United States Still Leads the World in Strong Protections for IP Rights

On February 7, 2019, the U.S. Chamber of Commerce’s Global Innovation Policy Center (GIPC) released the seventh edition of the International IP Index. Appropriately enough it's titled “Inspiring Tomorrow.” The Index rates the intellectual property (IP) systems of 50 countries, representing over 90% of the world’s gross domestic product. Scores were derived from several specific factors pertinent to gauging protection of intellectual property rights.

Thus, the GIPC Index is a valuable tool which allows policymakers to better understand where their countries stand in relation to others.

Although the U.S. ranks at the top of the International IP Index, its release nevertheless should prompt U.S. policymakers to strengthen our IP rights system. The Index identifies the lack of a targeted legal basis for addressing online piracy as a key area of weakness. Moreover, poor Index scores for IP rights systems in certain foreign countries should spur U.S. trade negotiators to seek stronger protections for Americans’ IP rights overseas. By seeking to bolster IP protections around the globe, the U.S. will further benefit from the strong relationship between strong IP rights and economic activity.

Scores in the 2019 International IP Index are based on eight key categories relating to IP rights: patent rights, copyrights, trademarks, trade secrets, commercialization of IP assets, enforcement, systemic efficiency, and membership in and ratification of international treaties. Those eight categories encompass 45 separate indicators pertinent to assessing the strength of an IP system.

Because scoring for this year’s Index is based on 45 indicators instead of 40 as in last year’s Index, a weighted-score was calculated to determine whether countries’ protections of IP rights were stronger or weaker than that calculated in last year’s Index. Among the 50 countries, 23 improved their weighted-scores in the 2019 Index. Many of the improved scores came from developing countries.

For the seventh consecutive year, the United States had the highest score. The U.S. IP system rated 42.66 out of 45. The United Kingdom and Sweden followed with scores of 42.22 and 41.03, respectively. The countries with the lowest scores were Egypt, Algeria, and Venezuela at 11.83, 10.28, and 7.11, respectively.

Despite the United States’ leadership, there are some areas of weakness discussed in the Index. For example, the United States has a perfect score with regard to encouraging creativity by virtue of strong copyright protections, but it lacks an effective enforcement regime to disable access to websites which facilitate pirated content and counterfeit goods. A 2017 report by the IP Commission found that the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economy is between $225 billion and $600 billion.

To combat online piracy, Congress can help by updating the Digital Millennium Copyright Act’s notice and takedown system under Section 512. My October 2018 FSF blog stated that the United States-Mexico-Canada Agreement (USMCA) strengthens IP rights protections and enforcement relative to the North American Free Trade Agreement’s (NAFTA) IP Chapter. However, the USMCA failed to address the outdated “notice and takedown” provision to improve its protection for creators' content.

Moreover, modernizing the U.S. Copyright Office by updating its technological capabilities to maintain a readily searchable database of copyright registrations would be helpful. So too would be giving the Copyright Office the authority to address Section 512 matters and establishing a process for adjudicating small infringement claims. Congress should act to modernize the Copyright Office to enable it to adequately address piracy issues and other copyright-related infringements.

While there was significant improvement among many of the developing countries in GIPC’s Index, the low scores in many developing countries reinforces the need for U.S. pursuit of trade agreements that better secure protections for IP rights holders internationally. As more countries adopt strong protections of IP rights through trade agreements, the entire global economy also will grow substantially, because legal institutions, including regimes that safeguard IP rights, constitute a positive externality for the global economy. The mutual gains from global trade increase when more nations adopt and enforce laws that protect IP rights.

Importantly, the Index emphasizes that there is a “strong correlation between the strength of the national IP environment and different types of economic activity, including rates of R&D spending, innovation, technology creation, and creativity.” Across all countries, the Index found several noteworthy correlations between strong IP protections and economic innovation and creativity. On average, IP-driven countries:

• Are 26% more competitive,

• Are 53% more likely to employ high-skilled and high-paid workers,

• Are 33% more likely to receive private-sector investment in R&D activities,

• Are 39% more likely to attract foreign investment,

• Have over 4 times more online and mobile content generated,And are twice as likely to produce and export complex, knowledge-intensive products.

