On August 31, the FCC announced it was replacing what it termed “outmoded” rules governing the provision of long distance services with a new regime that allows AT&T and Verizon to more efficiently integrate their service offerings. As the Commission put it: “The old framework included requirements that the BOCs separate their local telephone and long distance operations, which is at odds with a market environment where local and long distance services increasingly are marketed and provided on a bundled basis.” No kidding.
While a long time in coming, the FCC deserves credit for its deregulatory action. Most of the rules requiring separate local and long distance operations were put in place immediately after the AT&T divestiture in 1984, and have remained in effect since. This despite the fact that the distinction between “long distance” and “local” calls has largely eroded as consumers choose any distance, anytime buckets of minutes.
In partially dissenting, Commissioners Copps and Adelstein strike an odd note. They worry that what they claim as “the significant consolidation” that has taken place in the marketplace will leave consumers with “a choice between two providers—a cable and a telephone company.” It is worth noting the vicious competition between the telcos and cable companies in areas where they are now battling head-to-head for customers. (I just wish I had the amount of money they spend each week mail promotional print materials on my block!)
But, more fundamentally, nowhere in their statement do Commissioners Copps and Adelstein account for the wireless providers and the gazillion “all distance” minutes they sell each week. No do they account for the independent VoIP providers, such as Skpe or Vonage, and their offerings of bundles of “all distance” minutes. This omission is curious, and significant, amidst all the talk of “duopoly.”
In any event, Chairman Martin and his colleagues deserve credit for getting rid of "separation" rules that only added to the costs and inefficiency of providing services that consumers increasing prefer to take on a bundled basis.
Tuesday, September 04, 2007
Thursday, August 30, 2007
No Need to Commit Hara-Kiri
I am old enough to remember the so-called “Japanese miracle” of the 1980s, and the subsequent bust, with a decade of recession and then little or no economic growth. The articles concerning Japan’s boom and bust are legion, but the following quote by Asian expert David Asher from a 1996 article, “What Became of the Japanese ‘Miracle,’” captures the essence:
“What became of the Japanese economy that appeared so threatening that some Americans spoke of the need for cold war-style containment? Where today is the developmental state capable of turning depression to growth on the basis of smart industrial policies that deserved to be emulated throughout the world? Japan seems mired in a bog, weighed down by a series of financial crises unprecedented in the postwar era, a major wave of industrial hollowing-out, rising unemployment and corporate bankruptcy, and a growing divide between insider haves and outsider have-nots throughout the system.”
During the 80s—before the crash--it was all the rage to marvel at “keiretsu,” the interlinked networks of Japan’s big businesses. And to suggest that perhaps America was falling behind because that we lacked Japan’s “smart industrial policies,” featuring a lifetime guaranteed employment system and close collaboration between government and private enterprises.
The article in yesterday’s Washington Post, “Japan’s Warp Speed Ride to the Internet Future,” is all about how the U.S. trails Japan in broadband service. According to the article, “Japan has the world’s fastest Internet connections, delivering more data at lower cost than anywhere else.” This may well be true, and the United States should never be complacent about its technological prowess and economic progress, related as they are, of course.
But some words of caution are in order in the face of yet another “we are behind” broadband broadside. It was Japan that changed its economic system in the 90s to become more free market-oriented like ours. While I am not an expert on Japan’s telecom laws and policies, I am not convinced the U.S. should shift gears to emulate Japan’s communications policies.
There is much that already has been written comparing the U.S. broadband experience with other countries, and I don’t want to rehearse all that here. But here are the cautionary notes that occurred to me as I read the Washington Post piece:
· The article notes that Japan’s success in expanding broadband penetration and increasing bit rates “is partly a matter of geography and demographics: Japan is relatively small, highly urbanized and densely populated.” Even though the U.S. is not small, highly urbanized, and densely populated —all characteristics that make the dispersion of broadband a much less costly proposition— it is doing very well in getting broadband to consumers. Now, about 50% of U.S. homes have a broadband connection, and the penetration figure continues to grow. Among the homes that have an Internet connection at all—some people just don’t want one, even if they can afford one—fully 70% have high-speed service. (70% of Americans access broadband at home or at work.) This and a lot more data may be found in the most recent broadband report from the Pew Internet and American Life Project. In light of the fact that the United States is large and not densely populated in the same way as Japan and many European countries are, the U.S. is doing well by any reasonable standard that does not simply ignore such geographical and demographic differences. And that we are doing well is in no small measure attributable to the adoption several years ago of a policy by the FCC of a “minimally regulated environment” for broadband. Alas, since then, and even now, that deregulatory policy has been subject to never-ending, vigorous counterattack by those net neutrality, open access, and unbundling advocates who are convinced that the nation’s communications infrastructure should always be operated under a public utility-like common carrier regime—which brings me to next cautionary note.
