Friday, June 29, 2018

Portland, Oregon Considering Municipal Broadband, Despite Existing Competition

Earlier this month, Multnomah County, Oregon, where Portland is located, announced that it will adopt a feasibility study to evaluate the prospect of building a county- and city-wide fiber network. The study is projected to cost $300,000 and early estimations project that the network could cost $500 million to build.  If the network is adopted, it would be the biggest municipal network in the country.
This week, the Free State Foundation published a Perspectives from FSF Scholars titled “Big City Municipal Broadband: Repackaging Net Neutrality Arguments Won’t Fly,” which discusses how big cities throughout the country are adopting municipal broadband projects in the name of net neutrality. While it’s unclear why Multnomah County is proposing this municipal network, it is the latest example of a big city considering a municipal broadband project, along with Baltimore, San Francisco, and Seattle, which we discuss in-depth in the paper.
Of course, before a city begins building a network, adopting a feasibility study is a necessary and responsible step for the municipality to weigh the costs and benefits of a potential network. However, as Ted Bolema and I state in our paper, municipal networks have a history of financial instability and that likely would continue in Portland and its surrounding county, where competition already exists.
In Multnomah County, 83.4% of residents have access to two of more fixed broadband providers offering 25 Mbps or greater. Therefore, if this county- and city-wide network is adopted, it will have to compete with incumbent private providers who have a greater incentive to provide pro-consumer offerings because they cannot subject taxpayers to the burden on their inefficiencies, while a public provider can.
See our new paper to learn more about big cities considering municipal broadband projects!

Thursday, June 21, 2018

New Wireline Order Will Advance Fiber and 5G Deployment

On June 7, 2018, the FCC adopted a Second Report and Order that will accelerate the transition from legacy networks and services to next-generation networks and services and will eliminate FCC regulations that unnecessarily raise costs and slow broadband deployment. In March 2018, I authored a Perspectives from FSF Scholars titled “Reaching Rural America: Free Market Solutions for Promoting Broadband Deployment.” In the paper, I discussed ways Congress, the FCC, and state and local governments can remove barriers to entry into the broadband market to spur competition and advance deployment in rural and underserved areas. In particular, this wireline Order will reduce regulatory costs for broadband providers and advance the deployment of fiber and 5G networks.
A June 2017 paper by CMA Strategy and Corning found that the adoption of all of the proposed rules in the wireline Notice of Proposed Rulemaking (NPRM) would increase fiber broadband penetration by 26.7 million premises (residential and businesses), which corresponds to over $45 billion in capital investment. The paper also found that adoption of the full NPRM would increase 5G broadband penetration by 14.9 million premises, which corresponds to $24 billion in capital investment. For both fiber and 5G providers, over 95% of the $69 billion would be invested in rural and suburban areas. That means that the FCC’s wireline Order could lead to an additional $42.8 billion in capital investment from fiber providers in rural and suburban areas and an additional $22.8 billion in capital investment from 5G wireless providers in rural and suburban areas.
By expediting application processes and eliminating unnecessary requirements designed for legacy networks, the Second Report and Order in addition to a Report and Order adopted in November 2017 will modernize regulations and could lead to an additional $69 billion in fiber and 5G broadband investment.

Commissioner O’Rielly: Narrow Market Definition No Longer Appropriate for Media Marketplace

In a speech on July 20, Commissioner Michael O’Rielly of the Federal Communications Commission described how the FCC has been using “an extremely narrow definition and scope of the media marketplace” that can no longer be defended, especially after the decision in the AT&T/Time Warner merger:

