Thinking Things Through on Net Neutrality – "Maintain That Line"

The Federal Communications Commission’s Restoring Internet Freedom Order is set to become effective on April 23. The rush to the court house door has begun. And measures to repeal the order by means of the Congressional Review Act have been initiated in Congress.

Hard-core advocates of maintaining public utility regulation of Internet service providers have proclaimed February 27 a “Day of Action.” That, of course, is their right. But finalization of the Restoring Internet Freedom Order, along with the spurt of other related activity, causes me to want to consider once again – and to restate – certain fundamental principles at stake in what’s called the “net neutrality” fight.

To that end, I am planning to engage in such restatement in a series of a few short posts. I have written thousands of pages regarding net neutrality over the last dozen years, so I surely understand that there are important nuances and wrinkles, both relating to legal and policy, that deserve attention. But there are also fundamental overriding principles at stake, not subject to nuances and wrinkles, that should not be lost in the noisy din.

Foremost is this: Digital broadband services should not be regulated under the same public utility-like Title II regulatory regime established for analog narrowband telecommunications services and applied to them throughout the 20^th Century. In this larger fundamental sense, the Commission’s action in the Restoring Internet Freedom proceeding was necessary to restore not only Internet freedom, but also to restore the line that had been crossed by the Obama Administration FCC in 2015 when it classified Internet service providers as common carriers subject to Title II regulation.

Before that 2015 action, there was a largely bipartisan understanding that, while certain forms of regulatory actions might be necessary to police possibly abusive practices by Internet service providers, the ISPs should not be regulated as public utilities under the same common carrier regime that earlier applied to monopolistic Ma Bell. Thus, there was no significant partisan stir when Clinton Administration FCC Chairman William Kennard declared in 1999 that it “is not good for America” to “just pick up this whole morass of [telephone] regulation and dump it wholesale on the [Internet] pipe.”

Chairman Kennard’s declaration was embodied in FCC policy in 2002 when the Commission determined that cable broadband services should be classified as lightly regulated information services rather than Title II services subject to public utility-like common carrier regulation. In doing so, the Commission stated that we believe “broadband services should exist in a minimal regulatory environment that promotes investment and innovation in a competitive market.” Over the next several years, the Commission classified other broadband services as information services so as “to create a rational framework for the regulation of competing services that are provided via different technologies and network architectures.”

This treatment of broadband services as information services under Title I, upheld by the Supreme Court in 2005 in the Brand X case, prevailed until 2015, when the Commission reversed course, holding that Internet service providers were common carriers.

This is the signal line that was crossed – and this is the line that was restored by the Commission’s action in December 2017 in the Restoring Internet Freedom Order.

There are certainly forms of oversight to police alleged “net neutrality” violations that are short of a return to Title II public utility regulation. Some of these ought to be acceptable and susceptible to a bipartisan compromise. Otherwise, it is possible that the “bouncing ball” of which I wrote in “Chevron and Net Neutrality at the FCC” – that is, between public utility regulation or not – might well continue to bounce back-and-forth. To my mind, any such compromise should not incorporate “bright line” prohibitions governing ISP practices that are divorced from an analysis of evidence concerning whether a market failure exists and whether, if so, such market failure has caused consumer harm.

In any event, regardless of whether such compromise in Congress is reached now or later, or not at all, there is no justification, as a legal or policy matter, for regulating today’s digital broadband Internet service providers, operating in an increasingly dynamic and competitive environment, as if they were Ma Bell offering staid analog narrowband telephone service in the last century.

That is the foremost principle at stake. That is why the line that prevents Internet service providers from being classified and regulated as common carriers in a public utility-like fashion should not be crossed. That is why the line restored in the Restoring Internet Freedom Order must be maintained.

Head of Antitrust Division Compares DOJ Challenge to AT&T/Time Warner Merger to “David vs Goliath”

Makan Delrahim, Assistant Attorney General in charge of the Antitrust Division of the Justice Department, in a speech this week described the DOJ challenge to AT&T/Time Warner merger as “David vs Goliath,” with the DOJ as David and the merging parties as Goliath. Delrahim said, "We are 30 lawyers against 700, but as my rabbi used to say, David beat Goliath for a reason, because he was right."

It is not clear where AAG Delrahim got his figure of 700 attorneys for AT&T and Time Warner, but casting the Department of Justice as “David” seems a bit of a stretch. The Justice Department is sometimes described as the world’s largest law firm, and the Antitrust Division alone has about 400 attorneys (I used to be one of them). Having 30 attorneys working on a case is not a small number, and if they are not enough, AAG Delrahim has plenty more working for him. Moreover, most private parties that have litigated against DOJ, with all the resources of the federal government behind it, don't think of DOJ as the "David" in the fight.

