Susan Crawford's at It Again: Agitation for Regulation by Mischaracterization

Susan Crawford’s at it again – engaging in agitation for regulation by mischaracterization.

For many years, Ms. Crawford has advocated that Internet service providers (“ISPs”) be regulated as public utilities. She does so again in her latest fact-distorted piece published in the New York Times.

If you are convinced that the Internet should be subject to rigid government control like a nineteenth-century public utility, perhaps nothing will dissuade you. But if facts matter at all, consider what’s misleading about Ms. Crawford’s overheated advocacy. Her entire argument is based – as it always has been – on the false claim that American consumers “don’t have a choice” when it comes to Internet service providers. Here is the entire basis upon which her latest argument rests:

These five companies [Comcast, Charter, Verizon, CenturyLink, and AT&T] account for over 80 percent of wired subscriptions and have almost total power in their territories. According to the Federal Communications Commission, nearly 75 percent of Americans have at most one choice for high-speed data.

In evaluating Ms. Crawford’s claim, initially it’s worth pointing out that in her book, Captive Audience, published in 2013, she asserted, without a smidgen of doubt, that “cable companies” – and especially Comcast – represented the only choice American consumers had for high-speed data services. Indeed, she proclaimed that cable already had “decisively” won the battle. As I pointed out in one of my reviews, Ms. Crawford’s misleading narrative was “based entirely on substantially narrowing the market definition” by defining the relevant market as broadband speeds above 100 Mbps.

Well, as President Ronald Regan once famously, said, “There you go again.”

Ms. Crawford now claims that five companies account for over 80% of wired subscriptions. Please note that three of those five are not cable companies that Ms. Crawford steadfastly asserted, in her 2013 book, already had captured the broadband market.

But let’s move on.

There are two very fundamental analytical problems with Ms. Crawford’s claim that consumers “don’t have a choice” of Internet service providers. First, she limits her analysis to “wired” subscriptions only. And, just as she did in her book, she chooses to define “high speed data” very narrowly, without ever acknowledging she is doing so. Both of these limitations distort current marketplace realities in a way that artificially narrows – and thus mischaracterizes – the actual ISP choices available to American consumers.

It is simply wrong to exclude all non-wired ISPs as “choices.” Indisputably, consumers increasingly are accessing the Internet through wireless broadband providers. According to a study by the Department of Commerce’s National Telecommunications & Information Administration, American consumers at all income levels are rapidly substituting mobile broadband usage for fixed wireline usage. Indeed, the NTIA study showed that the proportion of online households that relied exclusively on mobile broadband service at home doubled between 2013 and 2015, from 10 percent to 20 percent. Thus, according to NTIA, the study showed “[m]obile Internet service appears to be competing more directly with wired Internet connections.” There is little doubt that, today, even more households are wireless-only when it comes to accessing high-speed data. While Ms. Crawford chooses to focus only on wired providers, highly competitive wireless broadband service providers carry an increasing proportion high-speed Internet traffic.

Moreover, in addition to excluding terrestrial mobile broadband from consideration, Ms. Crawford’s limited market view excludes satellite broadband. Not surprisingly, she fails to mention the recent announcement by Hughes that it plans to offer satellite broadband across the country at speeds of 25Mbps. The FCC’s own data show that, even in December 2015, satellite providers offered broadband service across the country at speeds of at least 10 Mbps.

But aside from excluding all non-wireline broadband providers, the second fundamental problem with Ms. Crawford’s claim is that, relying on FCC data from December 2015, she excludes as a consumer “choice” any alternative service that might provide less than 25 Mbps. To be sure, available speeds offered by ISPs are increasing continually across all technological platforms – a fact that Ms. Crawford ignores.  For example, even in 2015, over 95% of American consumers had access to three or more mobile broadband providers at speeds ranging from 13 Mbps to 20 Mbps, and almost 90% had a choice of four. For many consumers, at present, Internet access at broadband speeds in this range satisfies their demands, and represents, for them if not for Ms. Crawford, a perfectly acceptable choice.