· The Post article acknowledges that an important reason for Japan’s super-fast broadband speeds is that, on average, the country has shorter and newer copper loops than those used for telco-provided DSL service in the U.S. But it also credits “Japanese-style competition through regulation.” The essence of this “competition by regulation” approach seems akin to the UNE forced unbundling approach this country abandoned four years ago. It became increasingly evident that a policy directed towards supporting newly-created “competitors,” wholly dependent as they were on government-mandated and price-controlled access to the incumbents’ copper loops, was inhibiting investment in new broadband facilities by incumbents and new entrants alike. I don’t think keiretsu is the way to organize the American economy, and I don’t think “Japanese-style competition through regulation” constitutes sound regulatory policy in any sustainable sense, which brings me to the final cautionary note.
· At the end, the article says the growing speed addiction is having the ironic effect of “returning near-monopoly power in fiber to NTT, which owns and controls most new fiber lines to homes.” NTT is the incumbent former state-owned telephone company. A Japanese professor of telecommunications economics is quoted to the effect that, “NTT is becoming dominant again in the fiber broadband kingdom.” Aha! So it appears that at the end of the “competition through regulation” regime that “opened up” DSL lines to entrants, Japan may be left with a near-monopoly provider of the next-generation broadband facilities. I think America’s (thus far) deregulatory broadband regime which has served to stimulate investment by facilities-based broadband competitors will serve America’s consumers better in the long run than will “competition by regulation” policies that discourage investment. I don’t think Verizon would be investing $23 billion in building a new fiber-to-the-home network, or the cable companies already would have invested over $100 billion in upgrading their networks to handle digital broadband, if the U.S. had maintained a Japanese-style regulatory regime.
Even though our deregulatory posture is working to stimulate investment and promote competition by facilities-based competitors, America should not become complacent about our broadband standing. With our country’s continental expanse that includes large, little-populated area, there may be a justification, for example, for using narrowly targeted, time-limited tax incentives to exapnd broadband infrastructure in rural areas.
But that is far different than committing hara-kiri, or even keiretsu, or swooning over a Japanese-style “competition through regulation” regime that is pointing towards a monopolistic environment down the road.
“What became of the Japanese economy that appeared so threatening that some Americans spoke of the need for cold war-style containment? Where today is the developmental state capable of turning depression to growth on the basis of smart industrial policies that deserved to be emulated throughout the world? Japan seems mired in a bog, weighed down by a series of financial crises unprecedented in the postwar era, a major wave of industrial hollowing-out, rising unemployment and corporate bankruptcy, and a growing divide between insider haves and outsider have-nots throughout the system.”
During the 80s—before the crash--it was all the rage to marvel at “keiretsu,” the interlinked networks of Japan’s big businesses. And to suggest that perhaps America was falling behind because that we lacked Japan’s “smart industrial policies,” featuring a lifetime guaranteed employment system and close collaboration between government and private enterprises.
The article in yesterday’s Washington Post, “Japan’s Warp Speed Ride to the Internet Future,” is all about how the U.S. trails Japan in broadband service. According to the article, “Japan has the world’s fastest Internet connections, delivering more data at lower cost than anywhere else.” This may well be true, and the United States should never be complacent about its technological prowess and economic progress, related as they are, of course.
But some words of caution are in order in the face of yet another “we are behind” broadband broadside. It was Japan that changed its economic system in the 90s to become more free market-oriented like ours. While I am not an expert on Japan’s telecom laws and policies, I am not convinced the U.S. should shift gears to emulate Japan’s communications policies.
There is much that already has been written comparing the U.S. broadband experience with other countries, and I don’t want to rehearse all that here. But here are the cautionary notes that occurred to me as I read the Washington Post piece:
· The article notes that Japan’s success in expanding broadband penetration and increasing bit rates “is partly a matter of geography and demographics: Japan is relatively small, highly urbanized and densely populated.” Even though the U.S. is not small, highly urbanized, and densely populated —all characteristics that make the dispersion of broadband a much less costly proposition— it is doing very well in getting broadband to consumers. Now, about 50% of U.S. homes have a broadband connection, and the penetration figure continues to grow. Among the homes that have an Internet connection at all—some people just don’t want one, even if they can afford one—fully 70% have high-speed service. (70% of Americans access broadband at home or at work.) This and a lot more data may be found in the most recent broadband report from the Pew Internet and American Life Project. In light of the fact that the United States is large and not densely populated in the same way as Japan and many European countries are, the U.S. is doing well by any reasonable standard that does not simply ignore such geographical and demographic differences. And that we are doing well is in no small measure attributable to the adoption several years ago of a policy by the FCC of a “minimally regulated environment” for broadband. Alas, since then, and even now, that deregulatory policy has been subject to never-ending, vigorous counterattack by those net neutrality, open access, and unbundling advocates who are convinced that the nation’s communications infrastructure should always be operated under a public utility-like common carrier regime—which brings me to next cautionary note.
