FCC Modifies Spectrum Rules to Increase 5G Deployment

On Tuesday, the FCC voted on two important spectrum-related items that will help advance 5G deployment throughout the United States.

First, the Commission adopted a Report and Order that changes the licensing and technical rules governing Priority Access Licenses that will be issued in the 3.5 GHz band – including larger license areas, longer license terms, renewability, and performance requirements. By reducing the number of licenses a wireless provider must acquire and the administrative costs of renewing those licenses, these changes will promote efficient use, encourage additional investment in the 3.5 GHz band, and ultimately streamline deployment of 5G networks.

The FCC also adopted a Notice of Proposed Rulemaking that would open up 1,200 megaherts of spectrum in the 6 GHz band to allow unlicensed devices to operate without interfering with licensed services that will continue to use this spectrum. As Chairman Ajit Pai said in his statement: “From Wi-Fi routers to connected home appliances to retro cordless phones for those of us who still have landlines, we use devices that connect via unlicensed spectrum every day. Indeed, they’ve become so popular that there is now a shortage of airwaves dedicated for their use.”

By proposing to free up more unlicensed spectrum, the FCC's action could lead to more Wi-Fi offloading, which, in turn, frees up space on mobile networks and allows for additional next-generation services. 5G wireless deployment is projected to create 275 billion in investment, 3 million jobs, and $500 billion in gross domestic product. And both of these items adopted by the Commission this week could advance the delivery of those economic benefits.

 

Lifeline Matters

As a long-time supporter of the FCC's Lifeline program, I'm was pleased to see that the Commission has proposed to levy a $63.7 million fine on Lifeline provider American Broadband and Telecommunications for engaging in apparently fraudulent conduct relating to enrollment of Lifeline subscribers.

When I say I am "pleased," I am not pleased, of course, that American Broadband engaged in fraudulent conduct, but rather I am pleased that the agency has proposed levying a stiff fine in an enforcement action. For the Lifeline program to be sustainable and to maintain public support, the FCC needs to be vigilant in rooting out waste, fraud, and abuse such as that allegedly committed by American Broadband.

It's certainly no secret that I generally favor free market policies in the communications and Internet space. And the Commission's turnabout under the leadership of Chairman Ajit Pai towards adoption of such market-oriented policies has been most welcome – and most sorely needed. But, as I stated in these comments filed in February 2018 in the FCC's current Lifeline proceeding, "the primary purpose of the Lifeline program is to ensure that low-income persons have access to communications services." In other words, it is what I consider to be a "safety net" program. In that light, and in that context, I opposed the Commission's proposal to exclude resellers from participation in the Lifeline proposal, especially given that they now serve about 70% of Lifeline subscribers.

So, I hope the Commission will continue to act vigorously to root out waste, fraud, and abuse by individual providers – the proverbial "bad actors." That's necessary and appropriate. But I hope, at the same time, it will put aside proposals that would have the effect, even if inadvertently, of gutting the program.

    

Regulatory Modesty and Toll Free Texting

I just saw that CTIA filed an ex parte regarding a meeting held with Chairman Ajit Pai's wireline advisor, Nirali Patel. CTIA's ex parte says that it "reiterated that the Commission’s recent Text-Enabled Toll Free Number Declaratory Rulingis sufficient to protect toll-free subscribers in the vibrant, competitive and innovative messaging marketplace, and that further Commission action is unnecessary to maintain the rights of toll-free subscribers and protect consumers from unwanted messages." CTIA further states that "text messaging is an interstate information service – and the record confirms that the Text-Enabled Toll Free Number NPRM’sproposal to impose regulations in the messaging market would be inconsistent with the Commission’s light-touch regulatory approach to interstate information services. "

Free State Foundation Senior Fellow Seth Cooper and I filed comments in response to the Text-Enabled Toll Free Number NPRM. In those comments, we explained, in considerable detail, why we agreed with CTIA's two points above.

This is a proceeding that begs for the exercise of regulatory modesty on the Commission's part. There is no gainsaying that, in general, the present Commission, led by Chairman Pai, has been a model for regulatory modesty. In our Text-Enabledcomments, we pointed out that Chairman Pai affirmed his commitment to regulatory restraint at a Free State Foundation event in December 2016 when he declared: “Indeed, proof of market failure should guide the next Commission's consideration of new regulations.”

