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A Free Market Think Tank......Because Ideas Matter
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In a Tuesday post to the Free State Foundation's Blog, I reported that both chambers of the Maryland General Assembly had voted, by substantial margins, to override Governor Larry Hogan's veto of a gross revenues tax on digital advertising services. As anticipated, yesterday a group of trade associations sued in the U.S. District Court for the District of Maryland (Northern Division) seeking declaratory and injunctive relief.
Filed by the Chamber of Commerce of the United States of America, Internet Association, NetChoice, and the Computer & Communications Industry Association, the complaint alleges that H.B. 732 "is a punitive assault on digital, but not print, advertising" and "is illegal in myriad ways."Specifically, the plaintiffs argue that H.B. 732 (1) "is preempted by the Internet Tax Freedom Act (ITFA), which prohibits States from imposing 'multiple and discriminatory taxes on electronic commerce,'" and (2) "violates the Due Process Clause and Commerce Clause of the United States Constitution by burdening and penalizing purely out-of-state conduct and interfering with foreign affairs."
A copy of the complaint can be found here.
Maryland's first-in-the-nation gross revenues tax on digital advertising services will take effect in less than 30 days. Legal challenges likely will follow soon thereafter.
H.B. 732, passed by the General Assembly at the end of the pandemic-shortened 2020 legislative session, was vetoed by Governor Larry Hogan. On Friday, the State Senate voted 29-17 to override that veto. The House of Delegates did the same the day prior, by an 88-48 margin.
H.B. 732 imposes a gross revenues tax on digital advertising services provided by companies that earn more than $100 million globally. Gross annual revenues will be taxed at rates that begin at 2.5 percent (for companies with revenues between $100 million and $1 billion) and increase to 5 percent (revenues between $1 billion and $5 billion), 7.5 percent (revenues between $5 billion and $15 billion), and 10 percent (revenues over $15 billion).
As Free State Foundation President Randolph J. May and I described last spring in a post to the FSF Blog and an op-ed in the Baltimore Sun, this tax will harm both consumers and businesses in Maryland. The higher marketing costs that result inevitably will lead to higher prices for the goods and services advertised, lower consumption, and reduced tax revenues. It also is vulnerable to legal challenges under the Permanent Internet Tax Freedom Act, the Commerce Clause, and the First Amendment.
S.B. 787 and companion bill H.B. 1200, introduced on February 5 and 8, respectively, would modify H.B. 732 by (1) exempting the "digital interfaces" (that is, websites and apps) of television and radio broadcasters and news media entities, and (2) prohibiting those subject to the tax from passing on its costs directly via a separate fee, surcharge, or line item. However, the proposed legislation would not bar providers of digital advertising services from recouping those costs indirectly via higher prices.
Today, the Free State Foundation was pleased to host FCC Commissioner Nathan Simington for a virtual event. Commissioner Simington delivered his first address since taking office, and he answered questions from FSF President Randolph May. We are grateful to Commissioner Simington for his substantive address and thoughtful answers to questions. The text of Commissioner Simington's prepared remarks are now posted at the Commission's website.
UPDATE: Video of the event is also now available:
On February 3, the Wi-Fi Alliance® released a study titled "Global Economic Value of Wi-Fi® 2021-2025." The report estimates that the current worldwide value of Wi-Fi is $3.3 trillion, and that it will reach $4.9 trillion by 2025.
As the report observes: "The United States remains one of the countries with the widest Wi-Fi adoption and use." It credits the high numbers of paid Wi-Fi access points and public Wi-Fi sites. According to the report, "[t]he total economic value of Wi-Fi in 2021 is $995 billion. With the new allocation of 1200 MHz in the 6 GHz band, as well as market penetration of Wi-Fi 6, the value of Wi-Fi will grow to $1.58 trillion by 2025."Free State Foundation scholars have supported FCC initiatives in its 6 GHz and 5.9 GHz to put spectrum into unlicensed use, including for technologies such as unlicensed Wi-Fi. As Free State Foundation Senior Fellow Andrew Long explained in his Perspectives from FSF Scholars paper, "Wi-Fi 6G Can Modernize Unlicensed Wireless," the new Wi-Fi 6E standard will usher in a new era of unlicensed wireless growth and innovation.