· The Post article acknowledges that an important reason for Japan’s super-fast broadband speeds is that, on average, the country has shorter and newer copper loops than those used for telco-provided DSL service in the U.S. But it also credits “Japanese-style competition through regulation.” The essence of this “competition by regulation” approach seems akin to the UNE forced unbundling approach this country abandoned four years ago. It became increasingly evident that a policy directed towards supporting newly-created “competitors,” wholly dependent as they were on government-mandated and price-controlled access to the incumbents’ copper loops, was inhibiting investment in new broadband facilities by incumbents and new entrants alike. I don’t think keiretsu is the way to organize the American economy, and I don’t think “Japanese-style competition through regulation” constitutes sound regulatory policy in any sustainable sense, which brings me to the final cautionary note.
· At the end, the article says the growing speed addiction is having the ironic effect of “returning near-monopoly power in fiber to NTT, which owns and controls most new fiber lines to homes.” NTT is the incumbent former state-owned telephone company. A Japanese professor of telecommunications economics is quoted to the effect that, “NTT is becoming dominant again in the fiber broadband kingdom.” Aha! So it appears that at the end of the “competition through regulation” regime that “opened up” DSL lines to entrants, Japan may be left with a near-monopoly provider of the next-generation broadband facilities. I think America’s (thus far) deregulatory broadband regime which has served to stimulate investment by facilities-based broadband competitors will serve America’s consumers better in the long run than will “competition by regulation” policies that discourage investment. I don’t think Verizon would be investing $23 billion in building a new fiber-to-the-home network, or the cable companies already would have invested over $100 billion in upgrading their networks to handle digital broadband, if the U.S. had maintained a Japanese-style regulatory regime.
Even though our deregulatory posture is working to stimulate investment and promote competition by facilities-based competitors, America should not become complacent about our broadband standing. With our country’s continental expanse that includes large, little-populated area, there may be a justification, for example, for using narrowly targeted, time-limited tax incentives to exapnd broadband infrastructure in rural areas.
But that is far different than committing hara-kiri, or even keiretsu, or swooning over a Japanese-style “competition through regulation” regime that is pointing towards a monopolistic environment down the road.
Tuesday, July 31, 2007
The 700 MHz Decision: “Into the Morass of Regulation”
In the wake of the FCC’s 700 MHz decision mandating open access for the C block spectrum, I thought this comment from the analysts at Stifel Nicolaus was most telling: “We think it likely that much of the meaning of the open access rules will be determined by the 2009 election (which will determine the leadership of the FCC) and the courts.”
I assume the Stifel analysts mean the 2008 election. But in referring to 2009, they undoubtedly have in mind the time it takes for a new Administration to put in place its own FCC Chairman and its own team. For the same reason that much of the meaning of the FCC’s open access rules won’t be determined until 2009 or (more likely) thereafter, it follows that the revenues realized from the auction will be less than they would be in an unencumbered auction. This is because that veritable economic theorem that “people don’t want to buy a pig in a poke” holds true, even for the FCC.
Think about it: In how many auctions have you bid when the rules concerning what you can do with your winning bid won’t be known until several years later? As they say, it doesn’t take an Einstein to figure out that the looming uncertainty about the ultimate interpretation and enforcement of the new open access rules necessarily will drive down the bid price.
Regardless how it chooses to style its action, and regardless whether it calls it net neutrality, open access, or “no-lock, no-block,” the import is the same: The FCC is taking a step backwards to imposing common carrier regulation, a backwards step that imports public utility regulation into the broadband world. I still think former FCC Chairman William Kennard had it right in 1999 when he explained why he rejected arguments that the FCC should impose an “open access” requirement on cable:
But I also know that it is more than a notion to say that you are going to write regulations to open the cable pipe. It is easy to say that government should write a regulation, to say that as a broad statement of principle that a cable operator shall not discriminate against unaffiliated Internet service providers on the cable platform. It is quite another thing to write that rule, to make it real and then to enforce it. You have to define what discrimination means. You have to define the terms and conditions of access. You have issues of pricing that inevitably get drawn into these issues of nondiscrimination. You have to coalesce around a pricing model that makes sense so that you can ensure nondiscrimination. And then once you write all these rules, you have to have a means to enforce them in a meaningful way. I have been there. I have been there on the telephone side and it is more than a notion. So, if we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America.
Curiously, the FCC, with the commendable exception of Commissioner Robert McDowell, seems to take pride in consigning broadband back to “the telephone world.” How else to explain the ritual incantation of Carterfone, a decision rendered in 1969 when the telephone world was indeed monopolistic? But this isn’t 1969, as Commissioner McDowell explained in his eloquent dissent. It is not even 1999, when Chairman Kennard rightly resisted picking up the “morass of regulation” and dumping it on the cable pipe.
No, this is 2007, when a Bush Administration FCC decided, despite the fact it recently concluded the wireless market is competitive, to reverse course and impose net neutrality/open access mandates on wireless broadband providers.
It is true that, as the Stifel Nicolaus analysts suggest, that the details of the “morass of regulation” won’t be entirely clear until 2009, if then. But what’s clear now, in 2007, is that the FCC has created a morass for no good reason.