Strong protections for IP rights incentivize investment in research and development, innovation, and creative content production because they ensure entrepreneurs have an opportunity to earn a return on their labors. And as economies with strong IP rights regimes grow and prosper, consumers are the ultimate beneficiaries as new goods and services, in whatever form they take, are brought to market.

In sum, the International IP Index provides U.S. and foreign policymakers a useful tool for assessing the need to improve their IP systems so that they can enhance innovation and creativity in today’s economy.

Whither Socialist Communications Policy?

The apparently growing yearning for socialism in the United States is disturbing. Disturbing enough that even Chuck Schumer and Nancy Pelosi joined the applause when, in his State of the Union address, President Trump proclaimed: "America will never be a socialist country."

History is replete with socialism's tragic failures for those who choose not to ignore history. But one need not retreat to the history books for proof. Today Venezuela may be Exhibit A, but there are many others, such as close-by Cuba.

And while socialism's appeal among the young is on the rise, its elixir spans the generations. Witness the almost half-century age difference between 77-year old Bernie Sanders and 29-year old Alexandria Ocasio-Cortez, two of the most prominent stars in the American socialist firmament. Indeed, a recent Gallup poll reports that Democrats view socialism more positively than capitalism – and by a wide margin.

Perhaps all the proud new socialist devotees have taken to heart Oscar Wilde's tongue-in-cheek quip: "The one duty we owe to history is to rewrite it."

To be sure, it's one thing to proclaim, "I am a socialist," and entirely another to understand what you mean to suggest, programmatically, by so proclaiming. For example, while we can be certain that "Medicare for All" and the "Green New Deal" would mean considerably more government control of the health care and energy markets, the programmatic details of such control would need to be worked out.

Here I want to focus on what socialism might imply for communications policy, and, more specifically, for control of the channels of communications that enable the American public to connect with their families, friends, and civic groups, to engage in social and political affairs, and to inform and entertain themselves. In short, to live their everyday lives by communicating freely.

What do the socialists have to say about this?

By no means did Karl Marx and Friedrich Engels, in The Communist Manifesto, ignore the significance of control of communications channels to the establishment of the socialist revolution. One of the ten key measures that Marx and Engels said would be necessary in advanced countries to achieve the proletariat revolution is: "Centralisation of the means of communication and transport in the hands of the State."

Of course, with a vengeance that was ruthless, Vladimir Lenin put Marx's and Engels' injunction into practice as he consolidated control of communications in state-run propaganda organs, while simultaneously vanquishing independent media.

In other words, Venezuela's Hugo Chavez, once the darling of American liberals such as former Representative Joe Kennedy and actor Sean Penn, didn't invent the socialist playbook regarding state control of the media and communications channels.

Now fast forward to America, circa 2009. In an interview with a publication called The Bullet, a publication of "The Socialist Project," Robert McChesney said this, in the context of discussing what he called "the battle for network neutrality": "What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don't have to have a password and that you don't pay a penny to use. It is your right to use the Internet."

Robert McChesney, an American professor teaching at the University of Illinois at Urbana- Champaign, not only publishes in "The Socialist Project," he is an avowed socialist. Here is what The Socialist Project says about itself: "The SP opposes capitalism out of necessity and supports the anti-capitalist struggles of others out of solidarity."

Oh, and by the way, Robert McChesney is a co-founder and director emeritus of the advocacy organization, Free Press.

I mention Robert McChesney's connection to Free Press because the organization is a leader – if not the leader – in the fight to turn Internet service providers into public utilities by once again shackling them with so-called "Title II regulation." In its January 2018 Restoring Internet Freedom Order, the FCC's current Republican majority repealed the Title II public utility regulation of Internet providers that had been mandated by the Obama FCC.

Now, please carefully note: I am not suggesting that, like Professor McChesney, all advocates of Title II regulation of Internet providers are socialists, although I suspect an increasing number would proudly embrace the label. In any event, thankfully, we live in a free country in which you can call yourself whatever you wish, and more importantly, believe whatever you wish.

But here's what I am suggesting: With infatuation with socialism on the rise, it is wise to pay attention to what socialist ideology implies for communications policy. The House Communications and Technology Committee held a hearing last week on "Net Neutrality." And a Free Press representative was invited by the Committee majority to testify, and she advocated a return to public utility regulation of Internet providers. That being so, it's worth repeating Free Press's co-founder Robert McChesney's declaration: "What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility."