From the viewpoint of many, both the FCC and Department of Justice have been stuck in administrative molasses, seeking to apply sectoral market analysis, preserve questionable bright line tests, and continue the imposition of rigid restrictions as part of transactional reviews the same way now as in 2008, 1988, or 1958. I would posit that the entire foundation of how the government currently views the “communications” market – be it voice, video, or data – is outdated and misguided.
Free State Foundation President Randy May and I made largely the same argument today in our op-ed posted on Real Clear Markets, where we concluded:
Judge Leon’s decision rejecting the Department of Justice’s case against the AT&T/Time Warner merger should be a spur to further critical thinking regarding the application of antitrust law to today’s technologically dynamic communications and media environment. It’s not acceptable for antitrust authorities to rely on outdated market definitions that bear little resemblance to today’s shifting competitive market realities.
Commissioner O’Rielly went on to explain:
The problem with such an approach, of course, is that when you narrowly define a marketplace and narrowly recognize competition – far devoid from market realities – the result typically leads to the application of additional regulations or limitations beyond what is necessary to protect consumers. Perhaps that’s just the nature of the beast. But, as Judge Leon recognized in his decision, there has been a “veritable explosion” in the media marketplace in just the last five years. In the video space, Netflix, YouTube, Hulu, and so many other over-the-top providers now compete directly for consumer attention and the almighty advertising dollars. In the audio space, there is also satellite radio and a myriad of Internet offerings, including the ability to stream most radio stations from their own websites. This has an impact on the ability of traditional media providers to cover their costs, make capital investments, expand operations to meet consumer needs, and so much more. Broadly, this means that, given the extensive competition from new technologies, the current generation of legacy media will only flourish, and perhaps survive, if the government recognizes this marketplace reality. 
Accordingly, all relevant participants: newspapers, radio stations, broadcast television stations, cable companies, over-the-top providers, Internet sites, social media platforms, streaming music services, and satellite radio must be included in any media market definition. When I talk to existing providers in this space they explain quite clearly to me how their future plans are centered around competing against all of those operating in the market, especially given the development and scale of two large Internet companies: Facebook and Google. In not recognizing this in our rules, we shackle certain competitors, skewing the market in favor of the unregulated industries. 
Having a dynamic understanding of where the marketplace stands at the current time, along with the agility to adapt as the market changes, allows either the FCC or DOJ to conduct a fair but accurate analysis, which should be of top priority. For example, one of the major reasons cited for the AT&T/Time Warner merger was the belief of the companies that the future rested in delivering content in the broadband space, and particularly to mobile devices. 
The FCC will be reviewing several other significant mergers later this year, including the proposed merger of T-Mobile and Sprint. Thus, these comments give an insight into how Commissioner O’Rielly will be evaluating the critical market definition issues for acquisitions before the FCC.
Commissioner O’Rielly’s speech was at an event sponsored by Michigan’s Mackinac Center for Public Policy in Lansing, Michigan. I was a panelist at the event, along with Brent Skorup of the Mercatus Center.

Friday, June 15, 2018

House Subcommittee Approves the Smart IoT Act

This week, the House Digital Commerce and Consumer Protection Subcommittee approved the State of Modern Application, Research, and Trends of Internet of Things Act, or the “Smart IoT Act” (H.R. 6032), which will now proceed to a markup in the full committee. The Smart IoT Act would create a one-stop shop for industry best practices and standards, analyze the federal government’s need for IoT devices and services, and avoid duplicative regulations that could slow innovation.
Subcommittee Chairman Bob Latta (R-OH) made the following statement: “The SMART IoT Act is a critical first step to future IoT policy efforts. As we serve on this subcommittee, we have the opportunity to look 5 years, and farther, into the future to see where technology is headed. We have an obligation to do what we can to promote innovation, American competitiveness and technological advancements that benefit consumers. The SMART IoT Act does just that.”

Thursday, June 14, 2018

Randolph May and Theodore Bolema React to Comcast Announcement Regarding Fox Acquisition

This week, Free State Foundation President Randolph May and Senior Fellow Theodore Bolema issued statements in response to Comcast's announcement regarding the acquisition of 21st Century Fox.

See both of their statements here.

Wednesday, June 13, 2018

Time for NTIA and FCC to Act on Ligado's Application for Advanced IoT Network

NTIA and the FCC have an opportunity to jump-start a new wave of broadband innovation that will boost economic productivity and consumer welfare. On May 31, Ligado Networks filed an amendment to its application to deploy a hybrid terrestrial-satellite network in the L-Band that will provide “Internet of Things” services and boost America’s position in the global race to 5G. The amendment is aimed at providing protection to certified aviation Global Positioning System (GPS) devices from signal interference by reducing power levels for downlinks to Ligado’s base stations. 