Delrahim also criticized those have been critical of the merger, saying, "In the U.S., we now have thousands of vertical merger experts, who somehow think we haven't enforced anything in 50 years."

As I explained in my Perspectives from FSF Scholars earlier this month providing substantive analysis of the AT&T/Time Warner merger and the context in which it should be reviewed, the U.S. antitrust agencies have challenged dozens of vertical mergers in recent decades. What is different is that those challenges were all resolved with the parties agreeing to behavioral conditions that allowed the mergers to go forward, while AAG Delrahim’s Antitrust Division is seeking to force fundamental structural changes on the AT&T/Time Warner merger. The last time the U.S. government went to court seeking structural changes to a vertical merger was in 1979, when the Federal Trade Commission lost its challenge to truck trailer manufacturer Fruehauf’s acquisition of a brake component supplier.

The trial is scheduled to begin March 19, 2018.

AT&T Motion on Whether White House Pressured Justice Department to Challenge AT&T/Time Warner Deal is Denied

As the Justice Department’s challenge to the AT&T/Time Warner merger heads for trial set to begin March 19, 2018, both sides are continuing their legal maneuvering. One of the claims made by AT&T is that the antitrust challenge was motivated by improper political considerations. President Trump has criticized the merger, and AT&T filed a motion seeking executive branch documents that might show influence by the White House on DOJ decisions regarding the antitrust challenge.

This week the motion by AT&T seeking records of communications between the Justice Department and the White House regarding the merger was denied by U.S. District Judge Richard Leon. AT&T had pointed out that most vertical mergers have been routinely approved in their entirety or subject to behavioral conditions that allow the mergers to go forward, so treating the AT&T/Time Warner vertical merger differently may indicate the challenge was based on political considerations. However, Judge Leon ruled that the companies hadn't made a sufficient showing that they were singled out for different treatment than the DOJ gave previous mergers.

For a substantive analysis of the merger and the context in which it should be reviewed, see my recent Perspectives from FSF Scholars entitled “The Proper Context for Assessing the AT&T/Time Warner Merger.”

FCC Proposal for Promoting New Technologies and Services Should Be Approved, Then Improved

by Randolph J. May and Seth L. Cooper

Next-generation communications technologies and services will supply potent new sources of value for consumers in the Digital Age. To this end, in early 2017, we proposed that the FCC should clear away legacy regulatory obstacles to market investment innovation by relying more on its Section 7 authority. In a welcome development, the FCC will consider a proposal to invigorate and streamline its Section 7 authority for promoting new technologies and services at its public meeting on February 22.

Certainly, the FCC should adopt the draft Section 7 rulemaking proposal. After that, the Commission should take further steps to maximize the proposal’s effectiveness in encouraging timely innovation. In particular, the Commission should consider using innovation-friendly procedures such as a deregulatory presumption and a deemed granted provision in connection with agency decisionmaking about whether new technology and service offerings are in the public interest.

Section 7 of the Communications Act provides:

(a)    It shall be the policy of the United States to encourage the provision of new technologies and services to the public. Any person or party (other than the Commission) who opposes a new technology or service proposed to be permitted under this chapter shall have the burden to demonstrate that such proposal is inconsistent with the public interest.

(b)   The Commission shall determine whether any new technology or service proposed in a petition or application is in the public interest within one year after such petition or application is filed. If the Commission initiates its own proceeding for a new technology or service, such proceeding shall be completed within 12 months after it is initiated.

Although adopted in 1983, only a handful of Section 7 petitions have been filed with the FCC. And the Commission previously has not adopted rules for the section’s implementation. In a July 2012 speech, then-Commissioner Ajit Pai called Section 7 “the neglected stepchild of communications law,” and stated that “[t]he Commission should make the deployment of new technologies and services a priority.” We commend Chairman Pai for following up on his call to prioritize innovation by initiating the Section 7 rulemaking.

The draft proposed rulemaking observes that “outdated technical rules and regulations can require proponents of new technologies or services to either seek a waiver of those rules or petition the Commission to conduct a rulemaking.” Legal and administrative proceedings can be lengthy and delay-prone. And the draft states: “Often, competitors petition to deny or oppose the introduction of new technologies or services that may have a negative economic effect on their own service but would otherwise provide significant public interest benefits if the Commission moved quickly to allow the new technologies or services to be offered.”