Oscar Wilde may have said: "The one duty we owe to history is to rewrite it." I prefer Winston Churchill's felicitous rephrasing of George Santayana: "Those who fail to learn from history are condemned to repeat it."

Reallocating Mid-Band Spectrum Will Create Significant Economic Benefits

On February 5, 2019, the Analysis Group published a study in conjunction with CTIA titled "The Economic Impacts of Reallocating Mid-Band Spectrum to 5G in the United States." The use of mid-band spectrum is a necessity for developing 5G networks capable of maintaining high speeds and low latency. The study examines the economic impact of reallocating 400 MHz of licensed mid-band spectrum between 3.45 GHz and 4.2 GHz. Over a seven-year buildout period, wireless providers will invest $154 billion in 5G infrastructure, resulting in $274 billion in additional economic activity and 1.3 million new jobs.

A Maryland Small Cells Bill

In Maryland, Delegate Dereck Davis, a Democrat, introduced a "small cells" bill to help speed the deployment of wireless infrastructure, especially new 5G networks. The bill would mandate that local governments streamline certain processes and remove certain obstacles that presently hold up wireless network build-outs.

Delegate Davis's bill is important in order to keep Maryland broadband-friendly.  

Research Fellow Michael Horney Testified on Maryland House Bill 141

On February 6, 2019, I testified before the Committee on Economic Matters in the Maryland General Assembly’s House of Delegates on House Bill (HB) 141 “Commercial Law – Internet Privacy and Net Neutrality.” I argued that HB 141 is legally problematic because it would impose a burden on interstate commerce, putting it at risk of preemption by the Federal Communications Commission. I also argued that HB 141 would harm consumers because the costs imposed on Internet service providers having to comply with state-by-state net neutrality and privacy regulations would crowd out resources that otherwise could be used for additional investment and innovation.

You can watch my testimony here around the 48-minute mark and please read my full written testimony, which was prepared by me and Free State Foundation President Randolph May and goes into much more detail about why the bill is legally problematic and unwise as a matter of policy.

MLC Coalition for Songwriter Royalties Stands on Rock Solid Ground

On February 4, the Mechanical Licensing Collective (MLC) Coalition announced it has received an impressive list of endorsements from all major associations and organizations in the U.S. music industry. The MLC Coalition will be making a submission to the U.S. Copyright Office in order to create a collective entity for administering mechanical licensing royalties pursuant to the Music Modernization Act of 2018 (MMA). 

For songwriters, federal copyright law secures protections in their musical compositions but also subjects their compositions to compulsory mechanical licensing. Mechanical licenses grant third parties rights to record, reproduce, or sample original music compositions in exchange for payment of mechanical licensing royalties to songwriters. Mechanical licensing royalty rates are either established by contractual agreement or set by the Copyright Royalty Board. 

Songwriters have sometimes suffered from lack of timely receipt of mechanical licensing royalties, particularly for digital audio transmissions of sound recordings of their songs by digital music service providers such as Spotify and Pandora. Apparently, digital music service providers have experienced difficulties in accurately identifying and locating songwriters for purposes of making royalty payments. The 115th Congress passed the MMA to alleviate this mechanical licensing royalties problem by facilitating proper payments to songwriters. Over the course of several Free State Foundation blog posts, we supported passage of the MMA.

The MMA authorized the Register of Copyrights to designate a mechanical licensing collective that would have authority to perform functions such as offering and administering blanket licenses for usage of music compositions by digital music providers, collecting royalties from digital music providers and distributing them to songwriters and other copyright owners in music compositions, making efforts to identify music compositions embodied in sound recordings and to identify and locate the copyright owners of those compositions, as well as maintaining a database for musical works necessary to administer mechanical licensing. By March 21, the MLC Coalition will make its submission to the Copyright Office in connection with this provision of the MMA.

Given the widespread consensus support from performance rights organizations, music publishers, the recording industry, and digital music service providers, the MLC Coalition is ideally suited to administer the mechanical licensing functions spelled out in the MMA. In making its forthcoming submission to the Copyright Office, the MLC Coalition stands on rock solid ground.   