In its role as manager of the federal government’s use of spectrum, NTIA is tasked with evaluating Ligado’s application and coordinating the Executive Branch’s response. And the FCC has final approval authority over Ligado’s license application. Each agency should promptly carry out its responsibilities so that a final decision can be made on Ligado’s application.

Since emerging from bankruptcy in 2015, from all indications, Ligado has cooperated with federal agencies in testing technologies and techniques to resolve claimed interference issues. And, it appears that, based on extensive efforts, Ligado has resolved most signal interference issues, or at least reduced their scope. In light of the progress that has been made, NTIA and the FCC should be in a position to make a final decision on Ligado’s application soon. Otherwise, the L-band spectrum will remain unused, resulting in untold billions in lost opportunity costs.   

Ligado’s proposed terrestrial-satellite hybrid network is poised to play an indispensable role in the deployment of advanced IoT networks. By providing enterprises real-time communications with connected devices and sensor-embedded equipment, IoT services can enable precision manufacturing as well as heavy industrial operations that require pinpoint accuracy. The proposed service would operate advanced satellite technology in combination with terrestrial mobile technology using L-band spectrum. Due to its propagation characteristics, which includes reliable in-building penetration and cost-efficient widespread geographic coverage, this mid-band spectrum is considered highly suitable for IoT services. If approved, Ligado’s network would cover North America.

Additionally, Ligado’s proposed terrestrial-satellite hybrid network would accelerate 5G mobile broadband deployment. Ligado’s mid-band spectrum is already licensed for mobile-satellite (MSS) use, but it has long gone unused. Ligado seeks modification of its spectrum licenses that would add a total of 40 MHz of spectrum for terrestrial commercial mobile use. If the Commission permits Ligado’s mid-band spectrum to be used for commercial mobile use, that mid-band spectrum would complement low-band spectrum that was repurposed for commercial mobile use pursuant to the Commission’s 2017 incentive auction. The potential for commercial ventures that make use of both bands will increase the attractiveness of investment in 5G network infrastructure. 

Accenture has projected that global IoT-related real GDP contributions will total $10.6 trillion dollars by 2030. A May 2016 report (PDF page 39 and following) by economist Coleman Bazelon projected that Ligado’s network would generate between $250 and $500 billion in social welfare benefits by relieving growing demand pressure for mobile wireless broadband services. For its part, Ligado has publicly stated its intent to invest $800 million in satellite and terrestrial network infrastructure, thereby creating approximately 8,000 jobs.

Although the FCC has the ultimate authority to act on Ligado’s application, a timely positive evaluation of that application by NTIA, as a practical matter, apparently is a necessary predicate. NTIA is the federal government agency with primary responsibility for spectrum policy. NTIA Administrator David Redl deserves credit for recognizing the need to put L-band spectrum into use in a timely fashion while, at the same time, trying to ensure, to the extent feasible, that government operations in adjacent bands are protected. 

In a written answer to questions connected to his March 2017 confirmation hearing, Mr. Redl explained: “Protection of GPS has been, and should be, a priority for NTIA. However, that does not mean that the remainder of the L-band cannot be maximized for other uses.” He emphasized the need to coordinate between spectrum users “to best ensure no part of the spectrum goes underused.” It is important now for NTIA to do whatever it can so Ligado’s application to deploy a hybrid terrestrial-satellite network can be acted on by the FCC. 

Ligado has cooperated with federal agencies in testing technologies and addressing potential spectrum signal interference issues with GPS operations. Ligado has also reached agreements with major GPS providers on technical measures to avoid signal interference. For instance, Ligado agreed to establish what is effectively a new 23 MHz guard band for GPS services by relinquishing its terrestrial mobile service authorization for the spectrum band nearest to the GPS allocation. Now, Ligado’s May 31 amendment to its application will further reduce downlink power levels to avoid signal interference with certified aviation GPS devices. With all the progress that has been made to date to resolve interference claims, it is incumbent on NTIA and the FCC to act with dispatch now so that Ligado’s application can finally be resolved.