You can read Ms. Crawford’s latest piece until the proverbial cows come home, and you won’t find a word about the huge capital investments – exceeding $1.5 trillion and counting – already incurred by private sector Internet providers in building out advanced broadband networks. Suffice it to say that the real-world economics of constructing and operating networks that require massive capital investments has never been her concern. But that’s a whole other story.

In Captive Audience, Susan Crawford argued passionately in 2013 that “America needs to move to a utility model” for the Internet. She’s still at it and unlikely ever to change.

Perhaps, like Ms. Crawford, you may believe that Internet providers should be government-controlled public utilities. That is certainly your prerogative. Please just don’t base that belief on the clearly erroneous assertion that nearly 75% of Americans have only one choice for high-speed data. That’s simply not true.

A Message for Susan: Dynamic Markets Make Predictions Hazardous

I was thinking of Susan and her book again this weekend. Yep, that would be Professor Susan Crawford of Benjamin Cardozo School of Law and her book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age. 

I was thinking of Susan because, in catching up on my stack of weekend reading, I came across this recent Wall Street Journal article, "Cutting the Cable Cord and Getting 'Phone TV'" [subscription required]. I'll get back to the article shortly, but first a word about Captive Audience. 

As you may know, the whole premise of Professor Crawford's book is that Comcast especially, but other cable operators as well, are monopolies and that, therefore, they should be operated as public utilities. Just like the electric utilities – rate regulation, non-discrimination obligations, and all. 

I have discussed Professor Crawford's book in more detail in earlier pieces, including this one, "Captive Audience's Captive Thinking." Please read the entire piece if you haven't done so. But, for my purpose here, I'll just reproduce the way I began the essay: 

"Captive Audience" is flawed because Professor Crawford relies on an incorrect – indeed, a hypothesized – view of the communications and information services marketplace to construct the case for monopoly power. And then she offers anachronistic, legacy regulatory measures to remedy the supposed ills that exist in her hypothesized market. In my view, the book more appropriately might have been titled, "Captive Thinking: Viewing Today's Telecom Industry Through An Analog-Era Lens." 

The book's central thesis is unmistakably clear: Comcast possesses monopoly power with respect both to the provision of broadband services and the provision of video programming. While less clear, at times it appears Professor Crawford may be making the same monopolistic power claim with regard to Time Warner Cable and other cable operators. 

While it doesn't come until the very end of the book, the proposed remedy for this supposed monopolistic power is unmistakably clear as well: "America needs to move to a utility model."

I am confident that if you read, or even skim, Professor Crawford's book, you will see that I have fairly captured the essence of her views. Indeed, on the very first page, she calls Comcast "a monopoly provider of wired high-speed Internet access" and then on page 2 asserts that, as a result of its merger with NBCU, Comcast "would probably make content too expensive for any potential data distributor." By page 53, Professor Crawford has concluded, "cable's advantages eventually became unbeatable." 

End of story! 

Except of course, it is not the end of the story – because Professor Crawford fails to appreciate the ongoing dynamism of today's digital age communications marketplace, and the capacity of this marketplace to foster competition and consumer choice. Simply put, Professor Crawford's hypothesized view of her hypothesized market, dominated by Comcast and other cable operators, has turned out to be wrong, certainly at least for now and for the foreseeable future. 

Recall that Professor Crawford suggests the Comcast – NBCU merger "would probably make content too expensive for any potential competing data distributor." Now back to the WSJ article, "Cutting the Cable Cord and Getting 'Phone TV,'" which begins: "The way things are going 'cable TV' may have to be replaced by 'phone TV.'" It contains lots of figures indicating the extent to which AT&T and Verizon are taking market share away from cable operators against whom they compete. For example, the article reports that, according to recent third quarter results, "[t]he top two cable providers, Comcast Corp. and Time Warner Cable, Inc., shed 435,000 video customers in the quarter, while AT&T and Verizon added 400,000." 

According to analyst Craig Moffett, "[t]he third quarter results are a reminder that the biggest threat facing the cable industry is competition from phone companies…." 

The article reports that cable executives and analysts contend Verizon and AT&T have largely won market share using discounted pricing and promotional packages. This sounds like marketplace competition to me, and competition that is benefitting consumers.