I assume the Stifel analysts mean the 2008 election. But in referring to 2009, they undoubtedly have in mind the time it takes for a new Administration to put in place its own FCC Chairman and its own team. For the same reason that much of the meaning of the FCC’s open access rules won’t be determined until 2009 or (more likely) thereafter, it follows that the revenues realized from the auction will be less than they would be in an unencumbered auction. This is because that veritable economic theorem that “people don’t want to buy a pig in a poke” holds true, even for the FCC.
Think about it: In how many auctions have you bid when the rules concerning what you can do with your winning bid won’t be known until several years later? As they say, it doesn’t take an Einstein to figure out that the looming uncertainty about the ultimate interpretation and enforcement of the new open access rules necessarily will drive down the bid price.
Regardless how it chooses to style its action, and regardless whether it calls it net neutrality, open access, or “no-lock, no-block,” the import is the same: The FCC is taking a step backwards to imposing common carrier regulation, a backwards step that imports public utility regulation into the broadband world. I still think former FCC Chairman William Kennard had it right in 1999 when he explained why he rejected arguments that the FCC should impose an “open access” requirement on cable:
But I also know that it is more than a notion to say that you are going to write regulations to open the cable pipe. It is easy to say that government should write a regulation, to say that as a broad statement of principle that a cable operator shall not discriminate against unaffiliated Internet service providers on the cable platform. It is quite another thing to write that rule, to make it real and then to enforce it. You have to define what discrimination means. You have to define the terms and conditions of access. You have issues of pricing that inevitably get drawn into these issues of nondiscrimination. You have to coalesce around a pricing model that makes sense so that you can ensure nondiscrimination. And then once you write all these rules, you have to have a means to enforce them in a meaningful way. I have been there. I have been there on the telephone side and it is more than a notion. So, if we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America.
Curiously, the FCC, with the commendable exception of Commissioner Robert McDowell, seems to take pride in consigning broadband back to “the telephone world.” How else to explain the ritual incantation of Carterfone, a decision rendered in 1969 when the telephone world was indeed monopolistic? But this isn’t 1969, as Commissioner McDowell explained in his eloquent dissent. It is not even 1999, when Chairman Kennard rightly resisted picking up the “morass of regulation” and dumping it on the cable pipe.
No, this is 2007, when a Bush Administration FCC decided, despite the fact it recently concluded the wireless market is competitive, to reverse course and impose net neutrality/open access mandates on wireless broadband providers.
It is true that, as the Stifel Nicolaus analysts suggest, that the details of the “morass of regulation” won’t be entirely clear until 2009, if then. But what’s clear now, in 2007, is that the FCC has created a morass for no good reason.
Tuesday, July 24, 2007
Decoupling and Sound Energy Policy
In a little-noticed decision on July 20, 2007, the Maryland Public Service Commission took what appears to be an important step in improving our state’s energy policy. On the one hand, there is no doubt we need to remove unreasonable regulatory and legal disincentives to producing more energy. And we need to recognize that it is not only important to produce more energy, but also to be able to construct the facilities needed to transport the energy efficiently to those who need it.
But energy conservation plays a role in establishing overall policy as well. And this is why the PSC’s July 20 action is significant. The Commission approved a “decoupling” mechanism that allows electric utilities to increase the distribution rates that recover the utilities' fixed costs for maintaining lines and poles if consumers conserve more electricity and demand drops. In other words, utilities’ revenues are, at least to some extent, “decoupled” from customer usage so the utilities do not have disincentives to encourage conservation. Absent decoupling, if utilities encourage conservation, they risk not covering costs that remain fixed regardless of the amount of usage.
The Maryland PSC’s action regarding decoupling applies to electric utilities operating in the state. But this ratemaking concept seems to make sense with regard to the regulation of other utilities as well, for example, natural gas providers, and in other jurisdictions.
But energy conservation plays a role in establishing overall policy as well. And this is why the PSC’s July 20 action is significant. The Commission approved a “decoupling” mechanism that allows electric utilities to increase the distribution rates that recover the utilities' fixed costs for maintaining lines and poles if consumers conserve more electricity and demand drops. In other words, utilities’ revenues are, at least to some extent, “decoupled” from customer usage so the utilities do not have disincentives to encourage conservation. Absent decoupling, if utilities encourage conservation, they risk not covering costs that remain fixed regardless of the amount of usage.
The Maryland PSC’s action regarding decoupling applies to electric utilities operating in the state. But this ratemaking concept seems to make sense with regard to the regulation of other utilities as well, for example, natural gas providers, and in other jurisdictions.
Wednesday, July 18, 2007
Budgets, Taxes, and People
With Maryland’s looming $1.5 billion so-called structural deficit, there is much talk in the air about tax increases of various kinds. For example, yesterday’s Washington Post reports that Governor O’Malley and leading lawmakers are considering substantially increasing income taxes on higher bracket earners as one means of closing the budget gap.
Governor O’Malley recently announced some modest spending reductions for Fiscal ’08, which began on July 1. The Governor is reducing general fund expenditures by $213 million, including $68 million in “reversions.”
