Outside the Beltway Disconnect on Communications Policy

A week of traveling, first to San Francisco and then to Seattle, left me with the distinct impression, with respect to communications policy, that there is a fundamental disconnect between the policies the Obama Administration's FCC is pursuing and those that citizens living outside the Beltway would wish to have pursued. This disconnect is not unlike the gulf that appears to exist between the Obama Administration and the American public on other issues, say, health care reform.

In talking policy and politics with colleagues, friends, and family - and more than a few random acquaintances – it seems to me that, of all the issues on people's minds, "Net Neutrality" is pretty far down on the list. I am not suggesting my conversations and observations by any means represent a scientific poll. But I am suggesting that, even in the liberal redoubts of San Francisco and Seattle, the issues foremost on voters' minds revolve around the economy and jobs.

James Carville's famous injunction – "It’s the economy, stupid!" – has more relevance today than it did in 1992. If you want to discuss net neutrality, you generally have to bring up the topic yourself.

That being so, it remains a mystery, and well-nigh a tragedy, that the Obama Administration's FCC, under the leadership of Chairman Julius Genachowski, has devoted so much of its time and energy to trying to implement net neutrality mandates that will turn Internet providers into traditional common carriers. The effect of such new regulatory mandates will be, to some greater or lesser degree that defies precise advance calculation, an inhibition on the willingness of Internet providers to invest and to innovate – and, thereby, to create jobs. One recent study, by the Advanced Communications Law & Policy Institute at New York Law School, estimates that, if the FCC imposes net neutrality common carrier mandates on Internet providers, the U.S. economy will suffer a $310 billion economic loss in Gross Domestic Product over five years, along with a loss of 502,000 jobs. This is the study's most conservative scenario for adverse GDP impact and job loss.

With the stakes so high for the nation's economy and for jobs, the FCC Democratic majority's single-minded focus on imposing net neutrality regulation is more than a bit puzzling.

There are many instances one could cite as further evidence of the disconnect between the FCC and the American people. But after a week outside the Beltway one in particular sticks in my mind. Recall the way the FCC tried to spin the results of its own survey that it bills as part of its "broadband speed initiative." In a news release, the Commission trumpeted that the survey indicated 80% of broadband users do not know the speed of their Internet connection. Buried at the very end of the FCC's news release was this: "Fully 91 percent of broadband users say they are 'very' or 'somewhat' satisfied with the speed they get at home. The comparable number for mobile broadband, which is not yet technologically capable of the same speeds as home broadband, is 71 percent satisfaction."

Only an FCC bent on a mission of adopting new Internet regulations – even absent evidence of market failure or consumer harm - would choose to downplay the high level of consumer satisfaction with broadband service. It is obvious by the way the FCC spun the survey results that Chairman Genachowski must have been disappointed to learn the vast majority of consumers are satisfied with the speed of their Internet connections. This refusal to credit the positive, while emphasizing the negative, simply is further evidence of the disconnect between the FCC and the public at large. Most Americans know, intuitively, and without the benefit of an FCC survey, that the nation has made tremendous progress since the FCC decided in 2002 that broadband Internet providers should not be subject to common carrier-like regulation.

More evidence of the inside-outside the Beltway disconnect is provided by the fact that close to 300 members of the U.S. House of Representatives and Senate, including a large number of Democrats, have openly opposed Chairman Genachowski's latest net neutrality proposal. Presumably, these representatives have a better sense, especially in an election year, of what the public thinks the FCC should be doing than do the unelected commissioners.

Now back to the Left Coast, from whence I just departed. Communications Daily reports [August 16 edition; subscription required] about 100 persons showed up for a MoveOn.org rally at Google headquarters to protest the company's net neutrality agreement with Verizon. MoveOn.org, Free Press, Public Knowledge, and their allies maintain that Google has sold out on its commitment to seeing strong net neutrality mandates put in place. Apart from the merits of the Google-Verizon agreement, the small size of the California turnout ought to give pause to those at the FCC, and elsewhere in Washington, who may have convinced themselves there is a groundswell of support among the American body politic for imposing new Internet regulations.

I said early on that it is not only a mystery, but also a tragedy, that the Obama Administration's FCC has chosen to go to such great lengths to impose net neutrality mandates, given the lack of evidence of market failure and given the widespread satisfaction of American consumers with their broadband Internet service. I may never understand this mystery. But I do understand the tragedy.

The tragedy is that the FCC's single-minded pursuit of net neutrality regulation necessarily has diverted attention and resources away from addressing other significant issues which, if done right, could have a positive impact on the economy and jobs. I have in mind, for example, reform of the antiquated and economically inefficient "universal service" telephone regime that now levies a surcharge of nearly 14% on all long distance calls. A "telephone tax" of this size, necessitated by the payment of subsidies to inefficient carriers using high-cost legacy technologies, as well as to multiple providers serving the same geographic area, obviously has a suppressive effect on economically efficient activity. The universal service regime should have been reformed long ago, and this should be a top priority of the Commission.

Another priority should be spectrum reform. The Genachowski FCC, to its credit, has emphasized the economic benefits to be realized from more efficient spectrum utilization, especially a "repurposing" of spectrum so that wireless providers are able to meet surging consumer demand for new, innovative next generation wireless broadband services. The attention in the National Broadband Plan devoted to this subject was noteworthy, and particularly welcome. But implementing reform of spectrum policy, in conjunction with Congress, is a major undertaking, one again requiring substantial Commission attention and resources.

Perhaps the Commission's traditional August "recess" will provide time for some much-needed reflection and reevaluation. There would be no shame at all if Chairman Genachowski decided, especially in light of the D.C. Circuit's recent Comcast decision holding the FCC lacks authority to regulate Comcast's broadband network management practices, the agency should abandon its efforts to impose net neutrality regulation. There would be no shame, and indeed much credit, in acknowledging, in light of the serious questions concerning the FCC's legal authority to act on its own, that the agency should leave the matter of regulation of Internet providers to Congress.

If the FCC took this course, the agency could turn its full attention to the more urgent matters at hand, matters that, unlike net neutrality with its likely negative impact on the nation's economy and jobs, would most likely have positive economic consequences.

If the FCC did this, with talk still prevalent of a potential "double-dip" recession, the agency would reduce, or even eliminate, the disconnect that presently exists between it and the American public regarding the policies and priorities it is pursuing.

Technorati Tags: Net Neutrality,Internet Regulation,Broadband

No Internet Regulation Without Congressional Authorization

I just read a press report – which may or may not turn out to be true - that the talks at the FCC among the various parties trying to reach a compromise on net neutrality have broken down. (Google and Verizon are apparently still negotiating.) If it is true the talks among the broader group have broken down, this certainly does not mean FCC Chairman Julius Genachowski should move forward with his proposal to classify Internet providers as common carriers.

According to Bloomberg News’ Todd Shields, Chairman Genachowski told reporters that any resolution “that doesn’t preserve the freedom and openness of the Internet for consumers and entrepreneurs will be unacceptable.” Implicit, if not explicit, in this statement – see the use of “preserve” - is a recognition of the reality that the Internet is presently is free and open.

That being so, and the FCC has not seriously suggested otherwise since it began its campaign last fall to impose net neutrality regulation, the default position certainly should be no new Internet regulation without congressional authorization.

If Chairman Genachowski were suggesting that action is needed right now to “restore” the openness of the Internet in light of a demonstrable market failure harming consumers, we would be having a different conversation. But he is not. Often the best way to “preserve” a state of affairs that is working well is to do nothing. Or at least follow the Hippocratic oath: “First, do no harm.”

Most Americans think the government has enough real problems on its hands – and this includes the FCC's hands – to waste time addressing phantom ones. Maybe Americans need a new rallying cry: "No Internet Regulation Without Congressional Authorization!"

The FCC: "We Do Not Regulate the Internet"

The FCC issued a news release yesterday announcing it has launched a new easy-to-use Consumer Help Center. It says the new portal "will allow consumers to learn about different issues in telecommunications."

If you click on "Fact Sheet Library" and scroll down towards the bottom to "Internet", you'll find this interesting statement: "The FCC does not regulate the Internet or Internet Service Providers (ISP). You may contact your state consumer protection office or if there is possible fraud involved, you may contact the Federal Trade Commission."

I wrote about this identical statement on the FCC's website almost two years ago in this short piece, "The FCC's Misleading Disclosure Statement." I said then that, in light of the FCC's action sanctioning Comcast in the BitTorrent affair, that the no-Internet-regulation statement was certainly "inoperative." I suggested: "In the interest of accurate disclosure, I assume the FCC fairly promptly will correct the website statement."