And AT&T CEO Randall Stephenson is quoted to this effect: "It’s going to be a dogfight between us and cable for the next 20 years. They will invest, and they will step up. We will invest. It will go back and forth." This dogfight sounds like marketplace competition to me – indeed, vigorous competition – and competition that is benefitting consumers.

And by the way, in this competitive environment, "they will invest" and "we will invest" are not empty words, but proven reality. According to a recent study by the Progressive Policy Institute, AT&T, Verizon Communications, CenturyLink, Comcast, and Time Warner Cable all ranked in the top twenty of non-financial companies making capital investments in the U.S over the past year. All this investment is the result of marketplace competition, and it is benefitting not only consumers but the nation's economy as well.

Let me be perfectly clear. I don't have a dog in this competitive dogfight. And unlike Professor Crawford, I don't pretend I can predict ultimate winners and losers among the competitors in a dynamic marketplace, or know how the market structure will evolve in the years to come. In any event, it's not my business to predict winners or losers.

But what I do know is this: With the ongoing technological changes and evolving business models and experimentation, the marketplace in which Comcast and other cable providers presently operate is competitive. Of course, by definition, the same is true for the cable operators' competitors, AT&T, Verizon, and all the other broadband providers, including the various wireless and satellite operators.

So, I think it is seriously wrong for Professor Crawford to brand Comcast and other cable operators "monopolies." And it would be a mistake of huge proportions to heed her call to regulate broadband companies as utilities, just like electric power companies, which by and large continue to retain dominant market power. Imposing a utility-like regulatory straight jacket on broadband providers, say, to prohibit experimentation with various usage-based billing plans tailored to the needs of different customers' preferences, is a sure-fire recipe for stifling innovation that benefits consumers and investment that benefits the nation's economy.

I wish I could get Susan to agree that it's no time to let captive thinking premised on a hypothesized market trump the competitive realities of the broadband marketplace. If such thinking ever were to lead to regulating broadband providers as public utilities, rest assured that consumers would be the real losers.

Overregulation and Innovation

Susan Crawford is a former high-ranking Obama Administration official responsible for formulating communications policy. Before leaving, her formal title was special assistant to the President for science, technology, and innovation policy. 

Now this title seems especially ironic, even misbegotten, particularly the part about "innovation policy." 

This is because last week on NPR's The Diane Rehm Show, Ms. Crawford declared that "overregulation" is "the way we make innovation happen in America." This is a rather astounding statement by a former Obama Administration official with "innovation policy" in her portfolio. It was uttered in the context of asserting, wrongly, that the U.S. is behind countries such as China with respect to broadband deployment. 

While astounding, Ms. Crawford's statement is not entirely surprising. Now back in academia as a professor at Cardozo School of Law, Ms. Crawford is an avowed, unapologetic advocate of public utility-style regulation, if not outright government ownership, of America's broadband Internet service providers, such as Verizon, Time Warner Cable, AT&T, Comcast, Cox, CenturyLink, Cablevision, and all the rest. 

In April 2012, Ms. Crawford wrote an article for Wired magazine advocating just such public utility regulation for cable broadband providers. In that piece, her regulatory advocacy was premised on the assertion that an airline gate agent had refused to allow Ms. Crawford to store her viola in the first class storage compartment or in the overhead bin. At the time I was not unsympathetic to her musical instrument's plight. But I explained in "Just Downright Flighty: The Viola and the Crazy Gate Agent" why the airline agent's action did not provide a justification for suggesting that today's broadband providers, operating in a competitive marketplace, should be regulated as if they were Ma Bell operating in the monopolistic environment of the 1970s. 

Well, with her comment suggesting that "overregulation" is the way to make innovation happen in America, Ms. Crawford is at it again. American inventors and innovators from Benjamin Franklin to Thomas Edison to Steve Jobs – and thousands more not so well known – must be turning over in their graves. 

Of course, when there is a market failure, or in instances when public safety and health are at risk, there is a place for proper regulation – but not overregulation. Even President Obama, not one to shy away from proposing (too many) regulatory solutions, seemingly appreciates the fact that unnecessary, over-zealous regulation stifles innovation. For example, in his Executive Order 13563, issued in January 2011, Mr. Obama said that America's regulatory system, while protecting public health, safety, and the environment, must promote "economic growth, innovation, competitiveness, and job creation." 