Our comments in response to the Text-Enabled Toll Free Number NPRMclosed this way:

Clarifying that text messaging services are “information services” – which we believe they are – is a necessary first step in deciding whether, or to what extent, the Commission even has authority for its proposed rulemaking. In any event, given the Commission’s admittedly questionable legal authority to regulate text messaging services, the lack of evidence of a market failure or consumer harm requiring regulatory intervention at this time, and ongoing self-regulatory efforts, the Commission should refrain from imposing any new regulatory mandates in this proceeding.

So, certainly we are in accord with CTIA's statement that "further Commission action is unnecessary to maintain the rights of toll-free subscribers and protect consumers from unwanted messages."

Aggregate Broadband Investment Increased from 2016 to 2017

This week, USTelecom released a new research brief titled "U.S. Broadband Investment Rebounded in 2017." In the report, Vice President of Industry Analysis Patrick Brogan provides evidence that broadband investment totaled $76.3 billion in 2017, an increase of $1.5 billion (or 2%) from 2016 to 2017.

This is significant news because it is the first time that annual aggregate broadband investment grew in three years. As FSF scholars have noted in past blogs and FCC filings, aggregate broadband investment declined each year from 2014 to 2016. (See here, here, and here.) This likely was due to the stringent regulations imposed in the FCC's February 2015 Title II Order, which raised costs for providers and crowded out network investment. Since the FCC repealed the Title II public utility-style regulations in its December 2017 Restoring Internet Freedom Order (RIF Order), the broadband industry has rebounded and aggregate capital investment is growing again.

In a May 2018 blog, I used data collected from broadband providers' 10-K forms to create a sample which found that broadband investment had increased significantly from 2016 to 2017. Although my sample's estimate of the industry's percentage increase was off by quite a bit, my prediction that broadband investment would grow for the first time in three years was correct:

[W]hile my estimate of a 14% increase in capital investment should be considered a fairly rough estimate of industry-wide broadband investment, I am very confident that from 2016 to 2017 broadband providers significantly increased capital investment. In fact, any increase in broadband capital investment from 2016 to 2017 is worth noting because investment declined in both 2015 and 2016.

When regulatory costs increase, as they did with the imposition of the Open Internet Order, broadband providers will invest less than they otherwise would have absent such regulatory costs because the additional costs reduce the return on investment. Although the RIF Order does not take full effect until June 2018, the mere prospect of the FCC returning to a light-touch regulatory regime, along with strong competition among many broadband providers and technologies, appears to have played an important role in encouraging additional capital investment throughout 2017.

Most importantly, this news is a win for consumers because an increase in broadband investment suggests that providers are competing to deploy new networks, upgrade old networks, and/or develop innovative services, all of which benefit consumers.

Maryland's Fiscal Condition Improves Under Governor Hogan

Earlier this month, the Mercatus Center at George Mason University released its 2018 edition of "Ranking the States by Fiscal Condition," which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. 

In the 2018 edition, Maryland ranks 33rd among the states in overall fiscal condition. This is an increase of 13 spots from 46th overall in 2017. Importantly, this report uses data from fiscal year 2016, which is the first full year of Maryland Governor Larry Hogan's term. As Free State Foundation President Randolph May and I have discussed in three different Perspectives from FSF Scholars, Governor Hogan has made commendable efforts to improve Maryland's business climate by eliminating or reducing unnecessary regulations and taxes. (See here, here, and here.)

In the Mercatus report, assessment of fiscal condition is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 41st but moving up five spots from 46th in 2017.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 102% of expenses. This ranks Maryland 27th in the country, moving up twelve spots from 39th in 2017.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.69 and Maryland ranks 44th in long-run solvency, which is the same as its 2017 rank.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 17th in the country, falling just one spot from last year.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 17th, moving down three spots from 14th in 2017.

One significant issue Maryland policymakers should address is the state's looming unfunded liabilities. Maryland has nearly $21 billion in unfunded pension liabilities and has a funded ratio of 71%. This means the value of the state’s assets are 71% of the value of the state’s pension obligations. The most effective plan for decreasing Maryland's long-term debt and fixing its fiscal condition goes hand-in-hand with Governor Hogan’s efforts to improve the state's business climate.