Given the tremendous value of the L-band spectrum and the potential economic benefits – potentially in the hundreds of billions of dollars – to be realized from putting it to use, further delay in considering Ligado’s hybrid terrestrial-satellite network application is costly. Acting on the application presents an opportunity to further America’s advancement in the global race to 5G and to enable next-generation IoT services. 

Friday, June 08, 2018

Maryland Should Lower Tax Rates to Attract More Businesses

On May 31, 2018, the Tax Foundation published a study by Katherine Loughead titled “State and Local Individual Income Tax Collections Per Capita.” According to the study, Maryland has the third highest state and local individual income tax collection per capita in the country. Moreover, Maryland collects significantly more than its neighboring states. At bottom, Maryland should lower its state and local tax rates in order to attract more businesses and residents, increasing overall tax revenue and improving its long-term fiscal health.

On average, Maryland collected $2,200 from each resident in fiscal year 2015 (the most recent data available), ranking behind only New York ($2,789) and Connecticut ($2,279), placing it significantly above the national average of $1,144. Importantly, Maryland’s state and local individual income tax collection is much higher than the amounts collected by its neighboring states. Delaware is ranked 12th with a per capita individual income collection of $1,267. Pennsylvania is ranked 11th with a per capita individual income collection of $1,276. Virginia is ranked 9th with a per capita individual income collection of $1,420. And West Virginia is ranked 26th with a per capita individual income collection of $1,048.
Free State Foundation scholars have contended that relatively high state and local tax rates in Maryland can lead to businesses and residents migrating across state lines. By lowering state and local tax rates, Maryland would incentivize existing businesses to stay in state and encourage new entrepreneurs to open up shop in Maryland. Moreover, by some measures, Maryland has suffered from a poor fiscal climate for years.
Notably, Maryland’s $20 billion in unfunded liabilities remain a problem. Attracting additional businesses and residents to Maryland with lower tax rates would expand the state’s tax base and increase overall tax revenue. With a reduction in discretionary spending, or even holding discretionary spending constant overtime, additional tax revenue should help reduce Maryland’s unfunded liabilities in the long-run.
New Jersey is ranked 8th with a per capita individual income collection of $1,479 but for years state leaders have attempted to increase the state and local income tax burden even more. New Jersey Governor Phil Murphy stated during his campaign that he would raise income tax rates for residents earning over $1 million a year, also known as the “millionaire’s tax.” But now that the proposal is on the table, state leaders are balking. Former New Jersey Governor Chris Christie vetoed an increase in the millionaire’s tax rate and has stated in the past that “if you tax them, they will leave.” Moreover, this week, the CEO of Mimeo John Delbridge announced that the company would be leaving New Jersey because “frankly the tax rates are very expensive.”
Some New Jersey leaders argue that the recently-passed federal tax legislation, which limited the state and local tax (SALT) deduction, punished wealthy taxpayers, therefore making it more difficult to raise state and local income tax rates on wealthy earners. As I stated in a December 2017 blog:
“SALT” is the acronym referring to the deduction for individuals who itemize certain tax payments to state and local governments on their federal tax returns. SALT is essentially a wealth transfer from residents in states with relatively low tax rates to residents in states with relatively high tax rates. Additionally, because residents who live in states with relatively high tax rates benefit disproportionately more from the SALT deduction, they have less incentive than they otherwise would to hold their public officials accountable regarding tax and spending policies.
Now that wealthy New Jersey taxpayers have a limit on the state and local taxes they can deduct from their federal tax return, they have a greater incentive to hold their public officials accountable and to make sure state and local tax rates do not increase. Therefore, it is not wrong to say that the limit on the SALT deduction has made it more difficult for New Jersey and other states to raise tax rates on wealthy residents. However, the limit on the SALT deduction should create greater fiscal responsibility and ultimately benefit taxpayers in the long-run.
Because Maryland has the third highest state and local individual income tax collection per capita, Maryland policymakers at the state and local level should understand how future tax and spending policies will impact residents. Governor Larry Hogan has made it his mission to improve Maryland’s regulatory and tax climate during his first term. His reforms created significant improvements to Maryland’s business climate, according to a 2017 CNBC study. With the 2018 elections fast-approaching, Maryland’s citizens should pay attention to which candidates pledge to reduce Maryland’s state and local tax burden as part of focused efforts to retain Maryland’s current residents and to attract more businesses to the state.