It will be exciting to see these spectrum allocations to unlicensed use and the widespread adoption of Wi-Fi 6E devices pay dividends in terms of faster, more capacious, and extra-reliable Wi-Fi connections as well as new uses. Yet at the same time, the Wi-Fi Alliance report should lead us to recognize the need to build up the U.S. stock of mid-band spectrum for licensed commercial use. As the report points out, the FCC has dedicated significant mid-band spectrum resources to unlicensed Wi-Fi use. Analysys Mason's "Comparison of Total Mobile Spectrum in Different Markets" report from June 2020 identified the U.S. as the nation with by far the highest amount of unlicensed mid-band spectrum assigned to unlicensed use – at 1,860 MHz. Free State Foundation scholars will have more to say soon on repurposing additional mid-band spectrum for licensed commercial use.
Below are tweets from today by Free State Foundation President Randolph May that reassert the U.S. policy strongly favoring private sector-led commercial mobile wireless services and push back against the idea of the Department of Defense entering the 5G commercial market to compete against private enterprise.
The US's #5G approach is not flawed - it's the @ericschmidt @FT op-ed that's flawed, for sure. US mobile broadband markets lead Europe and the world because US wireless carriers invested $29 Billion in infrastructure last year and $286 Billion over last 10 years. https://t.co/faxEmUdIQQ
— Free State Foundation (@FSFthinktank) February 8, 2021
Here's an @FSFthinktank paper showing competitiveness of US #broadband market & the extent of private sector investment, incl'g #wireless for #5G. New ideas are always welcome, but ultimately the success of US in #5G depends on private sector investment. https://t.co/QvMZY78uho
— Free State Foundation (@FSFthinktank) February 8, 2021
Virginia is poised to become the second state to adopt a data privacy law. California led the way, first with the passage in 2018 of the California Consumer Privacy Act (CCPA) and, more recently, via voter approval in the November 2020 election of Proposition 24, the California Privacy Rights Act (CPRA).
The Virginia Consumer Data Protection Act (CDPA) includes the following key provisions:On February 3, the Virginia Senate unanimously passed SB 1392, identical companion legislation to HB 2307, which easily cleared the House of Delegates by a 89-9 vote on January 29. Should Governor Ralph Northam sign the bill into law, it would become effective on January 1, 2023.
I have argued in posts to the Free State Foundation Blog as well as Perspectives from FSF Scholars that what is needed is a single set of privacy rules that apply nationwide and preempt state laws. In the absence of federal legislation, however, we continue to see activity at the state level.
Additional states currently considering data privacy legislation include Washington, New York, and Oklahoma.
A new report by Boston Consulting Group (BCG) titled "5G Promises Massive Job and GDP Growth in the US" estimates the significant economic boost that the American economy will receive on account of next-generation wireless network deployment. The report was released on February 2, 2021.
According to BCG's report, "5G deployment will contribute $1.4 trillion to $1.7 trillion to US GDP and create 3.8 million to 4.6 million jobs" over the next ten years. The report provides a helpful overview of the primary stages of 5G development – "foundation," "expansion," and "augmentation." Coinciding with those three states of development, BCG's report projects that 5G will first drive economic activity through network infrastructure deployment but then enable "an even greater wave of economic activity" indirectly as 5G networks enable new uses across manufacturing, construction, health care, and other industries.
The expected economic benefits from 5G networks should prompt Congress, the FCC, and NTIA to continue infrastructure siting reforms as well as efforts to make more spectrum available for commercial 5G services.
BCG's new report on 5G's job and GDP prospects is a follow-up to a report I covered in a September 2020 blog post.
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Yesterday Charter Communications announced a new multiyear, multibillion-dollar initiative to deliver gigabit broadband speeds to over a million customer locations in rural and other areas presently unserved.
Charter will invest $5 billion in this infrastructure expansion project, including $1.2 billion that it won in the Rural Digital Opportunity Fund (RDOF) Phase I reverse auction. This large-scale effort, which will extend Charter's fiber optic network in 24 states, is in addition to existing, privately funded buildout plans.
The project is expected to generate 2,000 new jobs and expand Charter's network mileage coverage by 15 percent.