T-Mobile, Sprint Price Stability Commitments Are Positive

Yesterday T-Mobile and Sprint filed a pleading at the FCC pledging rate stability for consumers for at least three years after the merger is approved. Specifically, the merger applicants stated: "T-Mobile and Sprint legacy rate plans will continue as New T-Mobile plans for three years after the merger or until better plans that offer a lower price or more data are made available, whichever occurs first." While T-Mo and Sprint said that the stabilized rate plans may be adjusted for increases in taxes, surcharges, and the like beyond their control, on the whole the price stability commitment should be reassuring to consumers -- and to the regulators and antitrust authorities reviewing the proposed merger.

Any merger this size deserves careful -- but nevertheless timely -- scrutiny by the appropriate authorities, including the FCC and the Department of Justice. In comments submitted to the FCC in August 2018, Free State Foundation scholars said: "[T]here is strong evidence that the proposed T-Mobile/Sprint merger, if approved, would greatly benefit consumers and enterprises by enabling faster mobile broadband speeds, higher data capacity, and reduced per-megabit prices. A combined 'New T-Mobile' would have the resources to rapidly deploy a nationwide 5G network and to compete more effectively against AT&T and Verizon, presently the two largest wireless carriers."

Nothing that has occurred since the comments and reply comments were submitted has altered that view. Some form of "price stability" commitments have almost become pro forma in merger proceedings, even in advance of the almost inevitable, but nevertheless still unseemly, last-minute "midnight" extractions of volunteered regulatory conditions. That said, the new T-Mobile-Sprint commitments bolster the case that merger approval would be pro-consumer.

It is also worthwhile noting that Representative Anna Eshoo (D-CA), not one known to endorse proposed telecom mergers on a knee-jerk basis, has submitted a letter, with broad bipartisan support, to the FCC and DOJ pointing out, in their view, the pro-consumer benefits of the merger and the benefits to the economy in terms of increased investment and innovation.

New Study: 5G Will Help Close Digital Divide

A new study titled "Improving Rural Broadband Access: The Impact of Broadband Access and Proposed Investment in 5G Networks in South Dakota" finds that investment in 5G wireless infrastructure will be critical to advancing South Dakota's economic growth and promoting safety and quality of life in rural areas. This study was conducted by a research team from Old Dominion University and the University of South Dakota and underwritten by T-Mobile. 

As I stated in a March 2018 Perspectives from FSF Scholars titled "Reaching Rural America: Free Market Solutions for Promoting Broadband Deployment," 5G wireless technology will deliver speeds 10 to 100 times faster than 4G, making mobile broadband a viable option for a residential connection, particularly in rural areas where wireline deployment is not cost-efficient. That being said, the deployment of 5G technology will help close the gap of the digital divide by creating robust broadband access for rural Americans.

The 28 GHz Auction Closes Successfully

The FCC's 24 GHz auction closed today with bids that exceeded more than $700 million. There were winning bids on at least 96% of the 3,072 licenses.

I've never tried to predict the outcome of auctions beforehand or handicap the outcome, preferring to let the market "speak" for itself. That's what auctions do.

So, as the 28 GHz auction closes, I'll limit my reaction to a few words. There are always those who, no matter the result, wish to characterize the auction du jour as somehow disappointing or some sort of failure but that seems difficult to do in this instance.

Foremost, the auction will result in U.S. wireless providers gaining access to needed high-band spectrum. This high-band spectrum will be an important component of the deployment of 5G infrastructure, including often overlooked backhaul support. In this sense, without more, the 28 GHz auction has been successful.

Second, the auction du jour critics often choose to ignore, in offering up comparative figures from one previous auction or another, that the bidding results will reflect the technical characteristics of the particular spectrum bands at auction. In other words, high-band spectrum like the 28 GHz band almost certainly will lead to different results than low-band spectrum, say, the 600 MHz frequencies. For one thing, high-band frequencies do not allow transmissions to travel as far as low-band ones. Of course, factors like this affect the value of the spectrum.

Finally, for what it's worth, the revenues ultimately realized from the 28 GHz auction appear to be within the range of the pundits' pre-auction predictions regarding the likely results.

In sum, when the auctioneer's gavel brought the 28 GHz auction to a close, from where I sit it looked to be a success. Now it's time to prepare for the next one.  

Randolph May Calls for the FCC to Adopt Rebuttable Presumptions

On January 21, 2018, The Regulatory Review published Free State Foundation President Randolph May's opinion piece titled "Adopting Rebuttable Presumptions at the FCC."  

