Thursday, March 29, 2018

Catch C-SPAN's Video of FSF's Tenth Annual Telecom Policy Conference

The C-SPAN 2 video of the Free State Foundation’s Tenth Annual Conference is now available HERE! You may view particular conference segments in the C-SPAN video:
0:00 - Welcome and Introduction - Randolph May, President, The Free State Foundation
9:06 - 15:53 - Opening Keynote Address - Ajit Pai, Chairman, Federal Communications Commission
16:30 - 36:08 - Keynote Address - David Redl, Administrator, National Telecommunications and Information Administration
37:50 - 1:40:07 - "All-Star Panel I: Solutions for Connecting America and Closing Digital Divides"
Moderator: Seth Cooper, Senior Fellow, The Free State Foundation 
John Jones, Senior Vice President of Public Policy & Government Relations, CenturyLink 
James Assey, Executive Vice President, NCTA 
Tom Power, Senior Vice President & General Counsel, CTIA 
Nicol Turner-Lee, Fellow, Governance Studies, Center for Technology Innovation, Brookings

1:44:14 - 2:44:20 - All-Star Panel II: Solutions for Getting Past Net Neutrality and Advancing the Gigabit and 5G Future"
Moderator: Randolph May, President, The Free State Foundation 
Jeffrey Campbell, Vice President, The Americas of Global Government Affairs, Cisco 
David Cohen, Senior Executive Vice President, Comcast 
Kathleen Grillo, Senior Vice President and Deputy General Counsel, Public Policy and Government Affairs, Verizon 
Chris Lewis, Vice President, Public Knowledge

2:47:18 - 3:09:30 - Keynote Address - Neomi Rao, Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget
3:49:00 - 4:53:00 - "Conversation with FCC Commissioners Michael O'Rielly and Brendan Carr and FSF President Randolph May"
4:56:10 - 5:36:12 - "Final Thoughts and Looking Ahead: Perspectives from Three of FSF's Academic All-Stars"
Moderator: Theodore Bolema, Senior Fellow, The Free State Foundation 
Michelle Connolly, Professor, Duke University, and a Member of FSF's Board of Academic Advisors 
Daniel Lyons, Associate Professor, Boston College Law School, and a Member of FSF's Board of Academic Advisors
Christopher Yoo, Professor of Law, University of Pennsylvania Law School,  and a Member of FSF's Board of Academic Advisors
The theme of this year's conference was: "Connecting All of America: Advancing the Gigabit and 5G Future." Within the context of that theme, a truly outstanding lineup of senior officials and prominent experts from the FCC, NTIA, OMB, industry, academia, and think tanks discussed and debated the most important communications and Internet policy issues of the day, including Internet freedom and net neutrality, privacy, advanced broadband deployment, the 5G rollout, the changing video services landscape and regulatory environment, universal service and Lifeline, and much more. The conference agenda is here.
We thank all of the speakers for their participation in making #FSFCon10 so educational, informative, and interesting. The C-SPAN Video of the entire Conference is here.

Saturday, March 24, 2018

Court Decision on FTC Authority Bolsters the Legal Basis of the Restoring Internet Freedom Order

On February 26, the U.S. Court of Appeals for the Ninth Circuit, sitting en banc, decided unanimously that common carriers are exempt from Federal Trade Commission jurisdiction under Section 5 of the FTC Act only with respect to common-carrier activities. The Ninth Circuit’s decision effectively vindicates the premise of the FCC’s Restoring Internet Freedom Order (2017) that the FTC has authority to pursue enforcement actions against broadband Internet access providers for deceptive or unfair trade practices. The FCC’s order reclassified broadband Internet access services as “information services” under Title I of the Communications Act, and repealed the Obama Administration’s common carrier classification of those services under Title II.