In announcing the initiative, Tom Rutledge, Chairman and CEO of Charter Communications, explained that "[t]he pandemic has further highlighted the need for broadband availability and adoption and Charter is committed to furthering its efforts as part of the comprehensive solution needed to address these challenges."
One potentially significant external factor that could impact the timing of this project: utility pole permitting and "make-ready" processes.
Free State Foundation President Randolph May and Director of Policy Studies and Senior Fellow Seth Cooper submitted comments to the FCC in September 2020 in support of a Petition filed by NCTA – The Internet & Television Association seeking an expedited declaratory ruling regarding pole replacements and pole attachments.
Specifically, they argued that the Commission should:
Mr. Cooper posted to the FSF Blog on this topic, as well.
On January 19, 2021, the Wireline Competition Bureau released a Declaratory Ruling that, while declining to weigh in broadly on the issues presented in the Petition filed by NCTA, did narrowly "clarify that it is unreasonable ... for utilities to impose the entire cost of a pole replacement on a requesting attacher when the attacher is not the sole cause of the pole replacement."
Comcast launched its low-cost Internet Essentials program in 2011. Over the last decade, it has connected millions of eligible low-income families at the discounted price of $9.95 per month, provided tens of thousands of free laptops, and invested hundreds of millions to promote digital literacy.
The ongoing public health crisis has focused greater attention on digital divides, remote learning, and digital equity. Today Comcast announced additional voluntary efforts to address these concerns.
Comcast's Internet Essentials program arguably is the leading example of the broadband industry's commitment to make high-speed Internet access more affordable for low-income families, but there certainly are others.Such programs have been highly successful. So successful, in fact, that Congress made sure to leverage them in the recently passed COVID-19 relief package.
As I described in a recent post to the Free State Foundation's blog, Congress has appropriated $3.2 billion to the FCC for an Emergency Broadband Benefit Program that will provide discounts on broadband service during the COVID-19 pandemic. In doing so, it directed the agency to automatically approve providers offering "an established program as of April 1, 2020, that is widely available and offers internet service offerings to eligible households and maintains verification processes that are sufficient to avoid fraud, waste, and abuse."
The additional actions that Comcast announced today "to help connect as many Americans to the Internet as possible and create new opportunities for underrepresented communities through the education, resources, and skills training they need to succeed in today’s digital economy" include:
Providing new Internet Essentials customers with 60 days of free service was just one of the steps Comcast took at that time. Others included increasing downstream speeds from 15 to 25 Mbps, providing two months of free service to university students, and suspending data limits.
Further details on Comcast's commitment to education and digital equity are available here.
This past weekend I appeared on C-SPAN's "The Communicators" program discussing the problems with social media and what to do about them -- if anything. Appearing with me was Public Knowledge's Harold Feld.
You can watch the program here.
As a matter of policy, except in rare circumstances, Free State Foundation scholars do not sign "coalition" letters in support or opposition to particular policies. But that does not mean we don't take note of them.
In this regard, I want to call your attention to a letter, dated January 25, directed to the federal government's Centers for Medicare & Medicaid Services (CMMS). The letter, which was by signed by 75 federal and state-based organizations, opposes an interim rule which would tie the prices paid for medicines in the Medicare program to the prices paid for those medicines in foreign countries, many of which have socialized health care systems that control prices without any regard whatever for the costs of producing drugs. That is the reason why those countries generally lag far behind the U.S. with respect to developing innovative new, often life-saving drugs.
As the letter explains, by incorporating a Most Favored Nation (MFN) model into the U.S. Medicare system, in reality the interim rule is importing a rigid regime of price controls that will have the adverse impact of diminishing innovation and investment by pharmaceutical manufacturers in the U.S. Accordingly, this MFN price control regime will not only harm consumers of medicines here in the U.S., but the world over, as new cutting-edge medicines become less available.
And, aside from those adverse ramifications, the use of the rarely-invoked interim rule procedure to implement a concededly major change in U.S. health care policy, raises serious legal issues.
For the above reasons, and those explained more fully in the coalition letter, the interim rule should be withdrawn.