By reducing the burdens of taxes and regulations, Governor Hogan's reforms are intended to continue to attract more businesses into Maryland. In turn, this will expand Maryland's tax base, increase tax revenue, and improve Maryland's fiscal condition by diminishing the amount of unfunded liabilities overtime. Moreover, lessening the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout Maryland.

It is fairly clear that Governor Hogan's tax and regulatory reforms are having a positive impact on Maryland's overall fiscal condition. In the first full fiscal year of Governor Hogan's term, Maryland moved up 13 spots in the Mercatus ranking. Based on the achievements that the Hogan Administration has made over the last couple of years in terms of eliminating outdated and unnecessary regulations, Maryland's fiscal health ranking should continue to improve.

In the meantime, the Maryland General Assembly should work harder to collaborate with Governor Hogan's efforts to decrease tax and regulatory burdens. This will have a positive impact on Maryland's long-term fiscal condition.

President Trump Signed the Music Modernization Act

Yesterday, President Trump signed the "Orrin Hatch-Bob Goodlatte Music Modernization Act" (H.R. 1551), which creates a compulsory blanket licensing system for music recordings, updates the rate standards applicable to music licensing, provides copyright royalties to pre-1972 artists, and provides compensation to producers, mixers, and sound engineers.

President Trump released the following statement when he signed the bill:

The Music Modernization Act closes loopholes in our digital royalty laws to ensure that songwriters, artists, producers, and providers receive fair payment for the licensing of music. 

Streaming has made music more accessible than ever, yet our laws have not kept up with the pace of technology.  As such, artists of all varieties and all career stages are losing out on revenue that they have rightly earned

This legislation will help ensure that artists from eras long ago, in addition to modern day, can retire in security, and that current and upcoming artists can make a living by creating amazing works that captivate their fans and entertain our nation — and the world. 

FSF scholars have advocated for Congress to pass the Music Modernization Act in order to better secure copyright protections and royalty payments for recording artists, songwriters, and other music professionals.

Further Readings:

Randolph May and Seth Cooper, "A Constitution Day to Strengthen Copyright Protection," Perspectives from FSF Scholars, Vol. 13, No. 35, (September 17, 2018).

Seth Cooper, "Senate Should Vote on the Bill to Modernize Music Copyright," FSF Blog, (August 9, 2018).

Seth Cooper, "Senate Should Advance Consensus Bill to Modernize Music Copyright," FSF Blog, (May 15, 2018).

Randolph May and Seth Cooper, "World IP Day – An Opportune Time to Modernize Music Copyright Protections," Perspectives from FSF Scholars, Vol. 13, No. 14, (April 23, 2018).

Reducing Regulatory Costs Will Increase Broadband Investment

Earlier this week, FCC Chairman Ajit Pai delivered a speech at the International Institute of Communications' International Regulators Forum, where he discussed several initiatives and proceedings undertaken by the Commission that will help spur broadband investment.

Specifically, Chairman Pai stated:

The best way to make sure every American has better, faster, cheaper Internet access is to set a market-based regulatory framework that promotes competition and increases network investment. We need to make it as appealing as possible for private companies to raise the capital and hire the crews to deploy networks to unserved and underserved areas. That is why the FCC has removed many regulatory barriers to lower the cost and speed the process of building infrastructure. For example, the agency has adopted reforms to make it easier and cheaper for broadband providers to access utility poles. The FCC has also modernized rules that required carriers to maintain yesterday's copper networks, which frees more money to build tomorrow's fiber networks.

Chairman Pai also gave some specific examples of the rules and proposals adopted by the FCC that will cut regulatory costs and streamline broadband deployment for wireline, mobile, and satellite broadband services. In a March 2018 Perspectives from FSF Scholars titled "Reaching Rural America: Free Market Solutions for Promoting Broadband Deployment," I explained how the increasing capabilities of emerging broadband technologies, like satellite, fixed wireless, and mobile wireless, will provide unserved and rural consumers with a viable alternative for a broadband connection. I also outlined what the FCC has done to accelerate the deployment of these services and what still needs to be done at the federal, state, and local levels.

As you can see from the graph above, rural broadband deployment improved dramatically from 2012 to 2016. If the FCC continues to adopt market-based rules and reduce the regulatory costs of broadband deployment, providers of all broadband technologies will be incentivized to invest in rural and underserved areas, closing the gap of the digital divide.