Concluding that Section 7 “evinces a bias in favor of technological innovation and dispatch,” the FCC’s proposed rulemaking consists of guidelines and procedures intended “to effectively breathe life” into the provision. The proposed rules include some basic filing requirements – such as express requests for consideration under Section 7, as well as showing that the new technology or service is “both technically feasible and commercially viable” and “new.” Public notices are to be issued regarding applications that satisfy the filing requirements. And consistent with Section 7(a), opponents of the application would bear the burden of showing that the proposed technology or service would not be in the public interest.

Also, applications are subject to a 90-day review led by the FCC’s Office of Engineering and Technology (OET) to determine whether the proposed service or technology is, in fact, “new” and within the scope of Section 7. If that determination is positive, the Commission “will evaluate the record once complete, and decide within a year of the filing date the appropriate course of action with respect to the petition or application.” However, if the proposed technology or service is determined to be outside the scope of Section 7, then the application “would be handled under the existing Commission processes that apply generally.” Negative determinations could be challenged and Section 7 treatment ultimately granted in the course of the Commission’s standard processes.

The FCC’s proposed requirements and processes for implementing Section 7 appear reasonable as far as they go. If adopted, the proposed rules could provide fast track, or at least less cumbersome means for approving for new technology and service offerings in the communications market.

However, to best ensure that its reinvigoration of Section 7 succeeds in encouraging market investment and innovation, the Commission likely will need to take additional steps to overcome the institutional bias of regulatory agencies toward preserving and extending regulation. Indeed, in describing difficulties that cause delays in approving new technologies in services, the proposed rulemaking observes: “Sometimes the problem is simply regulatory inertia.” In order to counteract that pro-regulatory bias, the Commission should consider incorporating more pro-free market procedures into the final rules it adopts.

For starters, although Section 7 does not establish a presumption in favor of granting applications, the Commission does have the discretionary authority to adopt such a presumption regarding its own exercise of authority. (For more on that point, see our July 2017 Perspectives from FSF Scholars paper, “D.C. Circuit Ruling Supports the FCC’s Use of Deregulatory Presumptions.”)

We previously published a series of proposals for specific policy and process reforms based on existing FCC authority. Although differing in details, most of those reform proposals called on the Commission to establish a presumption that enforcement of the regulation at issue was not in the public interest, absent clear and convincing evidence to the contrary. Consistent with those reform proposals, the Commission could adopt a deregulatory rebuttable evidentiary presumption that an application for a proposed new technology or service offering that falls within the scope of Section 7 is consistent with the public interest and should be approved, absent the Commission finding clear and convincing evidence to the contrary. Alternatively, the Commission could establish a lower evidentiary standard for overcoming the rebuttable presumption, such as a finding that substantial evidence exists that the proposed technology or service offering would not be in the public interest.

In either instance, the proposed language for such a procedural rule would track with the public interest criteria contained in the Section 7 proposed rulemaking. And thus the rule would not dictate the outcome of any particular Section 7 application. Establishing a rebuttable evidentiary presumption that takes account of the consumer welfare benefits of market investment and innovation is consistent with Section 7’s “bias in favor of technological innovation and dispatch.”

The Commission should also consider adopting a deemed granted provision to better ensure that the agency takes action on applications within the one-year time frame set forth in Section 7(b). The Commission could establish a procedural rule that an application for a proposed new technology or service offering would be granted automatically if the agency fails to act on that application within one year of its filing. As we point out in our Perspectives from FSF Scholars paper, “A Proposal for Spurring New Technologies and Communications Services,” timeliness is a key concern of Section 7. Similarly, the draft rulemaking states: “[W]e propose to commit the agency to swift action, consistent with section 7, to evaluate that technology or service.” A deemed granted provision would help make Section 7’s one-year time frame meaningful and partially act as a counterweight to the problem of “regulatory inertia” identified in the proposed rulemaking.

In all, the proposed rulemaking to breathe new life into Section 7 surely merits approval. At the same time, the proposal’s goal and potential positive effect in spurring new technology and service offerings may be improved by incorporating additional pro-innovation measures.

Local Governments Should Promote 5G Smart Cities, Not Municipal Broadband

Despite the dismal record of financial performance by municipal broadband systems, some municipalities are moving forward with plans to build new government-run systems. Some proponents of municipal broadband point to a new report from Harvard’s Berkman Klein Center claiming that municipal systems are the “value leaders in America” because they supposedly offer service at lower prices than those from private providers.