The YouTube video is now available for the Free State Foundation's January 22 virtual event on "The Supreme Court, the FCC, and Communications Law." The event featured Ilya Shapiro, director of the Cato Institute's Robert A. Levy Center for Constitutional Studies. He is the author of the excellent new book, Supreme Disorder: Judicial Nominations and the Politics of America's Highest Court. Responses to Mr. Shapiro's remarks and discussion followed. This included commentary from the always-insightful Professor Christopher Yoo, John H. Chestnut Professor of Law, Communication, and Computer & Information Science, and Director of the Center for Technology, Innovation & Competition at the University of Pennsylvania Law School.
Be sure to check out the video!
The following statement may be attributed to Free State Foundation President Randolph May regarding President Biden's announcement that he has named Jessica Rosenworcel Interim FCC Chairman:
I congratulate Commissioner Rosenworcel on being named Interim FCC Chairman. She certainly has the requisite experience and expertise, and she understands the way the agency works as well as anyone in the country. While I'm certain that I and other Free State Foundation scholars won't always agree with all her actions, especially those that depart meaningfully from reliance on free market tenets, I am equally certain that when we do disagree, as always, we will do so respectfully, and on the basis of principle. There's much important work for the FCC to accomplish, and I wish Commissioner Rosenworcel well.
On January 19, the U.S. Supreme Court held oral arguments in FCC v. Prometheus Radio Project and National Association of Broadcasters v. Prometheus Radio Project. At issue in those consolidated cases is the FCC's authority under Section 202(h) of the Telecommunications Act of 1996 to repeal or modify media ownership rules that the Commission determines are no longer "necessary in the public interest as the result of competition." Free State Foundation Senior Fellow Andrew Long briefly wrote about this case in an October 2020 blog post.
For years and years, a divided panel of the Third Circuit has effectively blocked any significant modernization of the FCC's media ownership rules. The Third Circuit has done so, in part, by continuing to emphasize the Supreme Court's older spectrum scarcity rationale as a basis for freezing in place long-outdated rules. The case now before the Supreme Court involves the Commission's 2017 decision to repeal certain cross-ownership rules. It's a welcome development that the Supreme Court has taken up the case. At the very least, the Court's forthcoming decision portends the end of the years-long tail-chasing exercise involving the Commission and the Third Circuit.
A same-day analysis of the oral arguments can be found at SCOTUSblog. It has been remarked that the change in Administration could lead to the reinstatement of the media ownership restrictions that existed prior to the FCC's 2017 order. However, a prospective ruling by the Supreme Court that acknowledges the Commission's authority to make decisions based on the dramatic transformations in the media market would remove a major impediment to long-lasting reform. And such a decision likely would require even a pro-regulation-minded Commission to at least make some rule modifications in light of today's market conditions rather than return to the same rules that predated the 2017 order.
Free State Foundation President Randolph May and I wrote about the FCC's media ownership rules in our Perspectives from FSF Scholars Paper, "It's Time for the FCC to Relinquish Control of Media Ownership."
At the FCC's public meeting on January 13, the Commission's General Counsel Thomas Johnson presented on the accomplishments of the Office of the General Counsel during the past four years. As General Johnson sums things up in his presentation:
Our Litigation team… won in whole or in substantial part 28 out of 31 appeals (or 90%) filed against the agency. We achieved these results despite being challenged on several of this administration's highest-profile items. When we restored a light-touch regulatory framework to broadband in the Restoring Internet Freedom Order, we were challenged in court. Yet, after our defense of the Order—in which I participated in a marathon 5 1⁄2 hour oral argument on a snowy February day following a government shutdown—the D.C. Circuit upheld our reclassification of broadband as a Title I information service. When we modernized our approach to state and local infrastructure siting requirements to accelerate American leadership in 5G deployment, we were challenged in court. But after no fewer than three of my attorneys defended our 5G infrastructure orders before the Ninth Circuit, the court upheld nearly all of our reforms. When we took an innovative and thoughtful approach to reallocating critical "C-Band" spectrum for 5G services, we again were challenged in court. But the D.C. Circuit in short order rejected all legal challenges to our C-Band Order, clearing the way for a record-breaking auction of the spectrum.
Slides of the presentation are available here.
