veto could be very costly to California’s economy.

Governor Brown’s rationale for vetoing the bill is that he does not want to limit the authority of local governments. According to the October 16 edition of TRDaily, Governor Brown said: “There is something of real value in having process that results in extending this innovative technology rapidly and efficiently. Nevertheless, I believe that the interest which localities have in managing rights of way requires a more balanced solution than the one achieved in this bill.”

Although this bill would have created statewide laws for small cell deployment, it would have maintained the “local government’s historic role and authority with respect to communications infrastructure and construction generally.” The bill would have preserved existing agreements between wireless providers and local governments. It would have allowed local governments to charge permit fees, annual attachment fees, and other fees depending on the location and building type. It would have maintained local governments’ authority to require permits for deployment outside of public rights-of-way. And, lastly, the bill would have allowed local governments to be reimbursed for the costs associated with attaching small cells to utility poles, streetlights, and other suitable infrastructure owned by the city or county.

As I explained in a January 2017 blog, 5G wireless technology will benefit local governments by enabling smart street lighting, optimizing public transportation routes, minimizing congestion with vehicle-to-vehicle communications, and decreasing the response times of police and first responders. All of these benefits not only make localities safer and more livable, they also create cost-savings for local governments. Here is what I said in my blog:

[A] report published earlier this month by Deloitte, entitled “Wireless Connectivity Fuels Industry Growth and Innovation in Energy, Health, Public Safety, and Transportation,” contains similar findings on the economic and social benefits of 5G wireless technology. This report says that smart cities collectively could create $1.8 trillion in additional revenue to the U.S. economy. With regard to public safety, the Deloitte report finds that a one-minute reduction in response time translates to an 8% reduction in mortality. It also says that self-driving cars could reduce emissions by 40-90%, travel times by 40%, and delays by 20%. Whether the economic impact of 5G technology is $500 billion or $1.8 trillion, it is clear that deployment of 5G will make cities safer, healthier, and contribute significantly to the U.S. economy.

So, Governor Brown’s decision could disadvantage the California economy as more and more states continue to adopt small cell legislation. And it will deprive California’s residents of the various public safety, environmental, health, and other benefits that 5G deployment is expected to bring. Hopefully, for the sake of California residents, Governor Brown reconsiders his veto and this bill soon returns to his desk for a signature.

Effective Wireless Competition: Lower Prices and More Data

California Public Utilities Commission Approves CenturyLink and Level 3 Merger

On October 12, 2017, the California Public Utilities Commission approved the proposed merger between CenturyLink and Level 3 Communications. California was the last remaining state to approve the merger and it now waits for the FCC to make a decision. In a September 2017 blog, I urged the FCC to move forward with this merger review as soon as possible and to improve the timeliness of all merger reviews. And in a January 2017 Perspectives from FSF Scholars, Senior Fellow Seth Cooper explains how a potential CenturyLink and Level 3 merger would bring pro-competitive public benefits in both the video and broadband markets.

Yes, Internet Regulation Negatively Impacts Wireless Broadband Investment

On September 26, 2017, the FCC adopted the Twentieth Wireless Competition Report, which found that the market for mobile wireless broadband is effectively competitive. Commissioner Mignon Clyburn issued a dissenting statement in which she claimed that the Report manipulated data to support the narrative that the Open Internet Order decreased investment. She also said that the Report did not include investment data that she specifically requested. Nevertheless, when considering the data Commissioner Clyburn cites in her dissenting statement, the evidence is clear that the Open Internet Order discouraged wireless providers from investing in broadband networks.

In her dissenting statement, Commissioner Clyburn said:

For one, the discussion of investment in the mobile wireless services industry is fundamentally flawed. By highlighting a decrease in investment between 2015 and 2016, this section was clearly written to support the false narrative that the 2015 Open Internet Order deterred wireless carriers from investing in their networks. Despite my office’s request, this Report does not include data from the 19th, 18th, and 16th Competition Reports, which showed investment from all commercial wireless companies declined from $33.1 billion in 2013 to $30.9 billion in 2015. In case you missed it, those reports predated the 2015 Order.

According to CTIA’s data, wireless investment grew substantially from $20.4 billion in 2009 to $33.1 billion in 2013. Commissioner Clyburn is correct; wireless investment dropped from $33.1 billion in 2013 to $32.1 billion in 2014. But keep in mind, the FCC’s Open Internet proceeding began in early 2014. In May 2014, the FCC adopted a Notice of Proposed Rulemaking inviting comments on bright line rules and the possible imposition of Title II regulation. And in November 2014, President Obama encouraged the FCC to reclassify broadband under Title II of the Communications Act.