The United States Should Not Nationalize 5G

On Tuesday, Brad Parscale, President Trump's Campaign Manager for his 2020 reelection campaign, tweeted in favor of a nationalized 5G network:

FSF scholars have contended that the most efficient way to deploy a nationwide broadband network is through facilities-based competition, where multiple providers are building infrastructure and offering next-generation broadband services over the last mile. With facilities-based competition, providers constantly are competing to upgrade their networks and to deploy broadband in underserved areas. With a nationalized 5G network, even if multiple providers are offering services, consumers would be stuck with a failing broadband network because there is no incentive for providers to invest in technological improvements when they do not own the network.

In January 2018, FCC Chairman Ajit Pai announced his opposition to a nationalized 5G network:

I oppose any proposal for the federal government to build and operate a nationwide 5G network. The main lesson to draw from the wireless sector’s development over the past three decades—including American leadership in 4G—is that the market, not government, is best positioned to drive innovation and investment. What government can and should do is to push spectrum into the commercial marketplace and set rules that encourage the private sector to develop and deploy next-generation infrastructure. Any federal effort to construct a nationalized 5G network would be a costly and counterproductive distraction from the policies we need to help the United States win the 5G future. 

Wednesday, June 06, 2018

DOJ’s Antitrust Chief Says Three Wireless Providers May Be Enough

The proposed merger of T-Mobile and Sprint would arguably be a four-to-three merger in the market for U.S. wireless carrier, with the combined T-Mobile and Sprint competing against the presently much larger Verizon and AT&T, along with several regional wireless carriers. This merger will be reviewed by both the Department of Justice and the Federal Communications Commission.
In the past, former Federal Communications Commissioner Tom Wheeler stated that such a merger of wireless carriers would not be approved by the FCC under his leadership. Similarly, William Baer, the head of the DOJ Antitrust Division during the Obama Administration, said in 2014: “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”
However, the current Assistant Attorney General in charge of the Antitrust Division, Makan Delrahim, recently indicated there should not be any hard-and-fast rule regarding a merger of two of the four largest wireless carriers. Following a speech before the Council on Foreign Relations in Washington, DC on June 1, AAG Delrahim told reporters, “I don’t think there’s any magical number that I’m smart enough to glean.” He also said the DOJ would look at the arguments that the proposed merger was needed for them to build the next generation of wireless, 5G, but that the merging companies would have to prove their case.
In this regard, AAG Delrahim’s position appears to be consistent with the view of Free State Foundation President Randolph May, who said at the time the T-Mobile/Sprint merger was announced in April of 2018:
While I’m not prepared to take a bottom-line position on whether this merger ultimately should be approved or not, I certainly don’t agree there should be any iron-clad rule, like the one Obama Administration FCC Chairman Tom Wheeler articulated, against going from four to three nationwide mobile providers.
That is the wrong way to analyze the market, especially when mobile broadband increasingly is not a distinct market but rather part of a larger dynamic broadband market and when a merger of the third and fourth carriers in terms of the number of subscribers likely would make a more formidable competitor to the two largest wireless providers.
In this case, T-Mobile and Sprint presumably are planning to present the type of evidence AAG Delrahim is seeking. The combined companies may well exert a stronger competitive constraint on Verizon and AT&T together than separately. Moreover, the combined T-Mobile/Sprint would have combined resources and a larger customer base to support a faster 5G buildout together.
While the merger may arguably leave consumers with one less choice among wireless providers, even assuming for the sake of argument that there still is a distinct wireless market separate and apart from the broader broadband market, the loss of competition, if any, may be greatly outweighed by the benefits from faster 5G deployment.