Given the increasingly competitive communications marketplace and ongoing technological dynamism facilitating development of new service offerings, Randolph May calls for the Federal Communications Commission to adopt rebuttable evidentiary presumptions that tilt towards the non-enforcement and repeal or modification of obsolete regulations. This fairly modest process reform would be consistent with Sections 10 and 11 of the Telecommunications Act of 1996.

Please see my essay, "Adopting Rebuttable Presumptions at the FCC," in @TheRegReview : https://t.co/9MZFLzBkep Thanks to @TheRegReview! @YaleJREG @StatePolicy @FedSoc @RegStudies @mikeofcc @AjitPaiFCC @BrendanCarrFCC @acusgov @ProfDanielLyons @GusHurwitz

— Free State Foundation (@FSFthinktank) January 21, 2019

Senator Rubio Introduced New Privacy Bill

On January 16, 2019, Senator Marco Rubio (R-FL) introduced the "American Data Dissemination (ADD) Act." This legislation would require the Federal Trade Commission (FTC) to submit recommendations for privacy requirements to Congress using the Privacy Act of 1974 as a framework. 

The bill also would require the FTC to submit to the appropriate committees of Congress proposed regulations to impose privacy rules on "covered providers," which include Internet service providers and edge providers. Within two years of the bill's passage, if Congress does not enact a law based on the FTC's recommendations, the legislation would give the FTC the authority to promulgate a final privacy rule.

In 2018, Free State Foundation scholars submitted two sets of privacy-related comments to federal agencies: 

• "The Intersection between Privacy, Big Data, and Competition," Submitted to the FTC, August 20, 2018.

• "Developing the Administration's Approach to Consumer Privacy," Submitted to NTIA, November 9, 2018.

T-Mobile Executives Repeatedly Stay at Trump International Hotel in DC

On January 16, 2019, the Washington Post published a story reporting that T-Mobile CEO John Legere and other eight company executives have repeatedly stayed at the Trump International Hotel in Washington, DC after T-Mobile announced its $26 billion merger with Sprint in April 2018. The story raises questions about if the hotel visits are an attempt to influence public policy considering that the merger requires approval from the Department of Justice and the Federal Communications Commission.

Free State Foundation President Randolph May tweeted his reaction to the story:

I've long argued that the "public interest" doctrine under which the @FCC reviews proposed mergers has been abused because of its vagueness. But I've never imagined it to be so indeterminate as to encompass @FCC considering which hotels applicants' CEOs stayed in! Wow! @b_fung pic.twitter.com/tbPPEn0vLT

— Free State Foundation (@FSFthinktank) January 17, 2019

FCC Report Spotlights States' Wrongful Use of 911 Taxes

Some $285 million in 911 taxes charged to voice service consumers were improperly diverted to non-911 purposes by states in 2017. That's nearly 10% of 911 taxes. Those findings were in the FCC's 10th Annual Report on State 911 Taxes. Diversions of state 911 taxes are contrary to law and undermine the integrity of 911 tax policy. Consumers are harmed by the dishonest, extra charges, and 911 services stand to lose needed funds. 

To the FCC's credit, its report indicates states will face closer scrutiny in the future for diverting 911 taxes. Congress, the Commission, and state officials ought to consider new measures to combat states' misuse of 911 taxes and ensure compliance with the law.

The NET 911 Act of 2018 requires the FCC to annually report to Congress on state collection and distribution of 911 and enhanced 911 (E911) fees and charges. The Act was intended to "ensure efficiency, transparency, and accountability" when it comes to 911 taxes. It requires that the Commission's reports include findings on amounts of 911-related revenues spent by states for purposes other than 911-related services. To prepare its reports, the Commission sends the governors of each state questionnaires regarding 911 tax collections for each calendar year. The 10th Report observed: "All jurisdictions provided written responses to the questionnaire, but not all jurisdictions responded to every question and some jurisdictions provided incomplete responses to questions." 

In all, states collected over $2.9 billion in 911 taxes in 2017. Key findings on diversions of state 911 tax revenues are contained in the 10th Report's paragraph 27:

Based on the data we have received, we find that six states and the U.S. Virgin Islands diverted or transferred fees in calendar year 2017… Montana self-identified in its responses to the questionnaire that it used collected funds, at least in part, for non-911 related purposes. Five states [New Jersey, New York, Nevada, Rhode Island, West Virginia] and the U.S. Virgin Islands did not self-identify as diverting funds, but the Bureau has determined based on review of the information provided that these jurisdictions in fact diverted funds for non-911 related purposes within the meaning of the NET 911 Act. The jurisdictions… diverted an aggregate amount of $284,968,912.66, or 9.70% of all 911/E911 funds reported to have been collected by all responding states and jurisdictions in 2017. 