Last month, FSF Senior Fellow Ted Bolema and I published a Perspectives from FSF Scholars entitled “A Critical Assessment of Harvard’s ‘Community-Owned Fiber Networks: Value Leaders in America’ Study,” in which we pointed out many problems with the Harvard study. But even setting aside the problems with the dubious methodology and questionable interpretation of the data from the Harvard study, municipalities that believe their residents do not have sufficient access to broadband have better options than government-run broadband. Instead of promoting municipal broadband projects, local governments should seek to streamline the implementation of 5G “smart cities,” which will provide vastly superior net economic benefits to consumers, businesses, and residents.

The Harvard study purports to find that in 23 out of 27 municipalities with community-provided broadband the government providers offered lower prices for entry-level broadband packages than the private providers. In our paper, we explain how the Harvard study’s data and methodology creates a heavy bias in favor of municipal providers.

But even if a municipal system can offer lower prices to those who subscribe to its broadband service, that does not make it a better value for its community than private broadband. Most municipal providers use taxpayer funds to subsidize the price of broadband below a profitable level, oftentimes generating massive long-term debt. That may make the price of the service attractive to potential subscribers, but the community, including the residents who do not subscribe to the municipal network, still must pay for the subsidies and the debt used to finance the project.

We point out that there are nine municipal projects that were analyzed in both the Harvard study and a University of Pennsylvania study that analyzes the financial viability of municipal broadband projects. Of those nine overlapping municipal broadband projects, at the end of 2014 four of them were cash flow negative and four of them were not on pace to be paid off within the lifetime of a broadband network, which is generally between 30 and 40 years. For example, the municipal provider in Lafayette, LA, LUS Fiber, provides the greatest cost “savings” over the first four years of service, according to the Harvard study. But Lafayette residents are on the hook for over $36 million in debt that is unlikely to be repaid with the current level of cash flows. The table below shows that municipal networks with the greatest cost “savings” also generate burdensome long-term public debt.

Results from Markets Found in Both Studies

Municipal Network	Cost “Savings” Over Four Years According to Harvard Study	Net Present Value of Municipal Broadband Project	Years until Project Turns Positive
Lafayette, LA	$600.00	-$36,086,333	Never
Morristown, TN	$324.12	-$4,281,017	Never
Clarksville, TN	$138.75	-$7,442,513	Never
Monticello, MN	$122.74	-$25,508,327	Never
Pulaski, TN	$237.24	$97,948	490
Brookings, SD	$163.13	$290,521	349
Chattanooga, TN	$107.25	$2,062,787	412
Tullahoma, TN	$19.22	$846,549	108
Bristol, TN	$79.22	$4,168,048	34

The Harvard study also does not consider all of the dynamic changes in the broadband market. For example, more people than ever are turning to mobile broadband as a substitute for fixed broadband. The future of mobile broadband is 5G wireless technology, and with at least 10 times faster speeds than 4G, 5G will make mobile broadband even more competitive with other broadband technologies. Throughout U.S. cities, mobile broadband providers are deploying small cell infrastructure for 5G wireless technology, which can target municipal areas in the same way that wireline municipal broadband does, but potentially at a much lower cost.

When 5G wireless technology is deployed, “smart cities” will be able to enjoy more efficient and effective use of local government services such as energy, utilities, transportation, and public safety, saving the cities millions of dollars. For example, smart lighting automatically will dim public street lights when no pedestrians or vehicles are present. Public transportation will be able to reduce wait times by optimizing bus and train schedules with commuter smartphones. High-speed video surveillance will allow first responders to assess crime scenes and dangerous situations before arriving.

As I discussed in a January 2017 blog, 5G wireless technology is projected to create $275 billion in investment, 3 million jobs, and $500 billion in gross domestic product throughout the United States, which should be much more attractive to local governments than the financial instability often created by municipal broadband projects. These projected net economic benefits of 5G enabled “smart cities” outweigh the net economic costs of many municipal broadband networks.

Instead of imposing long-term debt on residents by promoting municipal broadband projects, local governments should promote 5G small cell deployment. By reducing pole attachment fees, allowing the use of public rights-of-ways, and accelerating approval processes, states and municipalities can streamline the deployment of 5G technology in local areas. Not only will this relieve residents from the tax burden imposed by a municipal network, but it will help implement a next-generation network which will provide at least the same consumer benefits as municipal broadband with less financial risk to local governments.

ALI Should Abandon Its Copyright Restatement Project

by Randolph J. May and Seth L. Cooper

There is a distinct difference between stating what the law is and stating what the law ought to be. Yet the American Law Institute’s (ALI) “Restatement of the Law, Copyright” project appears not to appreciate the difference. In a January 16 letter, Acting Register of Copyrights Karyn Temple Claggett reportedly wrote that ALI’s project “appears to create a pseudo-version of the Copyright Act.” Rebukes by the Register and others cast doubt on the value of any work product that might emerge from the copyright restatement project. Indeed, ALI probably should abandon it. 