No such luck.

It is true that, after April's Comcast decision in the D.C. Circuit, the FCC's authority to regulate Internet service providers in most regards is highly questionable. This is good. But at the time the agency sanctioned Comcast two years ago, despite the directly contradictory statement on its website, the FCC must have assumed it had authority to receive complaints regarding the practices of Internet providers and to regulate the ISPs.

Now that its legal authority to regulate the Internet and Internet service providers under ancillary jurisdiction has been cast in substantial doubt, the very same no-Internet-regulation statement remains posted on the FCC's consumer website. And the agency continues to direct consumers to state consumer protection offices and the FTC if they have complaints.

I do not believe, nor do I believe the FCC believes, that post-Comcast, the agency is entirely devoid of all ancillary authority to regulate the practices of Internet providers in all respects. Nevertheless, after the Comcast decision, the FCC surely is aware that it possesses much less authority to regulate Internet providers than it previously assumed it possessed when it sanctioned Comcast. So, in this sense, the FCC's posted no-Internet- regulation statement – which has remained unchanged throughout -- is considerably more accurate now then when I characterized it as misleading back in August 2008.

Of course, it is important to note that, especially since last October, the FCC has been doing whatever it can to find a way to impose net neutrality regulations on Internet providers, even to the point of proposing that they be classified as common carriers. All the while advising consumers it lacks authority to regulate the Internet or Internet providers. And, all the while, advising consumers, if they have a problem, to go to their state consumer protection office or the FTC.

Confused? Me too.

Someone needs to ask a good state consumer protection office, or perhaps the FTC, to sort this all out before the FCC gets itself in trouble for making false or misleading statements.

Or better yet: If the FCC were to abandon its efforts to regulate the Internet and Internet providers, at least until Congress grants it authority to do so, by bringing its actions into line with its web posting, the Commission would not risk getting into trouble for making misleading statements. And, in the bargain, the agency would be committing an act of extreme sound policy.

The “FCC Act” – A Welcome Addition

 

Senator Jim DeMint, joined by cosponsors Senators Ensign, Thune, Hatch, Cornyn, Coburn, and Sessions, has introduced the “Freedom for Consumer Choice Act” (or aptly acronym-ed “FCC Act”). Like Senator DeMint’s proposed Digital Act Communications Act of 2005, this bill is a welcome addition to the current discussions concerning the need to update the Communications Act. Senator DeMint’s 2005 DACA bill was based, in large part, on work performed by a diverse group of prominent law and economics scholars on a Digital Age Communications Act project which I had the privilege of leading at the time. So it won’t surprise you that I remain partial to the market-oriented principles embodied in the “FCC Act”.

Without elaborating too much here, the FCC Act has obvious virtues. Foremost, it would require the FCC, before taking regulatory action, to focus, much more than it regularly does now, on whether communications providers possess market power that actually harms consumers. The agency’s regulatory actions would be guided by “jurisprudential principles grounded in market-oriented competition analysis” such as that commonly employed by the FTC or DOJ in enforcing the antitrust laws.

And another principal virtue of the FCC Act is that it would circumscribe the FCC’s rulemaking authority. Rulemaking would be tied tightly to showings, supported by convincing evidence, that a market failure has occurred which harms consumers.

In my view, given the development of competition in almost all communications markets, and the profound changes in the marketplace that the digital revolution already has wrought, the FCC Act points in the right direction for the overhaul the Communications Act desperately needs. Senator DeMint, and his cosponsors, deserve credit for offering a forward-looking approach.

Having said that, it may be that such a bold departure from the existing regime won’t win widespread approval in the near-term. If so, and if it is necessary for Congress to act to prevent the FCC from adopting harmful net neutrality regulations, there are narrower, market-oriented approaches that perhaps could be adopted more readily. These more targeted approaches could give the FCC authority to regulate broadband Internet providers based on showings of the exercise of significant market power coupled with proven consumer harm. I have suggested legislative language embodying one such approach here.

A final word on the legislative activity. On the day after the Comcast decision, I filed comments at the FCC outlining a suggested legislative approach for moving forward in light of the D.C. Circuit’s decision casting doubt on the FCC’s authority to impose net neutrality mandates on broadband ISPs. I urged the Commission to “immediately suspend its efforts to adopt net neutrality regulations and, instead, begin preparations to work with Congress to develop appropriate amendments to the Communications Act.”

Unfortunately Chairman Genachowski hasn’t suspended his efforts to adopt a new regulatory regime for Internet providers. But, to his credit, Genachowski, under the leadership of his able chief of staff, Edward Lazarus, has been facilitating discussions by some of the leading interested parties, including AT&T, Verizon, NCTA, Google, the Open Internet Coalition, and others, to determine whether common ground can be reached on a legislative approach. I see nothing wrong with Chairman Genachowski’s efforts in this regard. Indeed, I think it is right that he should focus the agency’s attention on facilitating a legislative solution.

On this score, it has been disturbing to witness the vitriol with which Genachowski has been attacked by Free Press, Public Knowledge, and the Media Access Project and others for facilitating discussions that possibly might lead to a satisfactory legislative solution. It is somewhat incongruous, and wrong, for the entities to be attacking Genachowski so vehemently for conducting so-called “secret” negotiations when, at the same time, Free Press, Public Knowledge, and the Media Access Project are all members of the Open Internet Coalition which has been participating actively in the discussions. And, of course, Google, the staunch pro-net neutrality advocate, is participating in the discussions.

It makes you wonder whether Free Press and its allies really will not be satisfied with anything short of a full government takeover of the Internet, perhaps placed under the control of the Post Office, or a revived Interstate Commerce Commission, which regulated the railroads until they were deregulated thirty years ago. 

Actually, rather than entertaining that scary thought, I would rather give a shout-out to Senator DeMint’s “FCC Act.” It is a welcome addition to the legislative debate. If nothing else, it is a model pointing the way towards a market-oriented communications policy framework fit for the dynamism of the digital age revolution.

Come to think of it, I am still partial to “Digital Age Communications Act” for the bill’s title.      

Constitutional Reckoning Draws Closer for Digital Age Free Speech

The next term of the U.S. Supreme Court could finally give rise to a new free speech jurisprudence for digital age communications. Just last week the U.S. Court of Appeals for the Second Circuit ruled in Fox v. FCC that the agency's indecency policy violates the First Amendment. The appeals court concluded that the FCC's policy prohibiting "fleeting expletives" on the broadcast airwaves was unconstitutionally vague and created a chilling effect on speech.

Regardless of one's views on indecency regulation, the case has important implications for a variety of media speech regulations. An FCC appeal of the Second Circuit's ruling could pave the way for a Supreme Court reexamination of existing – and now outdated – doctrine that gives less speech protection to certain broadcast, cable, or other media than print publications.

The Fox v. FCC case has a lengthy history. To quickly recap: back in April, 2009, the U.S. Supreme Court ruled that the FCC's "fleeting expletives" policy was not "arbitrary" or "capricious" under the Administrative Procedure Act. However, the Court's majority declined to decide the First Amendment issue in the case. Instead, it sent the case back to the Second Circuit to decide the constitutional question. Notwithstanding this, Justice Antonin Scalia's 2009 opinion for the Court called it "conceivable" that the FCC's policy might chill some protected speech, hinting "[w]hether that is so, and, if so, whether it is unconstitutional, will be determined soon enough, perhaps in this very case." And in a concurring opinion, Justice Clarence Thomas forthrightly insisted that "[t]he extant facts that drove this Court to subject broadcasters to unique disfavor under the First Amendment simply does not exist today." Justice Thomas's opinion cited FSF President Randolph May's 2007 Charleston Law Review article, "Charting a New Constitutional Jurisprudence for the Digital Age."

Essentially answering the question posed by Justice Scalia, the Second Circuit has now ruled that the FCC's "fleeting expletives" policy does, in fact, chill protected speech because it gives no fair notice to broadcasters about what language is permissible speech and what language is impermissible, indecent speech. More importantly, the Second Circuit's new ruling in Fox v. FCC reiterates Justice Thomas's observation about technological innovation's evisceration of Pacifica's rationale for a lower standard of free speech protection for broadcast speech. As the Second Circuit observed:

[W]e face a media landscape that would have been almost unrecognizable in 1978. Cable television was still in its infancy. The Internet was a project run out of the Department of Defense with several hundred users. Not only did Youtube, Facebook, and Twitter not exist, but their founders were either still in diapers or not yet conceived. In this environment, broadcast television undoubtedly possessed a 'uniquely pervasive presence in the lives of all Americans.' …

The same cannot be said today. The past thirty years has seen an explosion of media sources, and broadcast television has become only one voice in the chorus. Cable television is almost as pervasive as broadcast -- almost 87 percent of households subscribe to a cable or satellite service -- and most viewers can alternate between broadcast and non-broadcast channels with a click of their remote control… The internet, too, has become omnipresent, offering access to everything from viral videos to feature films and, yes, even broadcast television programs.