In his press release, the Governor says that as part of the budget cuts 147 state government positions will be “eliminated,” of which only 17 are currently filled. The Governor and the press have referred to the reductions in allowed positions as job “cuts.” But here is where language becomes important, and, if Marylanders are going to follow the budget battle, they will have to demand that the politicians speak ordinary English.
What the Governor really is proposing is to reduce the growth in the number of state positions in Fiscal ’08 from the ’07 level. The ’08 budget, passed by the legislature and signed by the Governor only a few months ago --when the looming deficit was known to all--increased the number of non-Higher Education state government positions by 662 over ‘07. See Exhibit G of the state FY 2008 Fiscal Digest and FY 2007 Fiscal Digest. Even if 147 positions are now eliminated as the Governor plans, there will still be a net increase of 515 positions for this budget year. (The state higher education jobs increase by 925 from ’07 to ‘08, but that is another story.)
Thus, talk about “cuts” in the number of state personnel and “elimination” of jobs is misleading, even if inadvertently so. Governor O’Malley is only proposing a reduction in growth of state government positions.
It is never easy to cut jobs. And no one should minimize the difficulty, and even stress, experienced by those who lose a job in either the private or public sector. Before talking about increasing taxes, in a state government with close to 54,000 non-higher ed jobs, it seems the Governor can do better than reduce the growth in state positions from 662 to 515 positions for this budget year.
James F. Byrnes, an FDR confidant, knew a thing or two about the workings of government. After all, almost incredibly, he served as a member of the U.S. House of Representatives, the U.S. Senate, the U.S. Supreme Court, as well as the U.S. Secretary of State. Not to mention Governor of South Carolina. Byrnes once said: “The nearest approach to immortality on earth is a government bureau.”
True enough. But with Maryland facing such a tight fiscal situation, Governor O’Malley and our other political leaders should look to make real spending cuts, including in the number of state positions, before seeking to raise taxes. And Marylanders following the budget debate should insist the politicians respect ordinary English usage by differentiating between actual budget cuts and reductions in expenditure growth.
Governor O’Malley recently announced some modest spending reductions for Fiscal ’08, which began on July 1. The Governor is reducing general fund expenditures by $213 million, including $68 million in “reversions.”
In his press release, the Governor says that as part of the budget cuts 147 state government positions will be “eliminated,” of which only 17 are currently filled. The Governor and the press have referred to the reductions in allowed positions as job “cuts.” But here is where language becomes important, and, if Marylanders are going to follow the budget battle, they will have to demand that the politicians speak ordinary English.
What the Governor really is proposing is to reduce the growth in the number of state positions in Fiscal ’08 from the ’07 level. The ’08 budget, passed by the legislature and signed by the Governor only a few months ago --when the looming deficit was known to all--increased the number of non-Higher Education state government positions by 662 over ‘07. See Exhibit G of the state FY 2008 Fiscal Digest and FY 2007 Fiscal Digest. Even if 147 positions are now eliminated as the Governor plans, there will still be a net increase of 515 positions for this budget year. (The state higher education jobs increase by 925 from ’07 to ‘08, but that is another story.)
Thus, talk about “cuts” in the number of state personnel and “elimination” of jobs is misleading, even if inadvertently so. Governor O’Malley is only proposing a reduction in growth of state government positions.
It is never easy to cut jobs. And no one should minimize the difficulty, and even stress, experienced by those who lose a job in either the private or public sector. Before talking about increasing taxes, in a state government with close to 54,000 non-higher ed jobs, it seems the Governor can do better than reduce the growth in state positions from 662 to 515 positions for this budget year.
James F. Byrnes, an FDR confidant, knew a thing or two about the workings of government. After all, almost incredibly, he served as a member of the U.S. House of Representatives, the U.S. Senate, the U.S. Supreme Court, as well as the U.S. Secretary of State. Not to mention Governor of South Carolina. Byrnes once said: “The nearest approach to immortality on earth is a government bureau.”
True enough. But with Maryland facing such a tight fiscal situation, Governor O’Malley and our other political leaders should look to make real spending cuts, including in the number of state positions, before seeking to raise taxes. And Marylanders following the budget debate should insist the politicians respect ordinary English usage by differentiating between actual budget cuts and reductions in expenditure growth.
Tuesday, July 17, 2007
Message to Google: Just Bid
In today's Communications Daily [subscription required], FCC Commissioner Jonathan Adelstein is quoted to the effect that we need to get a third channel to the home quickly. In my view, competitive forces in the broadband marketplace currently are quite strong, with cable and telephone companies battling for market share, and with existing and potential competitors, such as satellite, wireless and BPL operators, providing further market constraints. Nevertheless, more competition is better than less--if it is economically sustainable competition, not that sustained by regulatory mangament--so I agree it would be good if their were a third channel to the home.