Therefore, the writing was on the wall throughout most of 2014 that the FCC would impose some type of more stringent Internet regulation than the regulations then in place. The regulatory uncertainty hovering over broadband Internet service providers during this time discouraged them from investing in network infrastructure.

Also, Commissioner Clyburn undermines her argument when she says “investment from all commercial wireless companies declined from $33.1 billion in 2013 to $30.9 billion in 2015.” The Open Internet Order was adopted in February 2015 but investment data includes all of 2015, meaning wireless providers had almost a full year to decrease their planned investments due to the impending regulatory costs imposed by the Order. When you consider the regulatory uncertainty of 2014, along with the imposition of Title II regulation in early 2015, it is no surprise that wireless providers decreased investment by $2.2 billion from the end of 2013 to the end of 2015. (As you can see in the graph below, CTIA’s data shows a decline of $1.2 billion over this same period.)

As I stated in a May 2017 blog, overall broadband capital investment has declined by $5.6 billion since the adoption of the Open Internet Order. And as we illustrate in this infographic, the steep decline in wireless broadband investment is consistent with the adoption of the Open Internet Order, dropping by $6.7 billion from 2013 to 2016.

The data that Commissioner Clyburn requested to be included in the Twentieth Wireless Competition Report provides no evidence that the imposition of Title II regulation has not harmed broadband investment. The Commission will recognize the negative investment impact of Internet regulation when it considers Chairman Pai’s Restoring Internet Freedom proposal to return to a light-touch regulatory framework.

Now, Keep Moving Forward!

Now that the Senate has confirmed Ajit Pai to another term, he again can devote his undivided attention, as the agency’s Chairman, to leading the Commission. There is still much to do to reform communications policy and the institution itself.

It is an unfortunate indication of the temper of the times that someone as well-qualified as Mr. Pai was subject to an effort by pro-regulatory interests to defeat his confirmation simply because of differences in policy perspective that, in the past, would not have led to such opposition. In the face of this campaign – and some overheated rhetoric – I urged here that Mr. Pai be promptly confirmed. There is no need now to rehearse all of what I said there. Suffice it to say the blog’s last sentence captured my view: “Mr. Pai surely is the right person to lead the FCC at this time.”

So now there is an opportunity to keep moving forward. But, first, a “correction.” Right up there in my first sentence, I see that, in a slip of the keys, I said Chairman Pai “again” can turn his undivided attention to his job. That might imply – wrongly! – that Mr. Pai has spent time thumb-twiddling while awaiting his confirmation. Not so.

Since becoming Chairman last January, Mr. Pai (almost always with the support of his Commission colleague, Michael O’Rielly) already has accomplished much that is notable. For example, regarding procedure and institutional reform, Chairman Pai began – and has now made permanent – the practice of releasing to the public draft proposals and orders three weeks in advance of agency open meetings. This gives the public an opportunity to see the draft of the proposed Commission item on which the commissioners will be voting so that interested persons have the opportunity to provide reactions to the draft before the Commission vote. So far, this move to increase the transparency appears to be working well.

Also notable from an institutional procedural perspective is Chairman Pai’s commitment to ensuring that the commissioners vote on important matters that should not be delegated to the staff for handling. A good example is the restoral to the commissioners of the authority – and the responsibility – to vote on the various congressionally-mandated competition reports, such as the recently adopted Wireless Competition Report.

With regard to matters of substantive policy, the accomplishments thus far likewise have been noteworthy. For instance, early on in his tenure, Chairman Pai terminated the Commission’s innovation-stifling investigations into various popular free data wireless plans that had been initiated by the Wheeler Commission. With Commissioner O’Rielly, he stayed parts of the Wheeler Commission’s overreaching privacy order from taking effect.

And, of course, most consequentially, again with the support of Commissioner O’Rielly, Chairman Pai initiated the Restoring Internet Freedom proceeding to consider reversing all or parts of the public utility-like regulatory regime imposed on Internet service providers by the Wheeler Commission’s 2015 Title II order. The Commission’s Notice of Proposed Rulemaking (NPRM) seeks comment on important questions relating to whether the agency possesses the legal authority to adopt the 2015 regulations and, even assuming such authority exists, whether, as a matter of policy, it is reasonable for the Commission to do so. [For the views of Free State Foundation scholars on the issues raised in NPRM, see our initial comments and reply comments.]