The Second Circuit cited the FCC's own 2009 Video Competition Report as well as other FCC reports in support of its contentions about the modern media landscape. However, the Second Circuit considered itself "bound by Supreme Court precedent, regardless of whether it reflects today's realities," acknowledging that "[t]he Supreme Court may decide in due course to overrule Pacifica and subject speech restrictions in the broadcast context to strict scrutiny."

The FCC has not yet indicated whether or not it will appeal the ruling to the Supreme Court. But in the event FCC does appeal, we may finally witness a moment of constitutional reckoning. As Randolph May's law review article explained, a Supreme Court revisiting of its free speech jurisprudence under Red Lion, Pacifica and Turner could lead to "a new First Amendment paradigm for the electronic media, one that is much more in keeping with the Founders' First Amendment." This would mean that the Court will begin to subject all government regulation of speech, regardless of the media used, to strict scrutiny in order to ensure free speech is protected.

The point isn't that the Court needs to somehow bring the Constitution "up to date." Rather, the point here is that the Court should restore cogency and even-handedness to its constitutional doctrine. Simply put, no good reason exists to give greater deference to government regulation of broadcast or cable than to government regulation of Internet-delivered video or print newspapers. The Court should recognize that the analog-era rationale behinds its existing First Amendment jurisprudence that gives lesser constitutional protection to certain forms of media speech cannot be plausibly relied upon for denying digital-age equal treatment to alternative technologies.

A second round of Fox v. FCC at the Supreme Court would also give the justices a chance to make good on the Court's recent observation in Citizens United v. FEC (2010) that it "must decline to draw, and then redraw, constitutional lines based on particular media or technology used to disseminate political speech from a particular speaker," since "[t]he interpretive process itself would create an inevitable, pervasive, and serious risk of chilling protected speech pending the drawing of fine distinctions that, in the end, would themselves be questionable." As Justice Anthony Kennedy went on to write in Citizens United: "The Framers may have been unaware of certain types of speakers or forms of communication, but that does not mean that those speakers and media are entitled to less First Amendment protection than those types of speakers and media that provided the means of communicating political ideas when the Bill of Rights was adopted."

The Second Circuit's commonsense reflection on the mismatch between Pacifica's rationale and today's media marketplace should cause the Supreme Court, if presented again with the opportunity, to undertake a serious reevaluation of its First Amendment jurisprudence. So should the importance of technological neutrality in constitutional free speech cases.

A future Fox v. FCC ruling by the Supreme Court could be the occasion for restoring constitutional principle while, at the same time, jettisoning doctrinal deviations that are tied to outdated apprehensions that prevailed in the analog era.

Phantom Pension Payments

Recall the brouhaha concerning Montgomery County’s payment of pension contributions to county workers based on cost-of-living adjustments that the employees did not actually receive. The Washington Post story here recounts the controversy regarding payment of these so-called “phantom” pensions.

According to the Post, Montgomery Council Council member Phil Andrews said at the time: "It's bad practice to tie pensions to salaries that aren't provided, and this is the year to change it, before it gets established and when there's a very clear rationale because of the extremely difficult fiscal year," Andrews said. "The county needs the money." This proposition seems sensible enough –more than sensible enough, really – even if the county wasn’t facing such severe budgetary constraints.

I was reminded of the Montgomery County phantom pension controversy when I came across a page on the Maryland State Retirement and Pension System website which states: “The fiscal year 2010 Furlough and Temporary Salary Reduction Plan for State of Maryland employees does not impact retirement benefits. Furlough time is included in the calculation of earnable compensation and service credit. Similarly, the temporary salary reduction does not impact retirement benefits.”

I may be missing something. But this policy of calculating retirement benefits for state employees based not on the actual time worked or the actual salary earned, but rather based on time and salary as if the furloughs are not real, seems akin to Montgomery County’s policy of paying phantom pensions.

I understand that everyone, including state and county employees, wants to have the government contribute as much as possible to his or her pension. But in today’s very challenging fiscal environment, it simply may not make sense for the government to continue to pay pension benefits based on hours not worked or raises not received.

It seems like, when it comes to calculating retirement benefits for government employees, both the state and Montgomery County are haunted – quite deliberately so – by phantoms.

Why You Don’t Want Government Enforcing Net Neutrality

Did you see the article in yesterday’s Washington Times reporting that, after protest from conservative bloggers and free speech activists, the Transportation Security Administration rescinded a new policy that would have prevented employees from accessing websites with “controversial opinions.” (If you didn’t see it there or on Drudge, you may not have seen it. I didn’t see it covered in other mainstream news sites.)

Now TSA is perfectly within its rights, perhaps even its responsibilities, to block employee access to certain websites, such as gambling and chat sites that TSA said it blocks. After all, these folks have important work to do to keep us secure. But the idea that TSA was going to block access to sites with “controversial opinions” raises concerns. It is only human nature that government officials charged with deciding which sites with controversial opinions to block might decide to deny access to ones critical of the TSA itself, or perhaps the incumbent Administration.

The Times report says: “A number of conservative bloggers suggested the TSA policy change was an attempt by the Obama administration to target opposing viewpoints or criticism.” I don’t know whether this is true or not, and I don’t want to presume bad intent. But I do know that TSA’s action – now retracted – is a reason to be very wary of allowing the government to get into the business of enforcing “net neutrality” and deciding whether Internet providers have “discriminated” in their treatment of content or applications.

We have far more, ultimately, to fear from government regulating speech on the Internet by deciding what content should be blocked than we do from private Internet providers retaining the freedom and flexibility to respond to the demands of the competitive media marketplace. If you don’t believe me, just consult your Constitution. There is a reason it is the First Amendment.

Broadband – The Oklahoma Way

 

The op-ed below, by Oklahoma governor, Brad Henry is a powerful testament to the benefits reaped by keeping broadband Internet services “unfettered from government regulation.”

Read on! 

http://www.tulsaworld.com/opinion/article.aspx?subjectid=65&articleid=20100703_65_A21_Westan278060

FCC broadband plan sets us on the wrong path

Gov. Brad Henry: Let's keep the Internet free, open and unfettered.

By Gov. Brad Henry

Published: 7/3/2010  2:20 AM

We stand at the proverbial fork in the road. When it comes to the Internet and broadband regulation, the path Washington chooses will have some profound effects on Americans' ability to connect, compete and innovate. Like many of my fellow governors — both Democrats and Republicans — I have serious reservations about the Federal Communications Commission's proposal to apply 1934-style government regulations to the Internet.

Bringing broadband to more Americans, especially those in rural and underserved communities, is a good and noble goal. That is why I have long supported the Obama administration's national broadband plan. To achieve the vision and goals of that plan will require unprecedented levels of private investment. It is estimated that $350 billion in new private investment will be necessary to fully implement the broadband plan.

However, the path the FCC proposes — reclassifying broadband under an arcane section of the Federal Communications Act of 1934 — will make it very difficult, if not impossible, to achieve the lofty goal of universal broadband access across the U.S. If the FCC continues on its present course, there is a real threat to rural communities and populations which are underserved by broadband access today.

The chilling effect such a move will have on private investment and job creation is real and is already being felt from Wall Street to Main Street, as Washington moves ever closer to more onerous regulation of the Internet. We cannot afford to stifle private investment, job creation and economic recovery, especially now.

Placing new burdensome regulations on the Internet, for example, will hamper our ability to provide quality online education to more students. In Oklahoma, our universities have made great strides through innovations in this field. Limiting investment in broadband deployment and development will also negatively impact our ability to deliver health care and essential services to rural and urban communities alike.

But, there is a better way.

In 2002, our state stood at the fork in the road, too. The path we chose was one of less regulation for broadband service, not more, and the results could not be more definitive and clear. A hands-off approach delivered real results.