But then, according to Communication Daily, Adelstein said the crucial question is how to get large companies to bid. According to Adelstein: “We do need to take very seriously what they say they need.” Now this is a problem--this taking seriously what supplicants "say they need"--that plagues regulatory agencies, including the FCC. The supplication syndrome is especially problematical when the agency is preparing to conduct an auction that, by definition, is intended to indicate which entities place the highest value on the spectrum. The whole idea of auctions is to avoid the supplication syndrome that plagues so much other FCC regulatory activity. The idea of an unrestricted auction is to avoid the temptation of regulators to think they can do a better job of managing competition than the marketplace.
I understand that Google is telling the FCC that it will not bid for the 700 MHz spectrum unless the FCC takes, in Commissioner Adelstein's words, "very seriously what they say they need." On its public policy blog Google says, after consulting with various game theorists and auction experts: "While we remain interested in the possibility of participating in the auction, it’s clear that the incumbent carriers have built-in advantages that will prove difficult to overcome (particularly the economic and operational barriers to entry for a company like ours, and the relatively greater value and usefulness that spectrum brings to existing carriers)." So, Google wants to change the rules to benefit itself.
I remain confused. Google has a market cap today of $173 billion dollars. What exactly are the economic barriers that prevent a company with a $173 billion market cap from participating in a clean auction? Obviously, an existing provider has certain advantages over a new entrant: a customer base, rights-of-way, a marketing team, a back office operation, and so forth. But for a company that tells the FCC in comments that its daunting "self-defined mission" is to "organize all of the world’s information," is it really too much to expect that Google can figure out how to address what it calls operational barriers? If necessary, some of those presently assigned to organizing the world's information can be temporarily detailed to getting a new service provider, Googlecom, with a great brand name and a loyal customer following, up and running.
I am not surprised that Commissioner Adelstein is sympathetic to jerry-rigging the auction rules by imposing net neutrality/open access/unbundling rules to give Google, Frontline, and others say they need to participate and win the auction. Frankly, I don't expect the Bush Administration-appointed FCC Chairman, Kevin Martin, or the two Republican commissioners, who ought to be free market-oriented, to succumb to the managed competition temptation.
It is striking that, also in today's Communications Daily, it is reported that John Kneuer, head of the Bush Administration's National Telecom and Information Administration, told state regulators at NARUC that the nation's relaxed broadband regulatory policy has started up "a broadband flywheel whose spinning is sustained by market forces." According to the report, Kneuer said broadband deregulation has led to investment that expanded access that fueled demand that encouraged still more investment in a cycle that shows no signs of stopping.
And this: "The United States has the world's most fertile environment for broadband innovation and competitiveness...Our role as regulators will pale before the power of the market
forces we've unleashed."
It took a overly long time before the Bush Administration developed any sort of communications policy, including a broadband policy. When it belatedly did so, at least the policy was free market-oriented with respect to broadband. John Kneuer's remarks quoted above seem to embody that market-oriented policy. There is a huge disconnect between what the Bush Administration now articulates as policy and what the FCC is proposing for the 700 MHz auction. For if net neutrality/open access/unbundling mandates are imposed in the wireless space, a market segment the FCC consistently has found to be competitive, on what principled basis is it to be argued they should not be imposed on wireline providers?
The FCC should not succumb to the supplicant's syndrome that leads to the managed competition temptation. It should send a clear message to Google: "Just bid!"
But then, according to Communication Daily, Adelstein said the crucial question is how to get large companies to bid. According to Adelstein: “We do need to take very seriously what they say they need.” Now this is a problem--this taking seriously what supplicants "say they need"--that plagues regulatory agencies, including the FCC. The supplication syndrome is especially problematical when the agency is preparing to conduct an auction that, by definition, is intended to indicate which entities place the highest value on the spectrum. The whole idea of auctions is to avoid the supplication syndrome that plagues so much other FCC regulatory activity. The idea of an unrestricted auction is to avoid the temptation of regulators to think they can do a better job of managing competition than the marketplace.
I understand that Google is telling the FCC that it will not bid for the 700 MHz spectrum unless the FCC takes, in Commissioner Adelstein's words, "very seriously what they say they need." On its public policy blog Google says, after consulting with various game theorists and auction experts: "While we remain interested in the possibility of participating in the auction, it’s clear that the incumbent carriers have built-in advantages that will prove difficult to overcome (particularly the economic and operational barriers to entry for a company like ours, and the relatively greater value and usefulness that spectrum brings to existing carriers)." So, Google wants to change the rules to benefit itself.
I remain confused. Google has a market cap today of $173 billion dollars. What exactly are the economic barriers that prevent a company with a $173 billion market cap from participating in a clean auction? Obviously, an existing provider has certain advantages over a new entrant: a customer base, rights-of-way, a marketing team, a back office operation, and so forth. But for a company that tells the FCC in comments that its daunting "self-defined mission" is to "organize all of the world’s information," is it really too much to expect that Google can figure out how to address what it calls operational barriers? If necessary, some of those presently assigned to organizing the world's information can be temporarily detailed to getting a new service provider, Googlecom, with a great brand name and a loyal customer following, up and running.