USMCA Strengthens IP Rights Protections But Can Be Improved Further

On October 1, 2018, the Trump Administration announced a new multilateral free trade agreement with Mexico and Canada, set to replace the North American Free Trade Agreement (NAFTA). In some respects, the Intellectual Property (IP) Chapter in the United States-Mexico-Canada Agreement (USMCA) would strengthen the protections and enforcement of IP rights relative to NAFTA's IP Chapter, and this is an improvement. Notably, the USMCA would implement provisions and enforcement mechanisms that should diminish the facilitation of pirated and counterfeit goods in the three member countries.

However, the proposed agreement also carries forward an outdated "notice-and-takedown" provision that does not properly protect the interests of creators and consumers.

FSF scholars recently have advocated for the modernization of NAFTA's IP Chapter. (See here and here.) And the USMCA would improve some important measures related to the protection of the rights of trademark and copyright holders. Here are some of the key provisions in the USMCA that would strengthen IP rights protections:

• Requires a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication. Canada currently has terms of life of the author plus 50 years and 70 years, respectively.

• Requires strong standards against the circumvention of technological protection measures that often protect works such as digital music, movies, and books.

• Enhances provisions for protecting trademarks, including well-known marks, to help companies that have invested effort and resources into establishing goodwill for their brands.

• Provides important procedural safeguards for recognition of new geographical indications (GIs), including strong standards for protection against issuances of GIs that would prevent United States producers from using common names, as well as establishes a mechanism for consultation between the member countries on future GIs pursuant to international agreements.

Additionally, the proposed agreement would require some enforcement mechanisms to deter the facilitation of pirated and counterfeit goods. Specifically, IP enforcement procedures must be available for the digital environment for copyright and trademark. The USMCA also includes procedures and penalties for unauthorized "camcording" of movies, which is a significant source of pirated movies online.

From the United States' perspective, about $1.3 trillion in annual economic activity is attributable to trade that crosses the U.S. borders with Canada and Mexico. Efforts to stop online piracy and the sale of counterfeit goods will encourage creators and entrepreneurs to develop new content and invest in new brands because they will have a greater ability to earn a return on their labor and resources.

However, there is one area where the USMCA needs work. The USMCA includes outdated safe harbor provisions very similar to the provisions adopted in the Digital Millennium Copyright Act (DMCA). In particular, the USMCA carries forward without strengthening a "notice-and-takedown" provision that does not adequately protect creators and consumers.

As Free State Foundation President Randolph May and Senior Fellow Seth Cooper stated in a February 2018 Perspectives from FSF Scholars, the notice-and-takedown provision was adopted twenty years ago and does not reflect today's digital marketplace for copyrighted works:  

"[Under the notice-and-takedown provision], copyright holders are entitled to give notice to an online service provider when infringing content is posted on its network or website. A provider receives immunity if it 'responds expeditiously to remove, or disable access to, the material that is claimed to be infringing.'"

"In the late 1990s there were far fewer Internet users and far fewer online platforms for user posting of content. Today, user-upload websites such as YouTube, Vevo, Dailymotion, and SoundCloud make massive amounts of music and video content available. Regrettably, users of those websites and others post far too much infringing content. For example, between 2011 and 2015, the sound recording industry issued over 175 million takedown notices to various online providers."

"As a result of mass online infringement and the burdensome nature of the notice and takedown process, copyright owners lose revenues that they would receive otherwise from legitimate sales of copies to consumers."

Compared to NAFTA, the USMCA takes some important steps to modernize and strengthen the protection and enforcement of IP rights to account for a burgeoning digital marketplace. But it's not perfect. Congress and the Office of the United States Trade Representative still need to find a way, in the context of negotiating trade agreements, to revise the "notice-and-takedown" regime in a way that adequately protects creators and consumers.

Three Reasons to Heed Michelle Connolly on Wireless Competition

Michelle Connolly is a former Chief Economist of the Federal Communications Commission. Indeed, the only person, I believe, to hold that position on two separate occasions. Good cred.

Dr. Connolly is also a highly distinguished Professor of Economics at Duke University, my alma mater. Another good cred.

Finally, Michelle is also a long-time member of the Free State Foundation's Board of Academic Advisors. Another really good cred.

Please don't ask me to choose which of these is most important!!!