There is even a section in the Executive Order on "Integration and Innovation" which states:

Some sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping. Greater coordination across agencies could reduce these requirements, thus reducing costs and simplifying and harmonizing rules. In developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simplification, and harmonization. Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to promote innovation.

The whole thrust of the entire Executive Order is to suggest that, where possible, regulatory burdens – and the associated costs of regulation – should be reduced. Certainly, nothing in the section on innovation suggests otherwise. 

And then there is this: On the same day the Executive Order was issued in January 2011, President Obama published an op-ed in the Wall Street Journal under the title, "Toward a 21^st Century Regulatory System." In his op-ed, he declared that sometimes regulations get out of balance, "placing unreasonable burdens on business – burdens that have stifled innovation and have had a chilling effect on growth and jobs." Indeed, President Obama began his op-ed by stating: "For two centuries, America's free market has not only been the source of dazzling ideas and path-breaking products, it has also been the greatest force for prosperity the world has ever known." Certainly, President Obama, Ms. Crawford's former boss, doesn't seem to hold a brief for the proposition that regulation is, as Ms. Crawford put it, "the way to make innovation happen in America." 

In the post-Mao era, I doubt seriously that the Chinese, whom Ms. Crawford cites favorably by way of an example to be emulated, subscribe to that proposition. 

I cite President Obama's Executive Order and Wall Street Journal op-ed, not because Mr. Obama has always been as sensitive to the adverse impact of unnecessary regulation as he should be, but because the order and his commentary are consistent with the near universal mainstream consensus among economists and policy experts that unnecessary regulation stifles both innovation and investment. 

I repeat: For Ms. Crawford to assert that "overregulation" – or even just plain ol' regulation – is "the way we make innovation happen in America" is misguided.

The Wrong Way to Free Markets and Free Speech

In a report in today's Broadcasting & Cable entitled, "Susan Crawford: Country and the FCC at Crisis Point," John Eggerton reports on Susan Crawford's address at Free Press's National Conference for Media Reform. 

Right now I'm much more worried about the "crisis" that may be created by North Korea than anything happening at the FCC. But, be that as it may, I will say this: If Professor Crawford's ideas were ever to prevail at the FCC, then the country – if not hurled into a "crisis" – surely would be put in a position which jeopardizes the country's future economic and social well-being. 

Here's why. 

According to the Broadcasting & Cable report, Ms. Crawford declared, "regulation of infrastructure, government intervention, makes free markets and free speech possible." 

In today's increasingly competitive, dynamic digital marketplace environment, Professor Crawford's assertion that government intervention makes possible free markets and free speech is emphatically wrong. In fact, Professor Crawford has it just backwards. 

To borrow from Hayek, it is Ms. Crawford's "Fatal Conceit" – and that of those who share her views – that the communications marketplace can never be considered competitive "enough" to forego government intervention. In her view, today's digital Internet providers should be regulated in the same way electric utilities are regulated. As she says in her book, "Captive Audience," for today's broadband Internet providers, "America needs to move to a utility model." To drive home the point, she harkens back to the late nineteenth-century public utility regulation of railroads, which predated, of course, public utility regulation of the electric power companies. 

I wrote a long piece, "Captive Audience's Captive Thinking," debunking Professor's Crawford's theories. I am not going to repeat here all that I said in that piece. But I hope you will read the piece in its entirety if you missed it before. 

Here is the essence of the way I explained Ms. Crawford's "fatal conceit" regarding her misunderstanding of the current marketplace:

"In support of her claim that cable already has 'decisively' won the battle, Professor Crawford engages in a bit of sleight of hand. This is because her claim is based entirely on substantially narrowing the market definition by defining the relevant market – and this is buried in a footnote [page 284, note 3] – as 'cable companies with DOCSIS 3.0-enabled infrastructure that can offer very high peak download speeds.' In other words, in the few places where Professor Crawford addresses market power and market definition in any serious way, she distinguishes, albeit very subtly, between 'high-speed' and 'very high peak download speed' broadband services. The latter only includes services with speeds above 100 Mbps. In other places, she distinguishes between high-speed wired broadband and what she calls 'truly' high-speed broadband.