I am not surprised that Commissioner Adelstein is sympathetic to jerry-rigging the auction rules by imposing net neutrality/open access/unbundling rules to give Google, Frontline, and others say they need to participate and win the auction. Frankly, I don't expect the Bush Administration-appointed FCC Chairman, Kevin Martin, or the two Republican commissioners, who ought to be free market-oriented, to succumb to the managed competition temptation.
It is striking that, also in today's Communications Daily, it is reported that John Kneuer, head of the Bush Administration's National Telecom and Information Administration, told state regulators at NARUC that the nation's relaxed broadband regulatory policy has started up "a broadband flywheel whose spinning is sustained by market forces." According to the report, Kneuer said broadband deregulation has led to investment that expanded access that fueled demand that encouraged still more investment in a cycle that shows no signs of stopping.
And this: "The United States has the world's most fertile environment for broadband innovation and competitiveness...Our role as regulators will pale before the power of the market
forces we've unleashed."
It took a overly long time before the Bush Administration developed any sort of communications policy, including a broadband policy. When it belatedly did so, at least the policy was free market-oriented with respect to broadband. John Kneuer's remarks quoted above seem to embody that market-oriented policy. There is a huge disconnect between what the Bush Administration now articulates as policy and what the FCC is proposing for the 700 MHz auction. For if net neutrality/open access/unbundling mandates are imposed in the wireless space, a market segment the FCC consistently has found to be competitive, on what principled basis is it to be argued they should not be imposed on wireline providers?
The FCC should not succumb to the supplicant's syndrome that leads to the managed competition temptation. It should send a clear message to Google: "Just bid!"
Tuesday, July 10, 2007
Googling the "FUC"
There are press reports that FCC Chairman Kevin Martin is going to propose that a sizeable chunk of the 700 MHz spectrum be set aside as a mandatory open access, net neutralized zone. According to a USA Today story, an FCC official is quoted as stating: “The Chairman has proposed that the winning bidder for that one large piece of spectrum must build a network that allows customers to attach any device or run any application they choose as long as it doesn’t interfere with network management.” In other words, if the press reports are true, it appears the Republican Chairman of the FCC is accepting the net neutrality arguments that Google and its allies have been making for several years now that the broadband marketplace is not sufficiently competitive to protect consumers. Instead, he wants to opt for long-term regulatory micro-management.
It is important to reiterate--as I have many times in the past--that net neutrality and open access proposals always involve an unbundling mandate. Open access and net neutrality necessarily imply unbundling because the regulators simply cannot enforce their openess and neutrality rules unless the broadband service provider separates [read: unbundles] transmission from content applications and equipment attachments. In Computer II parlance, the broadband provider must offer only pure or basic transmission service on an unbundled basis. Otherwise, how to prevent "discrimination" that is the opposite of neutrality?
The Chairman's open access proposal, if it materializes, would be very disappointing in any event. But it would not be totally surprising if it came from Commissioners Copps and Adelstein. It is surprising coming from a Republican Chairman in an Administration that ought to be free market-oriented.
A few weeks ago I wrote a piece to the effect that the FCC risks becoming the Federal Unbundling Commission. That essay focused most heavily on the FCC's wrong-headed proposal to consider mandating more unbundling of cable's OpenCable platform and to involve itself in the ongoing regulatory supervision that unbundling mandates necessarily entail. But it noted that the 700 MHz auction was also a target of regulatory opportunity for the open access/net neutrality/unbundling advocates.
Again, it is puzzling and disheartening that this Republican-led FCC is the one taking the FCC down the path towards becoming the FUC. There was a time during the 1960s Carterfone and 1980s Computer II eras when unbundling mandates may have been justified. For the reasons explained in the Federal Unbundling Commission piece that time has long passed.
The costs of imposing unbundling mandates in today's technologically dynamic, much more competitive environment far outweigh the benefits. Quite simply, investment and innovation are discouraged by regulations that, by design, prevent realization of the market-based returns that result from the efficient integration of operations.
It will be a sad day if as a result of Google's succcess on the regulatory playing field a google search of the FCC turns up the FUC.
It is important to reiterate--as I have many times in the past--that net neutrality and open access proposals always involve an unbundling mandate. Open access and net neutrality necessarily imply unbundling because the regulators simply cannot enforce their openess and neutrality rules unless the broadband service provider separates [read: unbundles] transmission from content applications and equipment attachments. In Computer II parlance, the broadband provider must offer only pure or basic transmission service on an unbundled basis. Otherwise, how to prevent "discrimination" that is the opposite of neutrality?
The Chairman's open access proposal, if it materializes, would be very disappointing in any event. But it would not be totally surprising if it came from Commissioners Copps and Adelstein. It is surprising coming from a Republican Chairman in an Administration that ought to be free market-oriented.
A few weeks ago I wrote a piece to the effect that the FCC risks becoming the Federal Unbundling Commission. That essay focused most heavily on the FCC's wrong-headed proposal to consider mandating more unbundling of cable's OpenCable platform and to involve itself in the ongoing regulatory supervision that unbundling mandates necessarily entail. But it noted that the 700 MHz auction was also a target of regulatory opportunity for the open access/net neutrality/unbundling advocates.