Since the passage of our broadband parity legislation, we have seen expanded access into the most rural parts of our state. Families in Bessie (population 190) and Rattan (population 241) are beginning to compete with the larger urban areas when it comes to broadband access, choice and price. Prices, too, have dropped by 50 percent, and broadband subscribers have grown by more than 1,000 percent since 2001.

The Oklahoma experience in broadband regulation demonstrates a better way to ensure access to all the rich resources of the Internet. At the fork in the road, we chose the path to eliminate regulation of broadband service, and we have no regrets.

America is at a fork in the road. The path the FCC chooses will have a profound impact on all Americans and American businesses.

There is a better way, and it's the best and most proven way to connect all Americans with broadband. Let's keep the Internet free, open and unfettered from government regulation.

Independence Day 2010

In July 1776, when John Hancock and the other fifty-five signatories to the Declaration of Independence mutually pledged their "Lives, Fortunes and sacred Honor," the pledge was not to be taken lightly. By their act, their lives and fortunes were, indeed, put at risk.

Later that year, with the battlefield situation confronting Washington's army looking dire, Thomas Paine stirred his fellow revolutionaries with these words from his broadside, The Crisis:

"These are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph."

The triumph was indeed glorious. And the Declaration of Independence was a gift, not only to us, but to freedom-loving peoples across the globe.

There is nothing confronting we Americans today comparable to the crisis of 1776. It is folly to suggest otherwise. Nevertheless, as before, we do confront serious challenges at home and abroad. In facing those challenges, it is certainly not unhelpful to invoke the spirit of '76.

In the run-up to this Independence Day, I keep thinking about an encounter I had with an airline seatmate last fall. After changing planes in Charlotte for a trip back to D.C., I found myself seated next to a middle-aged woman traveling from Florida to attend a Tea Party demonstration on Washington's Mall. Yes, a Tea Partier. She told me that, despite the expense of the plane ticket and accommodations, this was the second time within a few months that she had flown to Washington to participate in a Tea Party rally. She was motivated mainly, but not exclusively, by what she saw as the overreaching of the ObamaCare proposal.

I don't want to debate the merits of ObamaCare, or of any particular policy issue. What struck me most about our conversation, and the reason I recall it today, is that, in addition to explaining what she saw as ObamaCare's policy ills, she spoke as passionately about what she saw as its constitutional infirmities. She spoke of her understanding of the Commerce Clause's limits, the Tenth Amendment's reservation of power to the States and to the people, and the purpose of the Fifth Amendment's Takings Clause. All the while, she held in her hand a pocket-sized copy of the Constitution.

My seatmate, ever courteous and soft-spoken, was not a lawyer. Her constitutional understanding doesn't square with that of the majority of this country's law professors. It might not comport with the existing body of constitutional jurisprudence. So, she may well be "wrong" in that sense.

But for my purposes this Independence Day, she was "right" in an important sense: She was right to be thinking about how the large issues of the day square with our constitutional charter.

I think most of the mainstream press, perhaps not surprisingly, did a real disservice early on in its attempts, at best, to ignore, or at worst, to denigrate, the rise of the Tea Party. In my view, the Tea Party movement is a quintessentially American phenomenon fueled primarily by legitimate concerns over the size and scope of government. But regardless of how one feels generally about the movement, the heightened interest it has spurred among its followers, and others, concerning our Constitution's meaning ought to be seen by everyone as positive. A cause for celebration, not fear.

Of course, the meaning of many of the Constitution's most important provisions, including those provisions cited by my seatmate, is subject to differences in interpretation. In other words, the meaning of particular clauses, regardless of the interpretive theory employed, is contestable. Particular cases and controversies will be decided by the Supreme Court -- now an often closely-divided Court -- based on the Justices' own understanding of their meaning.

While the Supreme Court decides particular controversies, it does so, at least over time, in the context of the American public's broader understanding of constitutional law. And elections inevitably influence the direction of the Court, both with respect to the choice of President who nominates the Justices, and the choice of Senators who advise and consent. This is as it should be in our democratic republic.

Like my chance discussion with the Tea Partier, the confirmation hearings of Elena Kagan, as scripted as they are, nevertheless provide yet another opportunity for education concerning the Constitution's meaning, the Court's interpretive role, and conflicting modes of interpretation.

At bottom, this educational process, amidst what appears to be a period of elevated interest in the Constitution, is an essential prerequisite to a widespread appreciation by the American public of the crucial distinction between "law" and "politics." Unless there is at least a shared understanding of the importance of the law/politics distinction to proper constitutional interpretation, the individual rights which the Founders intended to be protected by our Constitution will be that much less secure.

I leave you with two quotes on this July 4^th holiday.

Thomas Jefferson, the Declaration's principal author, said: "Our peculiar security is in the possession of a written Constitution. Let us not make it a blank paper by construction."

And Tom Paine, towards the end of The Crisis, after depicting in especially stark terms the difficult days ahead, wrote: "I thank God, that I fear not. I see no real cause for fear. I know our situation well, and can see the way out of it."

As long as we hold true to our constitutional principles, I too see no cause to fear.

Best wishes from those of us at the Free State Foundation for a happy Independence Day.

The Third Way’s Fundamental Disconnect

The FCC's Third Way Notice of Inquiry ("NOI") is problematic in a number of ways. But I want to focus here on a fundamental disconnect in the NOI presented right in Paragraph 1. The disconnect is not resolved, or even openly acknowledged, in the remaining 110 paragraphs.

Paragraph 1 states: "Until a recent decision of the United States Court of Appeals for the District of Columbia Circuit, there was a settled approach to facilities-based broadband Internet services, which combined minimal regulation with meaningful Commission oversight." The Commission is referring, of course, to the Comcast v. FCC decision handed down on April 6. The emphasis on "there was a settled approach" is mine.

Hence the disconnect. If there was a satisfactory settled approach on April 5 – the day before the Comcast decision -- as the Commission now suggests, what was all the sturm and drang about last fall? In other words, what did the FCC have in mind in October 2009 when it issued the Open Internet Notice of Proposed Rulemaking ("Open Internet NPRM") proposing a set of new net neutrality regulations?

I understand that post-Comcast, the NOI's Third Way proposal to reclassify broadband Internet providers as common carriers is premised on the claimed need for the FCC to be certain it has the legal authority to carry out proposed policies relating to matters other than net neutrality regulation. Indeed, the Commission now emphasizes matters such as universal service and privacy. I do not want to discuss here whether or not common carrier reclassification really is necessary to ensure that the agency possesses authority to address these various non-neutrality matters, or whether the proposed means of proceeding to accomplish this objective is legally sustainable. (I have grave doubts.)

What I want to highlight, if you haven't already noticed yourself, is that the Open Internet NPRM is barely mentioned in the Third Way NOI. There are only five very tangential references, all but one in footnotes. Under the Commission majority's new mantra that "there was a settled approach" before the Comcast decision, the NOI's silence in this regard is more than passing strange.

Before proceeding any further, shouldn't the Commission explain why it proposed new net neutrality regulations in the Open Internet NPRM if a settled approach, now represented to be the consensus broadband approach, already existed? And, significantly, recall from the NOI's Paragraph 1 that this settled approach is described as combining "minimal regulation with meaningful Commission oversight."

Here's the rub, and it is an important one: There was, indeed, a fairly widespread consensus in favor of a policy of minimal broadband regulation (but not unanimity, of course) before the new Obama Administration-FCC initiated last fall's net neutrality rulemaking. But the Open Internet NPRM, despite any latter-day disclaimers to the contrary, disrupted this settled approach in a significant way. (If you don't believe the October 2009 NPRM disrupted the consensus in a significant way, just count the trees that were sacrificed to provide the paper to file the comments to try to persuade the FCC not to adopt new Internet regulations!)

Why was the issuance of the NPRM so disruptive? Because adding a new nondiscrimination prohibition to the four "openness" principles made the proposed regime significantly more susceptible to investment-stifling and innovation-inhibiting regulatory overreach. More than anything else, the proposed new nondiscrimination prohibition – one of the core obligations of common carrier regimes generally applicable only in monopolistic situations -- upset the applecart. Even putting aside the NPRM's other proposed regulations, the new nondiscrimination mandate necessarily would convert an existing minimally regulatory Internet environment into a considerably more regulatory regime.

I suppose the reason why the NOI so completely downplays the Open Internet NPRM is that the Commission majority now understands the NPRM's disruption of the settled consensus met with much more widespread disfavor than it anticipated. There was a broad understanding, among the public, that the NPRM's proposals, especially the nondiscrimination prohibition, would create a heavy-handed regulatory environment for Internet providers.