The problem with this approach is that it doesn't reflect present marketplace reality. Even though Professor Crawford may think otherwise, for most consumers, telephone company-provided high-speed broadband services provide a satisfactory alternative to those of cable operators, even in areas in which fiber technology is not employed. Many consumers consider the broadband service provided by satellite operators a satisfactory alternative to cable broadband. And still other consumers consider wireless broadband services not only complementary to cable (as Professor Crawford maintains), but substitutable as well. This is increasingly so as high-speed 4G wireless services become more ubiquitous.

Indeed, over 80% of American households have access to at least two high-speed wireline providers consistent with the FCC's definition of high-speed, even if one does not provide service, at peak times, at the 'truly' or 'very' high-speed above-100 Mbps that Professor Crawford insists on employing for market-defining purposes. 

So, the problem with Professor Crawford's claim of cable monopoly power is that it rests on a hypothesized marketplace based on an unduly restrictive market definition, not on the broadband market as it presently exists. Her hypothesized market definition is based on her own personal predilections concerning the level of service she thinks she will demand in the future, rather than on an analysis of the services consumers demand in today's actual marketplace. Note that she does not report that when the FCC last surveyed consumers, the agency found that 93% were satisfied with their broadband service. And note also that right at the outset of her book [on page 2] she predicates her assertion of Comcast's dominance on the level of service that she hypothesizes will be sufficient to satisfy Americans 'in the near future,' without explaining what that means."

Sad to say, I am very doubtful that any amount of evidence whatever would sway Professor Crawford from her view – apparently still being peddled as well at the Free Press conference by former FCC Commissioner Michael Copps – that the digital broadband marketplace is monopolized. I do find it ironic that, even as I write this, there is a yet another story featured in today's Washington Post to the effect that a growing number of viewers watch whatever video programming they watch – solely – over the Internet, and, yes, over their smartphones. 

It is completely fallacious, of course, to assert, as Ms. Crawford does, that more government intervention makes possible "free markets" or "free speech." It is one thing to recognize – as I do – that in cases of demonstrated market failure, there is a role for government regulation to play in protecting consumers. It is another case altogether to think that, in the current increasingly competitive, dynamic broadband Internet marketplace, government intervention makes possible a free market. Such intervention, especially along the lines of imposition of the "utility model" recommended by Ms. Crawford, is completely at odds with a free market. Simply put, absent market failure, the way to promote consumer welfare and incentivize economic growth is too rely on free market principles. 

Finally, and as importantly, as I have so many times in the past, this must be said yet once again: Ms. Crawford's notion, shared by Mr. Copps, that government intervention and regulation of broadband Internet providers makes possible "free speech" is exactly backwards – and dangerous too. The First Amendment's free speech guarantee is intended to protect private persons and entities from government interference with their speech – not to authorize government intervention curtailing speech under the guise of some government official's notion of ensuring of "fairness" or "non-discrimination."

Europe Lags Behind U.S. in Broadband Speeds and Connectivity

Although some have touted Europe as a broadband leader, Europe generally trails the United States in important measures of broadband performance. The United States has led the world in broadband subscriptions for years, and yet there are some in the U.S. who continue to downplay these broadband achievements as part of an effort to advocate for an increased regulatory role in broadband build-out. As far back as 2007, FSF President Randolph May wrote, in a blog entitled "The 'Talking Broadband Down' Crowd," that those who predictably lament OECD broadband penetration statistics are “getting tiresome." They are getting even more tiresome now in light of evidence of the U.S.’s lead over Europe’s broadband speeds, penetration, and market performance.

The United States generally provides faster broadband than Europe. On average, most Americans have access to broadband speeds of 7.2 Mbps, which ranks the U.S. as the ninth fastest broadband provider in the world according to Akamai’s most recent State of the Internet Report. Last year, average broadband speeds available in the U.S. increased by 20%. In contrast, most major countries and regions in Europe are nowhere to be seen on the top-ten list, with the UK ranking 17th, reporting an average connection speed of 6.3 Mbps, and other major countries lagging even further behind, with Germany and France reporting averages of 5.9 Mbps and 4.8 Mbps respectively.