Prior FCC administrations have had notably less success in defending their policy agendas in court. The Commission's legal victories during the last four years demonstrates Chairman Ajit Pai's commitment to the rule of law as well as the able advocacy of General Johnson and his team. Congratulations to General Johnson and the Office for a job well done.
President Trump's Executive Order is consonant with the constitutional separation of powers. It doesn't reduce the powers of any particular executive branch agency, nor does it transfer any power away from the executive branch to the other branches. No lengthy or expensive process requirements are involved. Indeed, the Executive Order appears to be a common-sense measure for democratic accountability. Despite the late hour of the Executive Order's release, it would be to the next Administration's credit to retain and follow the Order.
with Ilya Shapiro
REGISTER TO RECEIVE ZOOM LINK!
WHAT: "The Supreme Court, the FCC, and Communications Law," a webinar featuring the Cato Institute's Ilya Shapiro
WHERE: Via Zoom
WHEN: Friday, January 22 – 11:00 AM - 12:15 PM EST
The Free State Foundation will host a webinar featuring remarks by Ilya Shapiro, director of the Cato Institute's Robert A. Levy Center for Constitutional Studies, and publisher of the Cato Supreme Court Review. He is the author of the recently acclaimed book "Supreme Disorder: Judicial Nominations and the Politics of America's Highest Court."
Mr. Shapiro will address the Supreme Court's current and prospective jurisprudence regarding the nondelegation doctrine, Chevron deference, the status of independent agencies, and other administrative law doctrines as they impact communications law and policy and FCC decisions such as net neutrality and speech regulation.
Following Mr. Shapiro's initial remarks, Christopher Yoo, John H. Chestnut Professor of Law, Communication, and Computer & Information Science, and Director of the Center for Technology, Innovation & Competition at the University of Pennsylvania Law School, and Seth Cooper, Director of Policy Studies and Senior Fellow at the Free State Foundation, will offer comments.
Register Now to Receive the Zoom Link!
#FSFShapiro
MARK YOUR CALENDAR NOW FOR JANUARY 22!
For an excellent overview of the FCC's progress putting spectrum into commercial use during Chairman Ajit Pai's tenure, look no further than his remarks to the Information Technology Industry Council (ITI) on January 14. He also addresses the future of American spectrum policy.
When I came into office in 2017, the cupboard was almost empty. The only mid-band spectrum in the pipeline was the 3.5 GHz band, which was saddled with misguided restrictions that weren’t going to encourage 5G deployment. So not quite “mark it zero,” but close. Despite starting from behind the eight ball, we turned things around, and in a big way. Under my direction, the FCC systematically identified mid-band airwaves that were being underused. This was a very complicated case, you know, a lot of ins, lot of outs, a lot of what have yous. But we figured it out and set plans in place to put these airwaves to work for the American people…
Put all these together—the C-band and the 3.5 GHz band, together with a future auction of the 3.45 GHz band—and we are on a path to have a contiguous 530-megahertz swath, from 3.45 to 3.98 GHz, of mid-band spectrum available for 5G. Not bad, considering where we started. That’s 5G FAST.
Later, Chairman Pai describes the Commission's success in making much more spectrum available for unlicensed use:
These two initiatives, on 6 GHz and 5.9 GHz, will open up 1,200 and 45 megahertz of spectrum for unlicensed use, respectively. Now let’s talk about gigahertz—1,000 times as large. Through our 2019 Spectrum Horizons Order, the Commission made a massive 21.2 gigahertz of spectrum above 95 GHz available for unlicensed use across four frequency bands.
Importantly, Chairman Pai squarely addressed the problem of other federal agencies putting up obstacles to the repurposing of more spectrum for commercial use:
[A]rguably the biggest thing hampering efforts to use spectrum more efficiently is—our own government. On proceeding after proceeding, we saw that other federal agencies tried to throw up roadblocks. Rather than look out for the public interest, many agencies were looking out for their narrow parochial interest. And since most don't have in-house spectrum expertise, they ended up simply parroting the exaggerated, hysterical, and often outright false claims being made by the industries they regulate. To achieve their aims, they ended up bypassing normal channels and complaining to Congress or the media in an effort to block or delay efforts to free up spectrum for commercial use.