On behalf of the Ninth Circuit en banc panel, Judge M. Margaret McKeown observed that the FTC’s Section 5 authority over “unfair and deceptive trade practices exempts, among other things, “common carriers subject to the Acts to regulate commerce.” The introductory section to the en banc opinion succinctly frames the issue before the court and then announces its decision and underlying rationale:  
The question is whether the common-carrier exemption is activity-based, meaning that a common carrier is exempt from FTC jurisdiction only with respect to its common-carrier activities, or status-based, such that an entity engaged in common-carrier activities is entirely exempt from FTC jurisdiction.  
We affirm the district court's denial of AT&T's motion to dismiss. Looking to the FTC Act's text, the meaning of "common carrier" according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission ("FCC"), and legislative history, we conclude that the exemption is activity-based. The phrase "common carriers subject to the Acts to regulate commerce" thus provides immunity from FTC regulation only to the extent that a common carrier is engaging in common-carrier services.  
This statutory interpretation also accords with common sense. The FTC is the leading federal consumer protection agency and, for many decades, has been the chief federal agency on privacy policy and enforcement. Permitting the FTC to oversee unfair and deceptive non-common-carriage practices of telecommunications companies has practical ramifications. New technologies have spawned new regulatory challenges. A phone company is no longer just a phone company. The transformation of information services and the ubiquity of digital technology mean that telecommunications operators have expanded into website operation, video distribution, news and entertainment production, interactive entertainment services and devices, home security and more. Reaffirming FTC jurisdiction over activities that fall outside of common-carrier services avoids regulatory gaps and provides consistency and predictability in regulatory enforcement. 
Later, the Ninth Circuit’s en banc opinion effectively confirmed that the FCC’s Title II Order (2015) stripped the FTC of its Section 5 authority to address alleged unfair or deceptive trade practices involving mobile broadband Internet access service providers. In the course of discussing the alleged “data throttling” at issue in the case, the en banc opinion stated: 
The Reclassification Order's explicit text and the "generally applicable presumption against retroactivity" confirm that the FTC's Section 5 authority to bring cases concerning mobile data services has been curtailed only for services rendered after the order became effective… 
The FTC's power to bring enforcement lawsuits in federal court derives from the FTC Act, which authorizes the agency to sue in any case involving "any provision of law enforced by" the FTC. Before the reclassification, the FTC had the authority to pursue this suit. The prospective reclassification can hardly be viewed to retrospectively strip the FTC of that enforcement authority.
But the Ninth Circuit’s en banc opinion noted: “In early 2018, the FCC reversed its 2015 Reclassification Order and once again classified broadband internet as a non-common-carrier service.” According to Paragraph 141 of the Restoring Internet Freedom Order: “Today’s reclassification of broadband Internet access service restores the FTC’s authority to enforce any commitments made by ISPs regarding their network management practices that are included in their advertising or terms and conditions.” In other words, under the FCC’s free market-oriented, light-touch Title I-based approach to broadband Internet access services, broadband Internet service providers that include promises not to block or degrade data traffic to and from their subscribers as well as promises not to engage in unfairly discriminatory or harmful forms of paid prioritization must keep to those promises or be subject to enforcement actions.

Restoration of FTC enforcement jurisdiction over broadband Internet access services is a critical premise of the FCC’s Restoring Internet Freedom Order. Indeed, restored FTC authority is a primary reason “Why Consumers Won’t Be Left Unprotected” – as FSF President Randolph May and I explained in a January op-ed in the Washington Times. By confirming that the FTC’s Section 5 common carrier exemption is activity-based and not status based, the Ninth Circuit’s unanimous en banc decision in FTC v. AT&T Mobility effectively supports the legal basis for consumer protection established by the Restoring Internet Freedom Order.

Friday, March 23, 2018

RAY BAUM Would be Proud

By Gregory J. Vogt, Visiting Fellow, Free State Foundation

Ray Baum would be proud. The Repack Airwaves Yielding Better Access for Users of Modern Services Act (RAY BAUM’s Act of 2018), H.R. 4986, has been passed by the Senate and the House and signed by the President. RAY BAUM’s Act, which honors long time communications expert Ray Baum, who most recently served as House Energy and Commerce Committee Staff Director prior to his death, includes slightly modified provisions of the MOBILE NOW Act that previously passed the Senate. Given the enormous consumer welfare benefits that will come from future 5G wireless deployment, RAY BAUM’s Act mandates near term dedicated and unlicensed spectrum and wireless siting infrastructure streamlining that will significantly aid in 5G deployment.

Among other things, RAY BAUM’s Act:

  • Mandates that at least 255 MHz of mid-band spectrum be allocated for wireless mobile and fixed broadband use no later than December 31, 2022, in line with the Obama Administration’s 2010 500 MHz allocation goal;
  • Requires the FCC to establish service rules for the 42 GHz band within two years of enactment;
  • Requires government to conduct a feasibility study for commercial/government sharing of spectrum between 3.1 and 3.5 GHz and between 3.7 and 4.2 GHz;
  • Facilitates speedy deployment of communications infrastructure on federal property or federal-aid supported state transportation projects;
  • Requires NTIA to report recommendations to Congress that would provide incentives to federal agencies to relinquish or share the spectrum they use;
  • Requires NTIA to study bidirectional sharing that would permit government to gain flexible access to commercial spectrum on a shared basis;
  • Requires the Commission, in consultation with NTIA, to develop a national plan for promotion of unlicensed spectrum;
  • Requires the FCC to adopt rules permitting unlicensed mobile use of spectrum in guard bands; and
  • Requires the FCC to conduct a rulemaking to increase advanced telecommunications service in rural area and make spectrum available to covered small carriers.