Thus, it is factually inaccurate to now place the disruption of the "settled approach" of minimal Internet regulation on the Comcast decision. One way to look at the Comcast decision – the way I look at it -- is that, by calling into question the FCC's jurisdiction to impose net neutrality regulation on Internet providers, the decision disrupted the Commission majority's plans to impose a considerably more regulatory Internet environment than that which existed before the agency's current Democratic majority assumed power. This particular "disruption" was positive, not negative.

In short, the FCC's majority bears significant responsibility for whatever disruption that is now claimed to exist. And until the Commission's majority acknowledges this responsibility forthrightly, and suspends its effort to implement its ill-conceived reclassification/forbearance scheme, it will be more difficult for all parties to move forward in a constructive way that best serves the public.

So, it's time for some straight talk from the FCC. The Commission needs to admit that the minimal regulatory regime that existed before issuance of the October 2009 NPRM served the public well. If it does so, the agency could more readily work constructively with Congress and others to fashion narrowly drawn legislation granting it circumscribed authority over Internet providers. And to the extent that such legislation truly is narrowly drawn, along the lines of the proposal I have suggested, its chances of passage ought to be good.

Maryland Should Look to the New Jersey Way

The Mercatus Center at George Mason University recently released a new working paper entitled: The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey, aimed at helping state legislators try to address the pension underfunding crisis, which tallies a whopping $173 Billion in New Jersey. Some of the lessons that New Jersey could learn are also applicable in the Free State, since Maryland’s pension system lost a reported $10 billion in the last half of 2008, and Maryland’s unfunded health and pension liabilities exceeds $32 billion. So while, in absolute terms, Maryland isn’t in the position that New Jersey is, the core problem is as serious: Benefits the state promised to its employees aren't funded at acceptable levels, and with continuing economic uncertainty, the chance of the problem solving itself (through generous stock market returns) is slim to none.

So what should states do to help solve this problem? Generally, states need to move away from defined benefit plans, which pay a set amount (with a periodic cost of living adjustment) to defined contribution plans, where the state contributes a set amount every year to an employee’s retirement account. In a defined benefit plan, the state must absorb market volatility, no matter how bad it gets. In a defined contribution plan, employees must plan for market uncertainty, in the same way as anyone that relies on a 401(k) account must.

More specifically, the authors of the study recommend three things for New Jersey: 1. Extend define contribution plans to all state employees; 2. Reduce, or freeze, cost of living adjustments to reduce state liability; and 3. Transition non-vested workers to defined contribution plans. These three steps should be examined seriously by any state with outsized pension liabilities in order to get back on to the road to pension solvency.

This certainly includes Maryland.

Defining Deference Down, Again: Independent Agencies, Chevron, Fox, Scalia, and Kagan

In 2006, I published an article in the Administrative Law Review entitled "Defining Deference Down: Independent Agencies and Chevron Deference." In that article I posed the question: “Should the statutory interpretations of independent regulatory agencies, such as the FCC’s determination at issue in Brand X, be accorded a lesser degree of judicial deference than those accorded to executive branch agencies?” In response, I suggested that “a reading of Chevron that accords less deference to independent agencies’ decisions than to those of executive branch agencies would be more consistent with our constitutional system and its values.”

Whether the decisions of independent agencies such as the FCC should receive less deference on judicial review than those of executive branch agencies is not only a matter of constitutional concern, but of significant practical import to those who are regulated by independent agencies or who otherwise are affected by their decisions.

In a follow-on article just published in the latest issue of the Administrative Law Review, I discuss the Supreme Court's decision last Term in FCC v. Fox Television Stations, Inc. The new article is entitled, "Defining Deference Down, Again: Independent Agencies, Chevron Deference, and Fox." In the Fox case, the Supreme Court affirmed a change of FCC policy to the effect that even isolated, non-repetitive incidents of indecent speech could be sanctioned. While the Court in Fox did not address Chevron deference directly, there were definitely Chevron-like echoes as the Justices debated the relevance of the FCC’s political accountability (or lack thereof) to determine whether the proper standard of review should be more or less searching.

With the original Defining Deference Down article, based on what I see as the principal political accountability rationale underpinning Chevron, my project was to begin a more robust dialogue concerning whether a less deferential judicial review standard of independent agency actions would be more consistent with core separation-of-powers values. While I expect Fox will be seen foremost through the lens of a more conventional administrative law “change of agency policy” case, I have hopes it will also be an impetus for the ongoing dialogue that I aim to further with this new article, "Defining Deference Down, Again."

An interesting aspect discussed in my new Administrative Law Review article relates to Justice Scalia's (somewhat misleading) citation of Solicitor General Elena Kagan's Presidential Administration law review article in support of his view that decisions of independent agencies should not be subject to more searching judicial scrutiny than those of executive agencies. In fact, in Presidential Administration, Kagan explicitly advocates that independent agencies should receive less Chevron deference than executive agencies because they are less politically accountable: "A Chevron-type doctrine attuned to the role of the President would respond to this disparity by giving greater deference to executive than to independent agencies."

In other words, put in terms of the Fox decision's juducial review debate, Elena Kagan has contended that decisions of independent agencies like the FCC should be subject to more searching judicial scrutiny than executive branch agency decisions.

Not Mao Zedong or a Communist...But a Socialist

In its June 10th edition, Communications Daily [subscription required] reported that FCC Commissioner Michael Copps, once again bemoaning the state of investigative journalism, said the FCC may conclude the only way for news to survive is to have more government support. Commissioner Copps said it is not productive for proposals for more government support for news and investigative journalism to be met with comments to the effect that "you're Mao Zedong" or "you're a Communist."


Fair enough, up to a point. It is generally more useful to debate directly the underlying merits of proposals than it is to debate labels attached to the proposals' proponents.

But when asked about ways for the government to support journalism, Communications Daily reports that Commissioner Copps referred to the proposals of Robert McChesney, the University of Illinois professor who is co-founder of Free Press. Now, as many who follow communications policy know, Professor McChesney is an avowed socialist.

There are many on the Left who take umbrage when those who criticize their policies characterize them as "socialist" – they might even huff and puff about McCarthyism. They apparently think the characterization harmful to their cause. Not Robert McChesney. I don't know whether he would or would not be pleased with being called Mao Zedong or a Communist. But I know he doesn't shy away from the Socialist label, or from advocating what he calls socialist policies.

Indeed, anyone having any doubts should read Professor McChesney's latest essay (with co-author John Bellamy Foster) entitled "Capitalism, the Absurd System," in the current edition of Monthly Review, a self-styled "Independent Socialist Magazine." You should read the long article for yourself if you want to take in Professor McChesney's full argument as to why capitalism should be replaced with socialism. Here I want only to provide three excerpts to give you the flavor:

"It seems clear that this need for a 'bursting asunder' is where the United States is now. Capitalism, viewed as a system of generalized commodity production motivated by the competitive pursuit of private gain without limits, and thus driven to the amassing of concentrated wealth, even at the expense of public welfare and environmental sustainability, is well past its productive era—during which it could make claims to some degree of rationality. We have reached 'The End of Rational Capitalism.' It survives now on bubbles, bloated debt, military spending that borders on suicidal, and a deadening hypercommercialism."


"Mere state ownership of key productive forces is not enough to create a socialist society; the people must exercise a sovereign rule over these productive forces and society as a whole, and the society must be organized to promote collective needs. Just as democracy is not an accomplished reality unless the vast majority of the people rule society, so socialism is not an accomplished reality unless the associated producers control the productive forms of society and use them rationally and sustainably in the collective interest."


"We were provoked to write this article because the possibilities in the United States for a genuine, free-wheeling discussion of capitalism’s defects, and the merits of socialism, are greater today than at any time in generations, and we must not let this historic moment pass."

Again, if you are inclined, read the entire article. In any event, I do not think that Professor McChesney would object that I have unfairly characterized his views. And he would not disagree that his project is to further the cause of socialism in the U.S.

If I were back in college, I would enjoy debating the full range of Professor McChesney's ideas for days on end. But what I want to highlight here are McChesney's ideas concerning media policy, and the way these ideas relate to advancing his socialist project in the U.S. And, of course, I am interested in the appeal of Professor McChesney's ideas to Michael Copps because, as a commissioner at the agency that exercises great power over communications and media companies, Commissioner Copps' views matter.

To my way of thinking, it is disturbing that Commissioner Copps is sympathetic to Professor McChesney's views.