The report identified the amount of 911 taxes improperly diverted to non-911 purposes by each state. The three most notorious states were New York (over $170.8 million), New Jersey (nearly $94.2 million), and Rhode Island (almost  $11.4 million). A statement by Commissioner Michael O'Rielly rightly called out those three "repeat offenders." Moreover, the Commission's finding of nearly $285 million in diverted 911 taxes in 2017 was more than double its 2016 finding of $129 million in diverted tax dollars. 

Diversion of state 911 taxes poses a serious rule of law problem. As the 10th Report points out: "Section 6(f)(1) of the NET 911 Act requires that obligation or expenditure of 911/E911 fees or surcharges be 'in support of 9-1-1 and enhanced 9-1-1 services, or enhancements of such services.'" It goes without saying that when states impose taxes on consumers – on their citizens – for specified purposes, they should spend collected revenues only on those specified purposes. Indeed, voice service providers alleged to have improperly collected taxes from their subscribers have faced multi-state class-action lawsuits. Penalties for violating state consumer protection acts can include treble damage awards plus steep attorney fee awards. We should be no less tolerant of state governments improperly collecting taxes. States' diversions of 911 tax revenues may undermine public confidence in the integrity of 911 taxation, and in the integrity of tax laws generally. 

Additionally, unaccountable 911 taxation wrongfully hits consumers of voice services. According to the 10th Report, the average 911 fees in 2017 totaled $1.04 per line per month for wireline, $0.97 per line per month for wireless, and $0.99 per line per month for VoIP. Also: "the average prepaid wireless percentage of retail transaction 911 fee [was] 2.12%." As indicated above, 911 tax charges totaled over $2.9 billion in 2017. Voice consumers – including wireless consumers – are already subject to high taxes and fee charges by multiple governments. Such taxes include: state and local sales taxes, federal USF surcharges, state USF surcharges, industry-specific state taxes, and state 911 taxes. Indeed, a Tax Foundation estimate pegged total wireless consumer taxes at $16.1 billion for 2018, amounting to 19.1% of consumers' wireless bills. That estimate likely lowballs the amount of 911 taxes that consumers were actually charged in 2018. 

When it comes to affordability of voice and broadband services, wireless taxes hit lower-income consumers who are wireless-only especially hard. So it's especially important to curb excessive and improperly charged taxes on wireless services. FSF President Randolph May previously urged the FCC to act to prevent state 911 taxes from being assessed against low-income subscribers to no-charge Lifeline wireless service:

Putting aside the legal question, … it seems to me a matter of common sense – or sound policy, if you prefer – that the FCC should not allow states to impose taxes or fees on no-charge Lifeline service that the FCC has sanctioned by rule for the purpose of promoting access to communications services for those who otherwise cannot afford service.

In the past, a few states wrongly have either imposed 911 (and other) taxes on Lifeline services or considered doing so.

Similarly, it is sound policy for Congress, the FCC, and state officialsto ensure that 911 taxes are properly assessed and distributed. Otherwise, wireless consumers will be wrongly financially burdened and discouraged from accessing wireless communications services. And 911 services will be deprived of funds.   

The 10th Report indicated the Commission will more closely scrutinize future state responses to questionnaires on 911 taxes. Going forward, the Commission will presume revenues are being diverted to non-911 purposes unless states make more complete responses. The Commission also should follow through on report warnings that states diverting 911 tax revenues may be ineligible for upcoming matching federal grants awards from funds raised through spectrum auctions. Congress, the FCC, and state officials should consider further ways to spotlight 911 tax diversions and incentivize compliance with the Act. Certainly, governors and state legislators should direct relevant state and local government officials to provide complete and accurate answers to FCC questionnaires on 911 taxation.

If states are going to charge consumers a dollar per line each month for 911, then every tax dollar collected should go to 911-related services. It's unlawful and unfair to consumers if 911 taxes are diverted to anything else. And 911 services stand to suffer.