The Act is laudable because it will add significant mid- and high-band spectrum usable to deploy 5G service in the future in a timely fashion. The Act reinvigorates the search for reallocable spectrum, an effort that lagged in the Obama Administration. The legislation also is important because it places timelines on the reallocation of possible new mobile spectrum, ensuring there is a spectrum pipeline to meet future demand.

The Act recognizes the importance to the American and global economies of speedy deployment of 5G services. Sufficient available spectrum is needed to maintain U.S. leadership in deployment of advanced wireless technology. As Randolph May and I detailed here, mobile broadband produces significant increases in annual consumer welfare, and contributes significantly to jobs, tax revenues, and U.S GDP, including the revenues associated with export of wireless know-how and products worldwide that produce tangible benefits retained in the U.S. 5G technology can deliver mobile broadband at considerably greater speed, increase capacity for billions of new Internet of Things (IoT) devices, and reduce latency, or the time it takes for Internet messages to be received and responded to. More spectrum is necessary to fulfill exploding consumer demand for wireless capacity.

The Act is lukewarm in its ability to motivate government to give up inefficiently used spectrum. Although the required NTIA study is useful, the government must urgently review incentives to increase the reallocation of spectrum for private use. Many interesting proposals have already been made, which I evaluated favorably here. MOBILE NOW’s bidirectional sharing proposal may have some impact on convincing an agency to give up some of its exclusive right to spectrum, but I have my doubts given endemic government hand-wringing and potential operational problems of such an approach. Providing a more material incentive, such as allowing an agency to share in auction proceeds like the broadcaster incentive auction, assign opportunity cost values to government spectrum, and using other good management techniques, would better encourage government to use spectrum efficiently.

The spectrum provisions are somewhat different than the original Senate version of MOBILE NOW because the FCC already had allocated a number of the millimeter wave bands for mobile and fixed wireless use originally addressed by the Senate. For instance, the FCC’s Spectrum Frontiers proceeding already moves the spectrum pipeline forward with high-band spectrum. The FCC has also been exploring modification of the 3.5 GHz rules that can make the spectrum more useful to mobile broadband carriers. The Commission has already opened an inquiry examining reallocation of spectrum between 3.9 GHz and 24 GHz, which may be useful in implementing some provisions of RAY BAUM’s Act.

The Pai FCC also is rejecting the unwise market-killing restrictions of the kind that encumbered some auctions held during the Wheeler FCC administration so that auctions will more closely resemble competitive markets. Unencumbered auctions yield more benefits for America’s consumers and taxpayers.

The Act’s wireless infrastructure provisions also will aid 5G deployment. Requiring the federal government to address siting proposals in a timely fashion and standardizing site contracts will improve 5G deployment. Together with other infrastructure proposals that either have been or are in the process of being adopted by the FCC, government at all levels will be expected to facilitate approval of infrastructure proposals pursuant to national spectrum deployment policy priorities.

Amidst the noise of the political milieu, it is heartening to see that Congress generally made wise bipartisan choices benefiting American consumers. RAY BAUM’s Act, which the President has now signed, places a firm stake in the ground in favor of prompt 5G deployment. 

Music Industry Grew Significantly in 2017

The Recording Industry Association of America (RIAA) recently released its 2017 Revenue Statistics, which show significant growth in the music industry over the last few years. In 2017, music streaming revenues were $5.7 billion, more than triple what they were in 2014 at $1.8 billion. Streaming applications now generate 65% of music industry revenues. Moreover, the number of paid music subscriptions grew by more than 55% from 2016 to 2017. Overall, the retail value of revenues throughout the entire music industry grew by $1.2 billion from 2016 to 2017.
While there are still problems with online piracy that need to be addressed, the growth of the music industry would not be possible with strong copyright protections, which enable artists and creators to earn a return on their labors.

Scholars Opposing Re-Imposing Internet Regulation

Glad to see Richard Epstein, Michelle Connolly, Gus Hurwitz, Stan Liebowitz, Daniel Lyons, and Joshua Wright -- all members of the Free State Foundation's prestigious Board of Academic Advisors -- sign a scholars' letter opposing an effort to use the Congressional Review Act to repeal the FCC's Restoring Internet Freedom order.

The effect of the CRA, if adopted, would be to re-impose public utility regulation on Internet service providers.

This would not be good for consumers or America.

Presidential Memorandum Addresses China’s IP Theft and Forced Technology Transfer Practices

On March 22, President Trump signed a “Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation.” The Memorandum explains that the U.S. Trade Representative’s Section 301 investigation into China’s practices involving IP theft and forced technology transfers supports four findings:
First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.  China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms. 
Second, China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.  These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer.  As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients. 
Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans. 
Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.  These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.
The Presidential Memorandum directs the Trade Representative to take action to address unreasonable or discriminatory practices by China that burden or restrict U.S. Commerce. Such actions include consideration of “increased tariffs on goods from China” and pursuit of “dispute settlement in the World Trade Organization (WTO) to address China’s discriminatory licensing practices.” President Trump’s Memorandum also calls for possible imposition of investment restrictions, requiring the Secretary of Treasury to propose ways “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.”
A succinct overview of the Presidential Memorandum regarding Chinese-related IP theft and forced technology transfer practices as well as timeframes for implementing responsive restrictions is provided by Sarah Westwood’s March 22 article in the Washington Examiner.