Tuesday, June 05, 2018

Improving the FCC's Cable Leased Access Proposal

In today’s video services market, consumers choose to access video programming from multiple competing platforms. But, in many respects, cable operators remain regulated as if direct broadcast satellite (DBS), “telephone company” video service providers, and online video options don’t exist, not to mention wireless broadband providers with increasing video capabilities. Many legacy cable regulations are at odds with the free speech rights of cable operators and undermine their ability to compete for consumers. To its credit, the FCC will vote on a reform proposal regarding legacy cable leased access rules at its June 7 public meeting

The Commission should adopt its proposal to vacate rules from its 2008 Leased Access Order. That order suffered from significant legal defects and never went into effect. Rather than make leased access rules stricter, the Commission’s proposal would make compliance at least somewhat less burdensome. Nonetheless, leased access rules are forced speech mandates that clash with the First Amendment rights of cable operators to exercise editorial control over the content they deliver. If the Commission believes it is powerless to eliminate completely the leased access requirements, it should ameliorate the First Amendment problem by predicating enforcement of its leased access rules on findings of market power.  

Federal law requires cable operators to make available a portion of their channel capacity for leasing by unaffiliated video programmers. The Commission is responsible for establishing maximum rates as well as terms and conditionsfor cable operators’ leasing of channel capacity. Cable leased access requirements date back to the Cable Act of 1984. Such mandates were intended to promote a multiplicity of video distribution outlets to consumers. And the underlying premise of legacy cable regulation, including leased access, was that cable operators possessed bottleneck or monopoly power over consumer access to video programming distribution.

Despite growing competition from DBS providers and newly deployed MVPD services offered by AT&T and Verizon, in its 2008 Leased Access Orderthe Commission attempted to increase regulatory burdens rather than reduce them. But serious legal defects kept the 2008 rules from ever going into effect. The Sixth Circuit stayed the 2008 Leased Access Order because “substantial appellate issues” had been raised. The court suspected the regulations would have irreparably harmed cable operators by establishing unreasonably low rates and resulted in an influx of leased access channels displacing other video content selected and paid for by cable operators – thus causing subscribers to cancel and pursue alternative competing services.

Additionally, the Office of Management and Budget (OMB) identified five respects in which the 2008 order’s new regulatory burdens on cable operators were contrary to the Paperwork Reduction Act. According to the Commission’s Notice: “OMB specifically cited the Commission’s failure to demonstrate the need for the more burdensome requirements adopted, its failure to demonstrate that it had taken reasonable steps to minimize the burdens, and its failure to provide reasonable protection for proprietary and confidential information.” 

The procedural history surrounding the 2008 Leased Access Order supports the tentative finding in the Commission’s latest proposal that “there is no sound policy basis for the rules adopted in the 2008 order at this point.” Moreover, The Commission’s tentative finding that “vacating the 2008 Leased Access Order would be consistent with the goal of the Commission’s Modernization of Media Regulation Initiative to remove rules that are outdated or no longer justified by market realities” is solidly backed market evidence.

Today’s video services ecosystem features competitive platforms for video programmers to distribute content to consumers. According to data cited in the Commission’s Eighteenth Video Competition Report (2017), at the end of 2015, 99% of all households were served by three competing multi-channel video programming distributors (MVPDs), and 18% of the households were served by four MVPDs. Cable MVPDs’ share of the national market was 53% of the households, while direct broadcast satellite (DBS) providers served 33%, and former telephone company MVPDs served 13.4% percent. 

Moreover, 2018 will likely be the sixth straight year in which overall MVPD subscriptions have declined. Figures released by SNL Kagan indicate that total MVPD subscriptions declined to 90.3 million residential subscribers in the first quarter of 2018, with cable operators sustaining their largest first-quarter decline on record. And data regarding consumers who have dropped MVPD services in favor of online video distributor (OVD) services provides strong evidence that OVD services are increasingly perceived by consumers as close substitutes. Netflix now exceeds 56 million U.S. subscribers while Hulu has over 20 million. Amazon Prime video viewers totaled approximately 26 million as of early 2017. Niche OTT services, such as HBO Go and CBS All Access are also widely available. Furthermore, households relying exclusively on over-the-air (OTA) broadcast service increased to 12.4 million in 2015, according to data cited in the Commission’s report. And 26.7 million households relied exclusively on OTA service on at least one TV that same year. Indeed, these sweeping changes in the market make the 2008 order’s added regulatory burdens completely unjustifiable.