Additionally, low income recipients should not be assessed 911 taxes on Lifeline service. That's counterproductive and inconsistent with Lifeline's purpose. 

Representative Eshoo's New Bill Would Slow 5G Deployment

On January 15, 2019, Representative Anna Eshoo (D-CA) introduced the "Accelerating Wireless Broadband Development by Empowering Local Communities Act of 2019" (H.R. 530), which would overturn FCC rules that preempt local government regulations on the deployment of 5G infrastructure.

As I illustrated in a September 2018 infographic, the FCC's Wireless Infrastructure Order facilitated 5G deployment by reducing unnecessary regulatory barriers and limiting unjustified fees imposed by local governments. One study by CMA Strategy found that the FCC’s Order will increase broadband infrastructure investment by $2.4 billion and deploy next-generation access to an additional 1.8 million homes and business, of which 97% will be concentrated in rural and suburban areas.

By overturning the FCC's Order, Representative Eshoo's bill would enable local governments to levy excessive fees and lengthy regulatory processes on broadband providers, slowing the deployment of 5G technology and delaying the creation of 5G’s massive economic benefits.

Maryland Should Reduce Regulations and Fees That Inhibit Broadband Deployment

On January 2, 2018, I published a blog suggesting that Maryland Governor Larry Hogan should reestablish the Regulatory Reform Commission and should specify as one of its tasks identifying unnecessary taxes and fees. More specifically, the Commission and the Maryland General Assembly, which convenes this week for its 2019 legislative session, should focus on reducing regulatory and tax burdens that stifle broadband deployment and slow the delivery of next-generation wireless services. According to two recent reports, Maryland has one of the most burdensome regulatory processes with regard to broadband deployment and some of the highest wireless tax rates in the country.

A new report by the R Street Institute ranks Maryland 45^th out of 50 in terms of how conducive its laws are to broadband deployment. Importantly, Maryland presently does not require localities to adopt "shot clocks" to ensure timeliness for the processing of applications or to employ hard caps on fees pertaining to accessing public rights-of-ways, acquiring construction permits, or installing pole or collocation attachments. For example, the fees localities charge for public rights-of-way access are not required to be non-discriminatory or based on an estimation of costs, meaning local governments can charge whatever they want and can charge different prices to different providers despite granting the same level of access. Whether a wireless or wireline provider of broadband access, building and upgrading a network requires a significant number of permits from the local government. Without shot clocks and without hard caps on fees, the regulatory costs imposed by impediments associated with the local government approval process slows broadband deployment.

Deploying communications networks includes heavy capital investments from broadband providers. If fees are excessively high, it will discourage competition from small providers who cannot afford access. Also, if the regulatory costs differ significantly among jurisdictions, it could discourage providers from upgrading networks in certain localities. Although there is high demand in a relatively densely-populated, wealthy state like Maryland, the margin between profit and loss is very small in the dynamically competitive broadband market.

In May 2015, Governor Hogan signed House Bill 541, which required the Public Service Commission to convene a workgroup to study attachments to utility poles in Maryland. The workgroup found in a January 2016 study that the “terms and conditions for pole attachments are adequate” and the “rates charged to pole attachers are reasonable.” But with the emergence of the 5G revolution, small cell deployment in a populated locality will require hundreds if not thousands more pole attachments than 4G, meaning the existing terms and conditions likely are outdated. With 5G deployment, wireless providers will deploy small cells on already existing buildings or utility poles, a practice called “collocation.” Without shot clocks for the review of collocation applications and without hard caps on the fees localities can charge, the regulatory uncertainty will slow 5G investment in Maryland. In 2018, Maryland policymakers introduced small cell legislation to minimize these regulatory barriers and streamline 5G deployment, but the Senate and House bills failed to pass.

If Maryland wants to continue to be considered a prime location for innovative businesses, it should adopt rules that give guidance to local governments regarding streamlining the application and approval processes and charging cost-based fees that properly compensate the local governments without slowing 5G deployment.

Moreover, according to a recent report by the Tax Foundation, Maryland, at an average rate of 13.89%, has the 15^th highest combined state and local wireless tax rate in the United States. This means its wireless tax rate is 2.31 times the size of its general sales tax of 6%, which is the 9^th highest disparity multiple in the U.S.