PFF's Adam Thierer has done very good work critiquing Professor McChesney's suggestions for "saving" journalism and news. For present purposes, I want to refer to just one of Adam's many pieces on the subject, which you may find here. (You may find several others to similar effect on the PFF blog.) Here are some of McChesney's quotes highlighted in Adam's piece, "Free Press, Robert McChesney & the 'Struggle' for Media":

"Instead of waiting for the revolution to happen, we learned that unless you make significant changes in the media, it will be vastly more difficult to have a revolution. While the media is not the single most important issue in the world, it is one of the core issues that any successful Left project needs to integrate into its strategic program."


"Many say that corporate journalism, based on profit maximization, best serves a free and democratic society. The position is incorrect. The connection of capitalism to journalism, which has always been fraught with problems, has always been unstable...Corporations are not in a position to generate and pay for quality journalism. The news is not a commercial product. It is a public good, necessary for a self-governing society."


"Once we accept this [the supposed "public goods" nature of all media], we can talk about the kind of media policies and subsidies we want. What are the best ones? How should they be implemented? We are now trying to answer those questions and organize around them."

Interestingly, Howard Kurtz's column in the June 21st Washington Post is all about a revival or reenergizing of investigative journalism, with the likes of new organizations such as ProPublica and Internet companies such as AOL playing a leading role. Kurtz reports:

"After years of feeling unloved and unwanted, some fortunate journalists are again finding their services in demand. While most print newsrooms remain shrunken and some major newspapers are mired in bankruptcy, new media incarnations are giving the restless and the jobless a second lease on life. AOL says it plans to add hundreds of journalists to its stable over the next year. Yahoo has opened a Washington bureau. The Wall Street Journal just created a New York section. And TBD, owned by Politico's corporate parent, is recruiting for its online effort to cover the Washington area."

There is no doubt, as I noted in my testimony in April at an FCC forum on "public media," that the news operations of newspapers and broadcasters have been hobbled due to the emergence of new media competitors (and due in no small measure to antiquated media regulatory policies steadfastly championed by Commissioner Copps.) But there is much evidence, as reported in the Kurtz piece and elsewhere, that innovative news and investigative journalism enterprises, in a variety of for-profit and non-profit forms, are arising to meet the needs of the American people. Witness the plans of Yahoo and AOL, ProPublica, and so forth.

But none of these efforts will make a bit of difference to Robert McChesney. And the extent of today's media abundance, or the diversity of views available, won't make any difference either. For, as I have set forth above in his own words, what he wants is for the government to reshape the media to his liking, away from what he sees as a media that promotes capitalism to one that promotes socialist ideals. As he puts it plainly, the connection between capitalism and journalism must be broken by eliminating the profit motive.

Integral to all Professor McChesney's proposals is the notion that the government must subsidize journalists and news organizations. This necessarily involves the government in making determinations concerning what constitutes real "news" or "journalism" and/or what constitutes an eligible "news organization" To be sure, in McChesney's world, a news organization with "capitalistic" sympathies would be unlikely to receive government subsidies. Aside from everything else I have already told you, how do we know this? Because Professor McChesney states forthrightly, in a recent edition of the Socialist Project's magazine, The Bullet, that “the ultimate goal is to get rid of the media capitalists.” You can't get rid of the "media capitalists" without the government controlling the media.

Now all of this is not to suggest that Commissioner Copps agrees with all of Professor McChesney's views, even as he says he would look to McChesney's proposals regarding expanding support for public media. But given what many Americans would surely regard as McChesney's extreme anti-capitalist socialist philosophy, it would be useful to know in what ways, if any, Commissioner Copps disagrees with Professor McChesney's views.

It would be useful, but I think I already have a sense. There is a fundamental difference between the perspective of Professor McChesney and Commissioner Copps, on the one hand, and me, on the other. Putting their views in the very best light, I think it is fair to say that they fear private (corporate, if you will) control of the media far more than they worry about the dangers arising from government control. Certainly Professor McChesney wants more government media control in order to promote views that are consistent his own vision of what America should be.

My perspective is just the opposite. I certainly do not wish to see a media environment in which a few voices, corporate or otherwise, dominate. This would not be healthy for the vitality of American democracy. But, thankfully, we do not live in such a media environment. Indeed, due to technological developments over the past thirty or so years, we have more media abundance, and more diversity of views readily available to the American people, than at any time in our country's history.

In our Bill of Rights, our Founders made a clear choice. The First Amendment stands for the proposition that we have more to fear from government control of the media than we do from private control. Our Founders understood it is only human nature for government officials to want to promote views sympathetic to their interests and to suppress those that are not. Referring to the safeguards to rights established by the Constitution, James Madison wrote in Federalist No. 51: "It may be a reflection on human nature that such devices should be necessary to control the abuses of government."

The First Amendment's intent is to prevent government officials from exercising control over the media, not to facilitate the exercise of such control through the handout of government funds with the inevitable strings attached. The strings necessarily will always have to do with deciding what journalistic content is or is not worthy of government support.

It doesn't matter much to me, for purposes of debating his ideas, that Robert McChesney calls himself a socialist. It wouldn't matter much to me if, going back to Commissioner Copps' statement, he calls himself Mao Zedong or a Communist.

What matters to me is fighting Professor McChesney's ideas, and those of Commissioner Copps to the extent he shares McChesney's views. In that fight, I am happy to stand with the Founders, and with my understanding of what they meant when they wrote the First Amendment.

Broadband Internet Regulatory Authority: Some Suggested Legislative Language

At a meeting this Thursday, the FCC is expected to vote to solicit comment on Chairman Genachowski's proposal to reclassify broadband Internet service providers as telecommunications carriers. This reclassification will subject the IPSs to the Communications Act's Title II common carrier provisions. The proposal also envisions the Commission simultaneously forbearing from applying some of the Communications Act's Title II provisions, but not the key rate regulation and non-discrimination provisions. These rate regulation and non-discrimination provisions are at the core of traditional common carrier regulation as such regulation was applied throughout the twentieth century to Ma Bell and other monopolistic providers of ordinary telephone services.

A majority of the House of Representatives, including 73 Democrats, have objected to Chairman Genachowski's plan to classify broadband Internet service providers as common carriers. These Democrats stated that: "The uncertainty this proposal creates will jeopardize jobs and deter needed investment for years to come. The significant regulatory impact of reclassifying broadband service is not something that should be taken lightly and should not be done without additional direction from Congress. We urge you not to move forward with a proposal that undermines critically important investment in broadband and the jobs that come with it." Rep. John Dingell, the immediate past chairman of the House Commerce Committee, wrote a separate letter to the same effect, urging the FCC "to seek the authority it needs by asking the Congress to enact a statute that delegates it."

As reflected in the letters referred to above, and there are others as well from Republicans, there is a growing consensus that Chairman Genachowski's reclassification proposal is unwise and ill-conceived on both policy and legal grounds. I understand the D.C. Circuit's April 6th decision in Comcast Corporation v. FCC has called into question the agency's exercise of so-called "ancillary" jurisdiction over broadband ISPs. In my view, given the increasing competitiveness of the broadband Internet marketplace and the lack of any proven market failure or any existing pattern of consumer abuses, there is no pressing need for the FCC to possess express jurisdiction over Internet providers for purposes of imposing net neutrality regulation. This is especially so in light of the recent development concerning the establishment of the Broadband Internet Technical Advisory Group made up of a diverse group of companies, including Google, "to develop a consensus on broadband network management practices or other related technical issues that can affect users' Internet experience, including the impact to and from applications, content and devices that utilize the Internet." This new body – and other existing ones like it – holds significant promise for facilitating self-regulatory mechanisms that, through the employment of technical and other specialized expertise, are equipped to protect consumers while avoiding the pitfalls and costs of inflexible, static anticipatory regulatory regimes.

Nevertheless, I appreciate that others may believe it is important that the FCC possess authority over broadband ISPs. And, as a majority of House members recognize, it is certainly preferable for Congress to enact legislation granting such express authority than having the FCC proceed to adopt a reclassification proposal so fraught with problems. There is no profit for the agency itself, or for consumers, in having the FCC adopt a course that, on its face, appears so jerry-rigged -- all in the cause of avoiding the import of a court decision holding the agency lacks jurisdiction to impose net neutrality mandates.