No matter! Any one of them alone, of course, is sufficient to spur me to recommend for your consideration Professor Connolly's new paper, Competition in Wireless Telecommunications: The Role of MVNOs and Cable's Entry into Wireless. You can find it here on the T-Mobile-Sprint merger website or here on SSRN. (Dr. Connolly acknowledges that the report was underwritten by T-Mobile but states that the opinions expressed in this report are hers alone.)

If you are interested in better understanding the marketplace context of the proposed T-Mobile/Sprint merger and the competition analysis that the regulatory authorities are undertaking, I heartily commend the entire report to you. But, in the meantime, here I highlight just a few key excerpts:

"This report examines the competitive effects of Hybrid Mobile Network Operators (HMNOs) — mobile virtual network operators that rely in large part on self-deployed facilities — on the market for mobile wireless services and recommends that the Federal Communications Commission (FCC) broaden its now antiquated definition of the mobile telephony and broadband market to account for HMNOs. HMNOs share certain characteristics of both facilities-based carriers (Mobile Network Operators or MNOs) and non-facilities-based providers of mobile services (Mobile Virtual Network Operators or MVNOs). An understanding of MVNOs therefore partially illuminates the competitive impact of HMNOs, but HMNOs are poised to play a competitive role in the wireless marketplace that goes substantially beyond that of traditional MVNOs."

"HMNOs use a combination of facilities to provide wireless service and are not as reliant on MNOs as are pure MVNOs. Cable operator HMNOs own high-capacity network facilities that enable them to offload a majority of the voice and data traffic coming from mobile devices onto their fixed broadband networks. For example, rather than relying solely on their MVNO agreements to use Verizon’s mobile network, Comcast and Charter use their own extensive Wi-Fi hotspot networks to deliver wireless service to their customers over wide geographic areas. Comcast and Charter thus are providing wireless service using a hybrid strategy, combining traditional non-facilities-based MVNO agreements and facilities-based MNOs. (Emphasis in original.)"

"HMNOs should be considered as part of the relevant mobile services market. Cable HMNOs’ entry into the wireless market has already increased competition. The impact of this intensified competition on price discipline will grow in the next couple of years. Accordingly, any analysis of the mobile telephony/broadband market must at the very least include HMNOs. (Emphasis in original.)"

On behalf of the Free State Foundation, Senior Fellow Seth Cooper and I filed comments and reply comments in the FCC's proceeding to consider the proposed T-Mobile/Sprint merger in order to provide context for the agency's consideration, including the competition analysis. As with Professor Connolly's paper, if you are interested in the merger, I hope you will review the FSF comments and reply in their entirety.

Here is a brief excerpt from each that, in relevant part, is consistent with Dr. Connolly's conclusions in her paper.

From FSF's August 27 Comments:

"Wireless market entry by Comcast and Charter Communications using hybrid Wi-Fi/cellular mobile wireless networks as well as DISH Network’s planned launches of IoT and 5G networks diminish the likelihood of significant price increases, post-merger. Commission precedents like the CenturyLink/Level 3 Order (2017) factor such entry into the review analysis."

"Of course, reciting the market shares above might be read to suggest that mobile broadband is a properly defined market for purposes of competition analysis, but this likely is no longer the case. It is more likely that wireless and wireline broadband services properly are part of an overall broadband communications market – a broader broadband market, if you will – as these two market segments become increasingly substitutable. Traditional market definitions, such as a “mobile broadband” market, are now likely to be overly narrow, just as "cable" is certainly outdated and overly narrow as a meaningful product market definition."

From FSF's September 18 reply comments:

"The Commission should reject any artificial rule demanding four nationwide mobile wireless providers. Post-merger, consumer choices will still include three nationwide mobile service providers, plus regional providers, and hybrid Wi-Fi/cellular service providers Charter Communications and Comcast. “New T-Mobile” would likely be a stronger competitor. And the proposed merger would provide New T-Mobile an accelerated pathway for nationwide 5G network coverage that neither provider would have by themselves."

Again, if you're interested in knowing more about the dynamics of competition in the wireless marketplace, I commend to you Michelle Connolly's newly-published paper, Competition in Wireless Telecommunications: The Role of MVNOs and Cable's Entry into Wireless. And while you're at it, you might also read the Free State Foundation's comments and reply comments submitted in the FCC's T-Mobile/Sprint merger proceeding.