The Commission’s proposal would also modify its pre-2008 leased access rules by, for instance, requiring cable operators to respond only to bona fide requests from prospective leased access programmers. Additionally, its proposal would clarify Commission procedures for addressing leased access disputes. Those proposed changes are reasonable as far as they go. However, the Commission should build upon its proposal by seeking ways at least to lessen the serious conflict that exists between the First Amendment free speech rights of cable operators and leased access mandates. 

According to Supreme Court jurisprudence, the First Amendment prevents government from dictating to speakers what they must say. Leased access requirements conflict with free speech principles because they are forced speech mandates. Cable operators’ channel lineups selections and channel tier placements are editorial activities – and thus a form of constitutionally protected speech. But under the Cable Act, cable operators lose “editorial control over any video programming” on the channel capacity they are required to lease. Rate controls on leasing channel capacity also undermine cable operators’ editorial rights. 

Although leased access mandates were intended to increase video distribution in the face of cable bottlenecks, as indicated previously, competition among video distribution platforms has increased dramatically since the mid-80s and early 90s. The old rationale for legacy cable regulation, including leased access, no longer holds up. At the very least, any continued enforcement of legacy cable regulation should be predicated on an evidentiary showing of market power. Otherwise, such regulation is contrary to the First Amendment. 

The necessity of demonstrating market power in order to alleviate constitutional problems with imposing forced speech mandates on cable operators was described in an erudite concurring opinion by Judge Brett Kavanaugh in Comcast v. FCC (2008). At issue in that case was the enforcement of the Commission’s program carriage regulations – another form of forced speech mandate. Judge Kavanaugh explained that under Supreme Court decisions such as Turner Broadcasting System v. FCC (1994), legacy cable regulation, such as program carriage rules, were subject to intermediate scrutiny rather than strict scrutiny because of perceived cable bottlenecks in the early 1990s. Under intermediate scrutiny, speech of cable operators may be restricted so long as the regulation furthers an important government interest by means substantially related to further that interest. Recognizing that the old bottlenecks no longer existed in the national cable market, Judge Kavanaugh concluded that the existence of market power must be demonstrated for enforcement of program carriage rules to survive intermediate scrutiny.  

The cable leased access provisions of the Cable Act were upheld on First Amendment grounds by the D.C. Circuit in Time Warner Entertainment v. FCC (1996). However, that decision was close on the heels of the Supreme Court’s ruling in Turner, and it predated much of the dramatic rise in competing video platforms. Also, the editorial speech rights of cable operators in making channel lineup and tier placements appear even more commercially important today, as MVPDs seek to attract and retain subscribers who may be tempted to rely exclusively on OVD services. Now in light of those significant market changes, the same line of reasoning that Judge Kavanaugh applied to program carriage rules in Comcast v. FCC should also apply to cable leased access rules: enforcement of leased access requirements should be predicated on a finding of market power.

Because cable leased access is contained in the Communications Act, outright the Communications Act, outright repeal may not be an option for the Commission. But the Commission should expressly identify the First Amendment problem posed by the leased access requirements in today’s competitive video market. And the Commission should modify its cable leased access proposal to incorporate market power requirements in order to ameliorate that constitutional problem. 

At the very least, the Commission should make the existence or non-existence of market power a factor in determining whether rates or terms and conditions for leased access offered by a cable operator are reasonable. Perhaps other options also exist by which the Commission can incorporate market power findings into the operation of its leased access rules. Such options should be fully explored by the Commission in its leased access proceeding. 

In sum, the FCC deserves credit for putting forward the cable leased access proposal, which deserves to be adopted. But, taking into account the First Amendment free speech rights of cable operators in conjunction with today’s competitive video market, the Commission should consider deregulating even more.  