Of course, some localities impose higher tax rates than others. In Baltimore, residents pay an effective tax rate of about 25% for wireless services. At the end of 2017, over 68% of all poor adults had wireless-only voice service and nearly 24% of Baltimore’s population falls below the poverty level. Additionally, more and more consumers are substituting mobile wireless broadband for fixed broadband. And while this trend is occurring across all demographics, it is particularly prevalent among low-income and minority consumers. About 31% of U.S. adults making less than $30,000 a year are wireless-only with regard to broadband service. And 35% of Hispanic adults and 24% of black adults also are wireless-only. Maryland’s relatively high wireless tax rates unnecessarily raise the price of wireless services and harm all consumers, but they disproportionately harm low-income and minority consumers.

The Regulatory Reform Commission’s December 2015 report recommended streamlining application review processes, reducing fees and payment frequency, and expanding minority and disadvantaged business opportunities. These recommendations have not been implemented yet with regard to the taxation and regulation of broadband and wireless communication services.

As stated in last week's blog, Governor Hogan’s regulatory reform efforts have improved Maryland’s business climate and its overall fiscal condition. To continue this progress, Governor Hogan should reestablish the Regulatory Reform Commission and task it with identifying more regulations, taxes, and fees that discourage economic activity. The communications and broadband marketplace would be a good place to start.

Copyright Industries Contributed Significantly to the U.S. Economy in 2017

U.S. Copyright Industries
Infogram

Governor Hogan Should Reestablish the Regulatory Reform Commission

At the beginning of each year, for the past three years, Free State Foundation President Randolph May and I have published a Perspectives from FSF Scholars addressing the meaningful progress made by Governor Larry Hogan’s Regulatory Reform Commission (RRC). In December 2017, the RRC published its final report identifying 844 outdated or unnecessary regulations over its three-year term, which Governor Hogan ultimately eliminated or altered in some way. Now that Governor Hogan has been reelected for a second term, he should reestablish the Commission with the goal of achieving further regulatory reform over the next four years.

In January 2016, Randolph May and I commended Governor Hogan for creating the RRC, and we suggested ways Maryland could reform its regulatory process. Specifically, we proposed that Maryland consolidate its twenty departments into just eight. We also suggested creating a “sunset” date for all new regulations. This would require that regulations expire after a certain period of time if they are not affirmatively readopted by the sunset date.

In January 2017, we applauded the RRC for identifying 187 regulations that it found “redundant, unreasonable, unnecessary, unduly burdensome or obsolete.” We also recommended that Maryland adopt a central office within the executive branch to review regulations before they are promulgated to determine whether the projected benefits outweigh the costs – similar to the Office of the Information and Regulatory Affairs (OIRA) at the federal level. The office certainly doesn't need to be large, but it should be led by an economist with expertise in cost-benefit analysis.

In January 2018, we highlighted the RRC’s final report, which recommended 657 changes to outdated or unnecessary regulations that Governor Hogan ultimately accepted. And we took the opportunity to repeat some of our earlier proposals for process reform in Maryland.

Governor Hogan made a worthy effort during his first term to eliminate unnecessary or outdated regulations as part of his effort to stimulate Maryland's economy and improve its business climate. As I noted in an October 2018 blog, Governor Hogan’s tax and regulatory reform had a positive impact on Maryland’s overall fiscal condition. And according to some studies, Maryland’s business climate has improved over the past several years relative to other states. (See here and here.)

Although the Regulatory Reform Commission did a good job identifying nearly 850 regulations that were outdated or unnecessary and Governor Hogan wisely accepted the Commission’s recommendations, there certainly are areas where Maryland can further improve, like reducing occupational licensing requirements. Now that Governor Hogan will be returning to Maryland’s gubernatorial seat for another four years, he should reestablish the Regulatory Reform Commission and direct the Commission to continue its work searching for unnecessary and costly regulations to eliminate or modify.

The RRC also should be tasked with identifying unnecessary taxes and fees that stifle competitive entry and artificially raise prices for consumers. Given the positive impact that broadband and wireless services have on Maryland’s economy, the RRC particularly should focus on eliminating or reducing excessively high taxes and fees that slow broadband deployment and harm consumers.

In a forthcoming blog, I will discuss how Maryland’s burdensome regulations and fees stifle broadband deployment and how its exorbitantly high wireless tax rates negatively impact consumers.