Historically, ALI’s restatements of the law of property, contracts, and torts and so forth were treatises that primarily distilled legal doctrines from the common law in the state jurisdictions. The Institute’s founding Committee recommended that “the first undertaking should address uncertainty in the law through a restatement of basic legal subjects that would tell judges and lawyers what the law was.”

It was the objectivity of the restatements’ surveys of the law – primarily as expressed through judicial decisions – that accounted for their influence on judges and lawyers. Indeed, the entire point of their creation and publication was to restate the law, rather than to relate the preferences of the treatises’ authors. Over the years, ALI has developed restatements of a wide variety of legal subject areas. ALI’s “Restatement of the Law, Copyright” project is one of the latest.

Much attention, deservedly, has been paid to Acting Register Claggett’s January 16 letter, which The Trichordist quotes as stating that ALI’s copyright restatement project “appears to create a pseudo-version of the Copyright Act that does not mirror the law precisely as Congress enacted it.” Ms. Claggett warned that the prospective copyright restatement would not “promote the clarification and simplification of the law” in keeping with ALI’s ostensible mission. She called for the entire ALI project to be reconsidered.

The Register of Copyrights isn’t alone in criticizing the project. U.S. Copyright Office General Counsel Jacqueline C. Charlesworth wrote, in a December 2015 letter to ALI members, that “the project would appear to be more accurately characterized as a rewriting of the law.”

Others in the field have criticized restatement drafts. In a post at Above the Law, for instance, Scott Alan Burroughs quotes Cynthia S. Arato, writing on behalf of the New York Bar City Bar Copyright & Literary Property Committee, as stating that a restatement draft “includes positions that conflict with the actual state of the law or that advocate policy preferences divorced from Congressional Intent.” For his part, Mr. Burroughs writes: “The proposed language of the Restatement departs significantly from relatively settled precedent to opine as to how the law ‘should be’ in the future.” According to Burroughs, “copyright law is being ‘restated’ in a manner that greatly favors Big Tech and their confederates in their ongoing campaign to devalue art and content.”

Moreover, the perceived agendas driving ALI’s copyright restatement project have generated strong criticism. In a Billboard op-ed, Dina LaPolt offers a harsh assessment that ALI’s project is Big Tech agenda-driven. Here’s what she said regarding Professor Christopher Sprigman, ALI’s copyright restatement project reporter: “In his proposal for this project, he said that copyright law is in a ‘bad state,’ and that the ALI project could be influential in ‘shaping the law’ and result in ‘the reformed law that in the long term we will almost certainly need.’” Of course, shaping or reforming copyright law is the proper role of Congress under the Constitution’s Copyright Clause, not the ALI.

Professor Sprigman co-authored The Knock-Off Economy: How Imitation Sparks Innovation (2012), a book extolling copying by imitators and questioning whether copyright protections for creators have any just or practical basis. Reportedly, Sprigman also is counsel to Spotify and has produced work with the financial support of Google. Both companies have staked out positions on copyright protections in digital media that are hotly contested by copyright-protective interests.

Having financial interests or personal viewpoints doesn’t exclude the possibility that one can work objectively and no disparagement of Professor Sprigman or his work is intended. But selecting as the restatement’s reporter someone who has such a stake as an advocate of controversial positions on copyright law is questionable. At the very least, such a selection should have heightened the need for exhibiting scrupulousness in any prospective copyright restatement.

Unfortunately, the highly critical public responses indicate that the copyright restatement project’s work has significantly departed from ALI’s historic mission to restate what the law is rather than to reform it. It is true that ALI’s website now touts that it is the leading scholarly organization “to clarify, modernize, and improve the law.” But if ALI wishes to be in the business of modernizing and improving copyright law, it should not be doing so through the current restatement project. ALI’s website states that when it engages in examination of areas thought to be in need of reform “[t]his type of study generally culminates in extensive recommendations for change in the law and usually is published as Principles of Law.”

In January, ALI announced that its Projects Committee has been tasked “to consider whether this project should use a format that differs from the typical Restatement format.” Now it is clear that, if at all, the copyright project should have been initiated to develop Principles of Law, not a restatement. But Congress already has under consideration many proposals to revise federal copyright law, along with an extensive record compiled through many legislative and field hearings held over the last few years. And given the questions raised about the project’s reporter and other participants and its direction, ALI should abandon the copyright project entirely.