Thursday, March 22, 2018

FCC Should Conduct Regulatory Impact Analyses

This week, the Mercatus Center at George Mason University published a new paper by Jerry Ellig, the chief economist at the FCC. The paper is titled “Why and How Independent Agencies Should Conduct Regulatory Impact Analysis.” Earlier this year, the FCC, an independent agency, established the Office of Economics and Analytics, which is a step in the right direction towards improving its economic analysis of proposed rules.
Here are some of the steps Jerry Ellig recommends for regulators:
  • Avoid “ready-fire-aim” rulemakings, in which decisions are made first, and then economists are expected to produce a cost-benefit analysis that supports those decisions. 
  • Ensure the independence of economists (and other analysts) and give them incentives to conduct objective analysis. For example, have economists work in a separate office or bureau, and make sure they are not supervised by the policy staff who write the regulations that the economists will evaluate. 
  • Establish agency-wide standards for regulatory impact analysis that outline the topics that the analysis must cover and establish expectations for quality.
  • Explain how the economic analysis affected decisions about the regulation. 
  • Invite the Office of Information and Regulatory Affairs (OIRA) to review the regulations and the accompanying analysis, just as it does for executive branch regulations. 

Improving the quality of economic analysis at the FCC will be an important topic of conversation at the Free State Foundation’s March 27 Telecom Policy Conference titled “Connecting All of America: Advancing the Gigabit and 5G Future.” Neomi Rao, Administrator at OIRA, will be giving a keynote address and likely will discuss how regulatory impact analyses help create effective policies.
See the rest of the agenda here and make sure you register!

Wednesday, March 21, 2018

Thinking Things Through – Maintain a Stable Legal Framework

A few weeks ago, I started what I said would be a series of a few brief posts aimed at “thinking through” the fundamental principles at stake in the long-running controversy over “net neutrality.”

In the first, “Thinking Things Through – Maintain That Line,” I explained why it is important to maintain the line that prevents Digital Age Internet services from being regulated in a public utility-like fashion like Analog Age telephone services were regulated throughout most of the twentieth century.

In the second, “Thinking Things Through – Maintain That National Policy Line,” I explained why it is important that digital broadband services not be subject to state regulation that is inconsistent with the decades-old national policy favoring light touch regulation of information services.

Here I want to assert – what common sense tells us is true –  that, in order for businesses to grow and prosper, and to invest and innovate for the benefit of consumers, they must operate in a stable legal framework under clear, predictable rules. In other words, without a stable legal framework that establishes “the rules of the road,” markets cannot operate effectively and efficiently, if at all.

The marketplace for Internet access services is not immune from the operation of this fundamental principle which is the underpinning of our free enterprise system.

Here is what James Madison (or possibly Alexander Hamilton, the scholars aren’t sure) said 230 years ago in Federalist No. 62 about a stable legal framework: “It will be of little avail to the people if the laws…undergo such incessant changes such that no man, who knows what the law is today, can guess what it will be tomorrow.” Or, as he continued: “What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed?"

What prudent merchant indeed?

More contemporaneously, in one of his first speeches in 2012 after becoming a commissioner, now FCC Chairman Ajit Pai put the Federalist’s point this way: “[W]hen businesses are uncertain, they, like you or I, are hesitant to invest. It’s therefore no surprise that billions of dollars of capital are staying on the sidelines in the communications industry.”

By now you have probably surmised that I hold that it is necessary to establish and maintain a stable legal framework governing the actions of Internet service providers in order to maximize the investment and innovation which fosters Internet advances. This is why, as I asserted in this recent piece, “Chevron and Net Neutrality at the FCC,” that Congress should now put an end to the net neutrality regulatory “bouncing ball” by adopting a stable legal framework with clear rules of the road.

Make no mistake. The FCC’s Restoring Internet Freedom Order’s repeal of the Title II public utility-like regulatory framework, adopted by the agency in 2015, is crucial to the future of the Internet for the reasons set forth in the first two pieces in this series. So, I am by no means suggesting that any existing legal regime that might turn out to be stable is acceptable. And I am not suggesting that just any law adopted by Congress to resolve the ongoing uncertainty surrounding Internet service providers’ practices would be acceptable.

What I am saying is this: To secure continued investment and innovation for the Internet ecosystem through the maintenance of a stable legal framework, Congress should enact a law governing Internet service providers’ “net neutrality” practices – a free market-oriented law with a light-touch regulatory default.