Going forward, acting in the Restoring Internet Freedom proceeding is the single most consequential item on the Commission’s agenda. For the reasons discussed in the Free State Foundation’s filed comments and reply comments, it is important for the Commission to eliminate, or at least curtail to a substantial extent, the regulations currently applicable to Internet service providers.

But consistent with, and in furtherance of, the commendable efforts already begun by Chairman Pai to rollback unnecessary and costly regulations that don’t make sense in today’s competitive communications landscape, there is more that should be done. In remarks at the Free State Foundation’s Tenth Anniversary Gala Luncheon on December 7, 2016, then-Commissioner Pai pointed out that the “regulatory underbrush at the FCC is thick” and declared: “We need to fire up the weed whacker and remove these rules that are holding back investment, innovation, and job creation.”

To that end, I want to urge, once again, that Chairman Pai and his fellow commissioners, consider a series of reform proposals I published earlier this year, all but one of which were co-authored by my Free State Foundation colleague, Seth Cooper. [Links to each of these proposals may be found below at the end of this piece.]

I want to call special attention to the FSF proposals for improving the Commission’s periodic regulatory reviews and forbearance reviews mandated by Sections 10 and 11 of the Communications Act and the proposal for improving the Commission’s periodic review of regulations that have a significant economic impact on small businesses. In each instance, in recognition of the evidence that the communications marketplace is largely effectively competitive, the Commission should establish deregulatory rebuttable evidentiary presumptions. As explained in detail in each of the pertinent proposals, these evidentiary presumptions would not alter the substantive standards or findings required by the regulatory review, forbearance, or small business statutory provisions. Rather, adoption of an evidentiary presumption consistent with the deregulatory congressional intent of these provisions would facilitate eliminating regulations that are no longer necessary due to changed competitive circumstances.

To the extent that there was ever any doubt concerning the Commission’s authority to adopt rebuttable presumptions such as those that I have recommended, such doubt should have been expelled by the D.C. Circuit’s July 2017 decision in National Association of Telecommunications Officers and Advisors v. FCC. There, in a unanimous decision, the court affirmed the Commission’s adoption of a rebuttable evidentiary presumption to the effect that if a cable franchise area is served by at least two competing providers, each of which offers services to at least 50% of the franchise area’s households, and the number of households subscribing to the services of providers other than the largest exceeds 15% of the households, then the FCC presumes the franchise area is effectively competitive. In adopting this deregulatory presumption, which reversed a presumption running in the other direction, the Commission cited the changed competitive landscape. To his credit, then-Chairman Wheeler joined with Commissioners Pai and O’Rielly to forge the Commission majority in favor of this sensible deregulatory action.

In affirming the Commission’s decision, the D.C. Circuit observed in NATOA that “the Commission has grounded its presumption in strong evidence of market conditions and facilitated rebuttal where the facts may warrant it.” Furthermore, the court declared that merely because a statute requires the Commission to make “findings,” this does not indicate that the use of presumptions is precluded, especially where, as the court put it, “Congress has not spoken directly to the question whether the Commission may use a rebuttable presumption in lieu of case-by-case findings of fact….”

Now that Chairman Pai has been confirmed to another full term, and as he prepares to lead the Commission in a direction that removes unnecessary rules that, as he has said, are “holding back investment, innovation, and job creation,” he and his fellow commissioners should consider employing deregulatory rebuttable presumptions as a means of minimizing regulatory roadblocks.

I’m confident that this course will enhance overall consumer welfare, while spurring the nation’s economy.

SOME FREE STATE FOUNDATION PROPOSALS FOR REGULATORY REFORM

Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC's Regulatory Reviews,” Perspectives from FSF Scholars, Vol. 12, No. 1 (January 3, 2017).

Randolph J. May, “A Proposal for Trialing FCC Process Reforms,” FSF Blog, January 9, 2017.

Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC's Forbearance Process,” Perspectives from FSF Scholars, Vol. 12, No.4 (January 17, 2017).

Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC's Video Competition Policy,” Perspectives from FSF Scholars, Vol. 12, No. 5 (February 8, 2017).

Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC’s Regulations Impacting Small Businesses”, Perspectives from FSF Scholars, Vol. 12, No. 6 (February 13, 2017).

Randolph J. May, “A Proposal for Spurring New Technologies and Communications Services,” Perspectives from FSF Scholars, Vol. 12, No. 7 (February 21, 2017).