With that in mind, it is useful to consider what such legislation should look like. Since the Comcast decision, I have advocated that such legislation should be narrowly-circumscribed. A prerequisite to the Commission's exercise of regulatory authority over broadband Internet providers should be that the provider possess market power and abuse it in a way that causes consumer harm. And I have long advocated a regime under which the Commission's exercise of authority over Internet providers would be on a post hoc adjudicatory basis upon a complaint filed. This approach would require the agency to employ economic analysis that focuses on the particular market in which an abuse is alleged to have occurred. Under this regime, the Commission's rulemaking authority would be limited, but not eliminated.

There are obviously different ways such legislation might be drafted consistent with achieving a narrowly-circumscribed legislative fix. And, in any event, the specific legislative language depends upon technical matters such as where in the Communications Act amendments are inserted, whether new definitions of terms are needed, and so forth. That said, below are provisions that embody the targeted, market-oriented legislative approach that I submit would be in order and might win widespread congressional acceptance. The provisions grant the Commission the authority to protect consumers, while, at the same time, circumscribing such authority in a way that prevents the agency from overreaching and stifling investment and innovation in the dynamic environment that characterizes the Internet.

I welcome feedback on these draft provisions, or on others that might accomplish the desired objective.

Section 1. Complaints Against Broadband Internet Service Providers


Except as expressly provided in this section and Section 2, the Commission shall have no authority to impose sanctions on or otherwise regulate, either through the adjudication of complaints or resolution of complaints by other means, or through the adoption of rules, broadband Internet service providers.


(a) The Commission shall have the authority, upon a complaint filed and after an on-the-record adjudication, to prohibit broadband Internet service providers from engaging in acts or practices that are determined to constitute an abuse of substantial, non-transitory market power and which cause harm to consumers.


(b) The Commission shall have the authority, upon complaint filed and after an on-the-record adjudication, to require interconnection between and among Internet service providers if the Commission determines that failure to order such interconnection poses a substantial, non-transitory risk to consumer welfare by materially impeding the interconnection of public communications facilities and services in circumstances in which marketplace competition is not sufficient adequately to protect consumer welfare, provided that in making any such determination the Commission must consider whether requiring interconnection will affect adversely investment in facilities and innovation in services.


(c) Before filing a complaint with the Commission under this subsection (a) or (b) of this section, a subscriber to an offering of an Internet service provider or an Internet service provider requesting interconnection must first engage in an informal dispute resolution process that has been recognized by the Commission as a forum for attempting to resolve such disputes in a fair and expeditious manner.


Section 2. Rules Governing Acts or Practices of Internet Service Providers


(a) The Commission shall have no authority under this section to prescribe rules that declare unlawful an act or practice on the grounds that such act or practice is harmful to consumers unless the Commission determines, based on a showing of clear and convincing evidence presented in a rulemaking proceeding in which the public is afforded notice and an opportunity to comment, that marketplace competition is not sufficient adequately to protect consumer welfare and that such act or practice causes or is likely to cause injury to consumers and is not avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.


(b): Any rule promulgated under this section shall terminate automatically by operation of law five years from the date it becomes effective unless the Commission, in a proceeding in which the public is afforded notice and an opportunity to comment, makes an affirmative determination, based on a showing of clear and convincing evidence presented in such proceeding, that the rule continues to be necessary because marketplace competition is not sufficient adequately to protect consumers from substantial injury which is not avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.

Note: As many know, while at the Progress and Freedom Foundation, I led a project in 2005, in which a large number of prominent scholars collaborated, to draft a model Digital Age Communications Act (DACA). That project's objective was to draft a comprehensive rewrite of the Communications Act to bring it up to date. There is still much to commend the DACA approach, and I would welcome the adoption of legislation embodying such a radical overhaul of the act. But my sense is that, for now, in order to prevent harmful regulation in the near-term of the type being pursued by the current FCC majority, a narrower, targeted approach such as that suggested above has a much better chance of passage. This does not mean that the Communications Act does not need a comprehensive overhaul along the lines suggested by DACA. It just may mean that the time is not yet ripe for such an overhaul that likely would require a very time-consuming legislative process. So, in the meantime, I have drawn on some of the work we did on DACA here, while deviating in some material respects. I commend to you the DACA materials on the PFF website, including S. 2113, the "Digital Age Communications Act of 2005", which was introduced by Senator Jim DeMint, and which embodied the work of the DACA project.

Third Way Theory Meets Forbearance Reality

The clock will soon run out on the FCC's deadline for ruling on Qwest's forbearance petition regarding the Phoenix Metropolitan Statistical Area (MSA). There are recent hints that the FCC will deny the petition and set up a new kind of "market power" standard for applying the Section 10 forbearance provision. In other words, the FCC reportedly will issue an order establishing a new standard making it more difficult for petitioners to satisfy the statutory forbearance test, and in that same order deny the petition under consideration on that basis.

This new standard that is said to be forthcoming in the Qwest Phoenix MSA forbearance proceeding would, of course, impact pending and future forbearance proceedings. But any new "market power" standard governing grants of forbearance raises an interesting set of questions about its possible impact on Chairman Genachowski's so-called "Third Way" Internet regulation proposal. How will such a standard fit in with the FCC's "third way" plans to adopt net neutrality regulation that relies so heavily on regulatory forbearance? Could adding new requirements to the forbearance process complicate the agency's plans to successfully adopt new rules? Might a more stringent standard set by the FCC for granting forbearance give added ammunition to a future legal challenge if the FCC does decide to adopt the "Third Way" reclassification proposal which is tied so intimately to the exercise of the Commission's forbearance authority?

Recall that the FCC's "third way" plan for imposing net neutrality regulation on the Internet is premised on an agency declaration to change broadband Internet from a lightly regulated Title I "information service" to a heavily regulated common carrier Title II "telecommunications service." According to the FCC's "third way" theory, this reclassification will give the Commission the jurisdictional prerequisite to adopt network neutrality rules that the D.C. Circuit recently ruled the Commission lacked under the Title I ancillary jurisdiction theory and facts set out in the Comcast/BitTorrent Order.

But the FCC's "third way" simultaneously seeks to stave off some of the consequences that would come from burdening broadband Internet service with the full panoply of last-century monopoly-era regulations for telephone networks under Title II. The plan calls for the FCC to grant regulatory forbearance to reclassified broadband Internet from all but six statutory sections governing Title II telecommunications services (albeit these retained sections contain the heart of traditional common carrier regulation). More specific details will be revealed if the FCC decides to issue its anticipated Title II reclassification Notice of Inquiry at its upcoming June public meeting.

So given that the FCC's "third way" relies so heavily on a single act of "superforbearance" by agency declaration, what does a new "market power” standard governing forbearance mean for the "third way"? If reports are accurate that the FCC's new standard will rely on HHI market concentration criteria set out in the DOJ-FTC horizontal merger guidelines, wouldn't "third way" forbearance first require an HHI-like analysis of the nation's broadband market?

Perhaps the Commission might attempt to apply its new "market standard" for forbearance only to voice telecommunications services but not to reclassified broadband Internet telecommunications services. This approach would seem to require the FCC to give some kind of reasoned explanation for the disparate treatment of Title II services. At least, such an approach would require explanation if the FCC hopes to survive a prospective legal challenge to "third way" reclassification and forbearance for broadband Internet. But subjecting voice telecommunications services and broadband Internet telecommunications services to different standards would make reclassification of broadband look stranger and stranger still. After all, the need for disparate treatment of voice and broadband was precisely the point behind the FCC's classification of broadband as a Title I information service that should be free from outdated and burdensome regulation.

Then again, the FCC could insist on subjecting only forbearance petitions submitted by private parties to its new "market power" standard and thereby leave undisturbed agency sua sponte grants of forbearance. But nothing in the statute suggests that disparate treatment of agency grants of forbearance arising from petitions or sua sponte action could be justified. The FCC would have a difficult time justifying such a twisted approach in the courts on administrative procedural grounds.

Regulatory and legal complications of this kind are inevitable if the FCC insists on going forward with a "third way" plan for force-fitting antiquated monopoly-era regulations on a dynamic modern service like broadband Internet. In light of the crucial importance of implementing (some modest) regulatory forbearance to the FCC's plans for adopting net neutrality regulation through its "third way," one wonders whether the Commission's continued placement of obstacles in the path of forbearance could come back to haunt it. Or, more to the point, might such obstacles cause the FCC to rethink its current plans for Internet regulation without further direction from Congress?

Memos to Rep. Waters and OMB Director Orzag

I noticed that, according to a report in Communications Daily, Rep. Maxine Waters (D-CA) said earlier this week that the FCC's consideration of the Comcast-NBCU merger proposal "should not be rushed through an expedited review process." This was at the public hearing in LA on the proposed merger.