The United States also far exceeds Europe in overall broadband penetration. The U.S. boasts broadband connections for 95% of Americans.  As reported by the New York Times in December 2012, only 2% of European Union households have access to broadband download speeds of 100 Mbps or greater, while in the United States, at least 50 million homes, or nearly half of all households, are able to connect to networks offering at least 100 Mbps. Additionally, only half of E.U. households have service at even 30 Mbps. The European Commission says it aims to match the 100 Mbps connectivity rates reported by the United States and provide all E.U. households with service at 30 Mbps by 2020.

Due to competition, Americans also have greater choice in access to broadband than European consumers. There are at least two wireline facilities-based providers of broadband in 85% of the U.S. Additionally, the U.S. provides Internet access through DSL, 3G, 4G, cable, cable-fiber hybrid, FiOS, WISPs, and satellite. This multitude of choices enables consumer access to services that meet their particular needs for various features and functions at various price points.

European networks are still not attracting nearly the same levels of investment or profit that U.S. networks do, and the gap continues to widen. The August 2012 706 Report released by the Federal Communications Commission concedes that "[p]rivate industry is continuing to build out broadband and has invested significantly into broadband networks to date." According to figures cited in the 706 Report, between 1996 and 2010 wireline broadband providers invested $41 billion annually in expanding their networks, amounting to more than half-a-trillion dollars in broadband investment over a fifteen-year period. CTIA estimates for years 1996-2010 show that cumulative capital investments for wireless providers totaled more than $277 billion. In 2011-2012 alone, U.S. providers reported making capital investments of more than $25 billion, while wireless providers in 15 European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK) spent $18.6 billion combined. Investment in European broadband networks has been lagging amid economic downturn, overcrowded market conditions, and tough regulations, and analysts urge change to the regulatory or macroeconomic environment in order to improve conditions.

Private sector leaders have recognized the need for regulatory reform in Europe based on U.S. success. Vodafone CEO Vittorio Calao urged European telcos to “look very carefully at the American model and more seriously ask ourselves why there is such a successful model for customers, shareholders and governments that we seem not to be able to replicate.” 

Some European regulators also have recognized the need for regulatory reform if EU countries are to keep pace with the U.S., which has built out vast high-speed networks.  Neelie Kroes, Commissioner for the European Union’s digital agenda, has proposed measures that would lower national barriers to consolidation, perhaps motivated by Hong Kong-based Hutchison Whampoa’s acquisition of Orange Austria from France Telecom, which reduced the number of national network operators in the country from four to three.

Commissioner Kroes has also proposed that the European Commission begin allowing large operators that lease their landline networks to competitors to increase their rental fees. Kroes has tried to manipulate the competitive landscape in Europe before, proposing regulating rents paid to lessors down to bolster smaller competitors, resulting in criticism from those landline owners. Although Kroes plans to announce a set of measures to bar discriminatory behavior by landline operators, it remains to be seen whether this complicated, superimposed regulatory framework will actually preserve and promote competition rather than hinder it. 

Rather than celebrating the good news of remarkable U.S. progress in broadband deployment, which is at least partly attributable to the FCC's deregulatory broadband policies, the "talking broadband down" crowd continues to criticize the current marketplace and downplay positive statistics and reports in order to advance a pro-regulatory agenda.  In contrast to the view promoted in Susan Crawford’s Captive Audience, technological advances and new business models will continue to evolve in ways that provide consumers with a meaningful choice of alternatives that meet consumer demands. This is what we have seen in the context of U.S. broadband development over the past decade.

Although the U.S. has made great strides in broadband deployment and provision of high-speed services, it is essential to continue on the path towards completing the transition to a digital world.  Just as FSF President Randolph May said in 2007, the correct path is not “defining down” the U.S.’s broadband progress in an effort to promote increased regulation. In order to remain a world leader in broadband build-out and speed, the U.S. must continue to support innovation and growth by removing unnecessary regulatory barriers to network development and build-out.