Monday, June 04, 2018

A Lifeline in the Great Plains

I see that Nebraska Public Service Commissioner Chrystal Rhoades used the occasion of FCC Commissioner Brendan Carr's visit to Nebraska to bend his ear regarding the FCC's pending Lifeline rulemaking proposal. According to an ex parte she ubmitted, Commissioner Rhoades told Mr. Carr that: "In some areas of Nebraska, wireless resellers may be the only wireless Lifeline option because many major market carriers no longer provide Lifeline as an ETC. The FCC's proposal will reduce comparable and competitive choices in the Lifeline market, contrary tothe goals of the 1996 Telecommunications Act."

I submitted comments along the same lines to the FCC in February opposing the FCC's proposal to restrict Lifeline support to resellers. While I generally support initiatives to promote facilities-based investment, I said that "in communications policy – as in other areas – sometimes there are reasons justifying 'exceptions to the general rule,' and I submit that this is such a case."

In my comments, I concluded:

"The reality is that, today, almost 70% of Lifeline subscribers are served by resellers. As the Commission has recognized, many of these are minorities who rely primarily or exclusively on wireless services, including wireless broadband services, for access to communications. There is no dispute that wireless resellers, like TracFone, have focused their marketing on reaching Lifeline-eligible low-income consumers, and, this, in turn, has increased awareness of the program. In any event, the reality today is that facilities-based providers currently are serving only a minority of Lifeline subscribers, so that discontinuing support for resellers would be very disruptive to the program."

I often have good faith disagreements with many of the state PUC commissioners. But, on this Lifeline point, I'm with Commissioner Rhoades.

Saturday, June 02, 2018

FCC Proposal Would Address New Forms of Access Arbitrage

One of the items on tap for the FCC’s June 7 public meeting is a draft proposed rulemaking that addresses access arbitrage abuse of the intercarrier compensation (IC) system. The IC system is premised on the basic idea that rural local exchange carriers have small customer bases and correspondingly small amounts of per-minute traffic that are terminated on their networks. As the Commission’s proposal observes:
Access stimulation (also known as traffic pumping) occurs when a local exchange carrier (LEC) with relatively-high switched access rates enters into an arrangement to terminate calls—often in a remote area—for an entity with a high call volume operation, such as a chat line, adult entertainment calls, and “free” conference calls, collectively high call volume services. 
Access stimulation thereby takes advantage of the IC system. Back in 2010, my blog post briefly explained: "FCC Needs Fast-Track Fix to Stop Traffic Pumping." The Commission made such fixes as part of its USF/ICC Transformation Order (2011). However, the Commission’s proposal points out that such arbitrage still takes place:
To circumvent the Commission’s rules, access-stimulating LECs have adjusted their practices, and now they support such services by interposing intermediate providers of switched access service not subject to the Commission’s existing access stimulation rules in the call route, thereby increasing the access charges interexchange carriers (IXCs) must pay. 
The Commission’s draft proposal seeks “to eliminate financial incentives to engage in access stimulation.” This draft proposal seeks a worthy end in eliminating new access arbitrage methods, and the Commission should approve its release for public comment. 

Friday, June 01, 2018

Ligado Takes Another Positive Step

On May 31, Ligado filed an amendment to its pending Federal Communications Commission license modification application advising the agency of further steps it has taken to protect aviation GPS devices from claimed interference. This is another in a series of steps that Ligado has taken since the company emerged from bankruptcy several years ago as it works, constructively it seems, to resolve potential interference issues that thus far have delayed putting the L-band spectrum to productive use.

We plan to take a closer look in the near future at where matters stand. But, as an immediate reaction to Ligado’s latest filing, there is no gainsaying that the deployment of advanced wireless services like those it proposes should provide substantial public interest benefits. As Valerie Green, Ligado’s Executive Vice President and Chief Legal Officer declared in a May 31 blog announcing the filing of the amendment: “Next-generation wireless networks – connecting an entire new category of IoT-enabled devices, sensors, and machines  – are projected to create three million new jobs and give the economy a $500 billion boost. Our 40 MHz of mid-band spectrum will help get our country there and regain ground in the global race to 5G.”

In today’s fast-paced marketplace environment – and with much at stake for the economy with regard to 5G deployment – it’s important, even imperative, that NTIA, indeed the entire Administration, and the FCC, work to ensure that Ligado’s proposal receives prompt consideration.