Chairman Pai offers wise words to his successor at the FCC in holding the line on spectrum reallocation. identifies the need for strong NTIA leadership going forward, and addresses the need to discuss reforms to the government's spectrum management framework.
Be sure to check out Chairman Pai's remarks to ITI in their entirety.
On January 8, the Free State Foundation hosted a virtual farewell address by FCC Chairman Ajit Pai. The topic was FCC process reform. The text of his remarks is now available on the FCC's website.
Chairman Pai discussed three pillars of good government: transparency, reliance upon economics and data analysis, and maximizing the effectiveness of the people who do the work of the agency – in his words, "the FCC's greatest asset."
As noted in an earlier post to the FSF Blog, video of Chairman Pai's speech can be accessed on our YouTube page.
The Free State Foundation congratulates Chairman Pai on his many accomplishments at the FCC's helm and wishes him well in all future endeavors.
On January 7, the Intellectual Property Enforcement Coordinator (IPEC) released its Annual Intellectual Report to Congress for 2021. The report summarizes the Trump Administration's IP enforcement strategy and policy initiatives across numerous federal agencies.
The IP Report rightly extols the constitutional basis for copyrights as well as its vitality to American prosperity:
Intellectual property is integral to our nation’s economic competitiveness and the growth of our innovative economy. For instance, copyrights are not only economically important, but a key part of our culture and society. A well-functioning copyright system is essential. The U.S. copyright system is grounded in our Constitution, and built on centuries of extensive jurisprudence, statutes and regulations.
Among other things, the IP Report recounts the Trump Administration's elevation of the IPEC within the Executive Branch:
[U]nder the leadership of President Trump and with the support of Congress, the White House Office of the U.S. Intellectual Property Enforcement Coordinator (IPEC) was established as a new component agency of the Executive Office of the President and part of the National Economic Council, ensuring that in the decades to come the IPEC will be there to advise the President, coordinate policy, and advocate for American interests abroad.
The IP Report also overviews the Trump Administration's efforts through foreign trade agreements such as USMCA and other diplomacy efforts to ensure Americans' copyrighted works and other IP are better protected overseas. And the report includes appendices describing IP protection and enforcement initiatives undertaken over the last few years by Executive Branch Departments, the Office of the U.S. Trade Representative, as well as the U.S. Copyright Office. The Justice Department's appendix, for instance, highlights notable criminal infringement prosecutions. And the Copyright Office's appendix discusses the Section 512 Study Report that was released in May 2020.
The need for an overhaul of Section 512 is the subject of my January 12 Perspectives from FSF Scholars paper titled "Congress Should Hold Big Tech Accountable for Copyright Violations." This year, expect Free State Foundation scholars to have more to say about needed pro-IP policy actions.
According to the order:
Our updated rule will help spur the rapid deployment of fixed wireless networks needed for 5G and other fixed wireless high-speed Internet services. This will benefit consumers by offering faster access to advanced communications services and greater competition among service providers.
The order cites evidence from the record indicating that this expansion of the OTARD rule will remove local barriers to the placement of equipment needed for fixed wireless network upgrades and reach more homes more quickly.
Credit goes to the Commission for implementing its OTARD rule reform to bring next-generation wireless services to more Americans.
As I noted in a recent post to the FSF Blog, the $900 billion COVID-19 relief package recently signed into law as part of the Consolidated Appropriations Act, 2021 includes $3.2 billion for an FCC-run Emergency Broadband Benefit Program (the Program).
The Program will reimburse participating broadband Internet service providers (ISPs) that offer discounts to eligible low-income households and those that have experienced financial hardship during the current public health crisis. The maximum amount of the discount on the standard rate is $50/month ($75/month on Tribal lands).
In addition, ISPs can receive a one-time payment, up to $100, for making available a subsidized connected device (tablet, laptop, or desktop).
The Program will run until six months after the end of the pandemic or the $3.2 billion in funding has been depleted, whichever comes first.
On January 4, 2021, the Commission publicized the release by the Wireline Competition Bureau of a Public Notice seeking comment on how best to administer the Program. It seeks input on a number of topics, including ISP, household, service, and device eligibility; expedited approval of ISP applications; the reimbursement process; awareness promotion; and auditing, enforcement, and reporting requirements.
Comments are due on January 25 and reply comments on February 16.