Memo to Rep. Waters: You can relax. There is absolutely no chance the FCC's review will be "expedited" within the ordinary meaning of that word. Comcast and NBCU filed the application seeking FCC approval of their proposed merger on January 28, 2010. No one expects the FCC to act on the application before the end of the year, if then. Action sometime after the one year filing mark is much more likely. Acting on a merger proposal one year after the parties file the application seeking approval will not put the FCC at risk of having its action misconstrued as rushing through the review process.

My worry is just the opposite of Rep.Waters.' In today's fast-paced technological and disruptive marketplace environment, a review that takes over a year to complete risks rendering the business rationale for the merger outdated by the time the Commission acts. (I'm not opining whether whatever business rationale is offered makes sense. I know not - but I do know that some of the biggest media mergers that have drawn fire from those "consumer" groups worried about too much concentration of control have not worked out in the marketplace. See, for example, the saga concerning the unhappy marriage and divorce of AOL and Time Warner, which drew such "concentration of control" fire, and then some.)

Some related observations.

There is a story in yesterday's Washington Post to the effect that Peter Orzag, President Obama's budget director, wants agencies to trim 5% from their upcoming budgets, especially focusing the green eyeshades on eliminating programs that duplicate the functions performed by other agencies. Not a new idea, but nevertheless a sound one. Orzag is quoted as saying "redundancy waste resources." Duh!

Putting aside whether OMB's directive to the agencies to come up with 5% savings technically applies to so-called independent agencies like the FCC, wouldn't it be nice for the FCC to take the message to heart? After all, we're all in debt together. There is no doubt that much of the FCC's review of proposed mergers duplicates the work of the antitrust agencies, the Department of Justice and the Federal Trade Commission. As I have argued for a decade now (for two examples, see here and here), even assuming the FCC is going to continue to review mergers under its vague "public interest" authority, the agency nevertheless could avoid wasting a lot of resources -- that's lots of time and money -- by relying on the analysis of the expert antitrust agencies to assess potential competitive harms. Now it spends lots of those resources to which Mr. Orzag is referring duplicating the effort of DOJ and the FTC, the government agencies with the most expertise and experience evaluating competition issues. Why can't the FCC, in the cause of government efficiency and as a matter of self-reform, act to eliminate this duplication?

I note the FCC already has hired yet another outside person specifically to oversee the Comcast-NBCU merger review. Didn't the Commission's Media Bureau have the requisite expertise? And I also note that Chairman Genachowski  has just submitted a budget request for fiscal 2011 that seeks almost $20 million above the 2010 appropriation, with the funding increase attributable primarily to hiring additional employees. It recites the requisite "with each passing day, communications has become increasingly essential to the daily lives of all Americans" mantra -- as have all such budget requests seeking increased funding over the passed decade. It may be true that communications has become increasingly important in our daily lives. But does it necessarily follow, as night follows day, that the FCC therefore must become increasingly big and more regulatory?

Memo to Peter Orzag: Please send a copy of your directive concerning agencies identifying 5% savings in their budgets, especially through the elimination of wasteful duplication, over to FCC headquarters, 445 12th Street, SW, Washington,DC.

Notes on the Right Way

Yesterday's program, "After Comcast: What's Next for Next Neutrality?", jointly sponsored by the Free State Foundation and the Information Technology & Innovation Foundation, was, in my view, a very educational discussion concerning where we are now and where we should go next after the Comcast v. FCC decision. There was a general consensus that FCC Chairman Julius Genachowski's "Third Way" proposal is problematic as a way forward for both policy and legal reasons. There were, of course, differences of emphasis among the panelists. But there was fairly widespread agreement that the Commission ought to rely much more heavily than it presently is disposed to do on self-regulatory mechanisms as a means of addressing concerns sounding in "net neutrality," and that if the agency believes additional regulatory authority is necessary it should work with Congress to achieve enactment of such legislation.


The video will be available on ITIF's and FSF's website shortly, so you can see for yourself. And a transcript will follow after that.

What follows in the numbered paragraphs immediately below is simply a cutting and pasting of the notes I prepared for myself as a guide for my opening brief remarks. The notes were written as just such a guide, so they are, by design, somewhat sketchy and unpolished. But my actual remarks stuck pretty closely to this script, and the notes reflect aspects of my current thinking relevant to Chairman Genachowski's Third Way proposal and to my preferred course of congressional action. I offer them here in their raw form to continue to provoke discussion and, perhaps, the development of a further consensus that the Third Way proposal, as formulated by Chairman Genachowski, is the wrong way. But there is a Right Way.

1. After watching the FCC for over 30 thirty years, I've seen some pretty strange things. But as time goes by, this case of the Third Way, nee the Open Internet, nee Net Neutrality, nee Open Access, gets "curiouser" and "curiouser." It makes me want to put a big sign on the wall as you get off the elevator on the 8th floor of the Portals that reads: "When you're in a hole, the first thing to do is to stop digging!"

2. Here are just some of the more fundamentally problematic aspects of Chairman Genachowski's Third Way proposal. And I have to say, with respect, that in articulating the Third Way proposal, I do think the Chairman has abused, somewhat, the ordinary usage of the English language.

3. Foremost, perhaps, the Chairman describes his approach as embodying a bipartisan consensus for what he calls "a restrained approach" or "light touch approach" to broadband regulation. It is true, in my view, that there is considerably more of a consensus for light-handed regulation than heavy-handed regulation. But it is wrong to characterize his approach as restrained or light-handed. If nothing else, the insistence on adopting a broad new nondiscrimination mandate would convert the existing regime into one that cannot fairly be characterized as light touch regulation. Enforcement of a nondiscrimination mandate has always been at the heart of common carrier regulation, and in the past it has never been thought characteristic of light-handed regulation. Indeed, it is pursuant to the proposed nondiscrimination rule that the agency would prohibit ISPs from charging content providers differential fees for prioritization or favored access.

4. As he has done for some time now, the Chairman suggests his proposal would not regulate "the Internet." It is wrong, as a matter of statutory interpretation, precedent, common sense, and the ordinary usage of the English language, to suggest that Internet service providers are not part of the Internet. They are, so the Chairman's proposal would regulate the Internet.

5. The Chairman says he wants to resolve the "current uncertainty" – and Commissioner Copps says this all the time as well – as if whatever current uncertainty that exists is not, to a large extent, the result of the very proposal the Chairman initiated, soon after taking office, to adopt a new net neutrality regime. Commissioner Copps freely acknowledges he has been trying to reverse the agency's information services classification determination since Day One, that is, since 2002. How has this relentless campaign to overturn a Commission precedent that was affirmed on a 6-3 vote by the Supreme Court at the FCC's urging contributed to regulatory certainty?

6. At the heart of the Chairman's proposal is the requirement that the transmission component of Internet service be unbundled and regulated as common carriage, but that the remainder of what comprises the totality of Internet service, such as applications or content, not be regulated. The Commission says it is not requiring "unbundling" – but what is separation of the transmission component from everything else if not unbundling. And unbundling often leads to rate regulation. FCC General Counsel Austin Schlick in his statement says: "There is no reason to anticipate" the Commission would regulate Internet rates. This non-Sherman-like statement sounds somewhat like the remark of a politician to the effect: "I have no present intention to run for XYZ office." We know what often follows.

7. It is striking there is no reference to any market failure or any linking of the need for net neutrality regulation to the status of marketplace competition in either the Chairman's or the General Counsel's statements. The assumption is that "we just need to do it," whatever the costs may be in terms of legal jeopardy, jeopardy to broadband investment or to the overall economy -- or jeopardy to the ordinary usage of the English language.

8. If there is a determination there needs to be some authority for FCC oversight of broadband Internet service providers, Congress should adopt a new narrowly-circumscribed legislative framework.

9. The core of a new legislative framework should be a provision granting the FCC authority, upon a complaint filed and after an on-the-record adjudication, to act to prohibit broadband Internet Service Providers from engaging in practices determined to constitute an abuse of substantial, non-transitory market power and that cause demonstrable harm to consumers. Such a circumscribed market-oriented rule would provide the FCC with a principled basis for adjudicating fact-based complaints alleging that ISPs are acting anti-competitively and, at the same time, causing consumer harm. Using antitrust-like jurisprudence that incorporates rigorous economic analysis, the Commission would focus, post hoc, on specific allegations of consumer harm in the context of a particular marketplace situation.