Again, it is puzzling and disheartening that this Republican-led FCC is the one taking the FCC down the path towards becoming the FUC. There was a time during the 1960s Carterfone and 1980s Computer II eras when unbundling mandates may have been justified. For the reasons explained in the Federal Unbundling Commission piece that time has long passed.
The costs of imposing unbundling mandates in today's technologically dynamic, much more competitive environment far outweigh the benefits. Quite simply, investment and innovation are discouraged by regulations that, by design, prevent realization of the market-based returns that result from the efficient integration of operations.
It will be a sad day if as a result of Google's succcess on the regulatory playing field a google search of the FCC turns up the FUC.
Tuesday, July 03, 2007
Independence Day 2007
As we celebrate Independence Day 2007, I am reminded of Abraham Lincoln’s remarks eulogizing Henry Clay: “He loved his country partly because it was his own country, but mostly because it was a free country.” To my mind, no one before or since has matched Lincoln’s simple eloquence in articulating freedom as the core idea—and ideal-- of America.
At the outset of the Civil War, it is true that preserving the Union, not freeing the slaves, was Lincoln’s principal war aim. But by December 1862, it was clear to Lincoln that the Union could not be preserved without emancipation. In his Second Message to Congress Lincoln declared: “We —even we here— hold the power and bear the responsibility. In giving freedom to the slave, we assure freedom to the free —honorable alike in what we give, and what we preserve. We shall nobly save, or meanly lose, the last best hope on earth.”
Lincoln’s Gettysburg Address was not delivered on Independence Day, of course, but in November 1863, when the fate of the Union was still in doubt. It is difficult to imagine a more beautiful expression of the American idea:
But, in a larger sense, we can not dedicate—we can not consecrate—we can not hallow—this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us — that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion — that we here highly resolve that these dead shall not have died in vain — that this nation, under God, shall have a new birth of freedom — and that government of the people, by the people, for the people, shall not perish from the earth.
The world did take note of the words Lincoln uttered at Gettysburg. And they have been long remembered, and should be, especially in troubled times, when American soldiers are fighting and dying abroad.
Within the Free State Foundation’s masthead are the words “Because Ideas Matter.” They do. In my view, the core American idea is not tied to the ethnicity, race, religion, national origin, or language of its people, but rather to a common commitment to the idea of individual liberty and the rule of law.
There is the story, perhaps apocryphal, of a certain Mrs. Powell stopping Benjamin Franklin as he departed the Constitutional Convention in September 1787 to ask: “Well, doctor, what have we got, a republic or a monarchy?” Franklin’s reply: “A republic, if you can keep it.”
To echo Lincoln’s eulogy of Clay: We love America partly because it is our own country, but mostly because she is a free country. As long as we have a constitutional culture that has as its central idea—and ideal, even if not always perfectly realized-- respect for individual liberty and the rule of law, we will preserve our Republic. And Dr. Franklin can rest in peace.
Happy Independence Day!
At the outset of the Civil War, it is true that preserving the Union, not freeing the slaves, was Lincoln’s principal war aim. But by December 1862, it was clear to Lincoln that the Union could not be preserved without emancipation. In his Second Message to Congress Lincoln declared: “We —even we here— hold the power and bear the responsibility. In giving freedom to the slave, we assure freedom to the free —honorable alike in what we give, and what we preserve. We shall nobly save, or meanly lose, the last best hope on earth.”
Lincoln’s Gettysburg Address was not delivered on Independence Day, of course, but in November 1863, when the fate of the Union was still in doubt. It is difficult to imagine a more beautiful expression of the American idea:
But, in a larger sense, we can not dedicate—we can not consecrate—we can not hallow—this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us — that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion — that we here highly resolve that these dead shall not have died in vain — that this nation, under God, shall have a new birth of freedom — and that government of the people, by the people, for the people, shall not perish from the earth.
The world did take note of the words Lincoln uttered at Gettysburg. And they have been long remembered, and should be, especially in troubled times, when American soldiers are fighting and dying abroad.
Within the Free State Foundation’s masthead are the words “Because Ideas Matter.” They do. In my view, the core American idea is not tied to the ethnicity, race, religion, national origin, or language of its people, but rather to a common commitment to the idea of individual liberty and the rule of law.
There is the story, perhaps apocryphal, of a certain Mrs. Powell stopping Benjamin Franklin as he departed the Constitutional Convention in September 1787 to ask: “Well, doctor, what have we got, a republic or a monarchy?” Franklin’s reply: “A republic, if you can keep it.”
To echo Lincoln’s eulogy of Clay: We love America partly because it is our own country, but mostly because she is a free country. As long as we have a constitutional culture that has as its central idea—and ideal, even if not always perfectly realized-- respect for individual liberty and the rule of law, we will preserve our Republic. And Dr. Franklin can rest in peace.
Happy Independence Day!
Wednesday, June 27, 2007
Tribal Company
A few weeks ago, shortly after the FCC released its most recent report on TV violence, I wrote an essay arguing that any government-mandated a la carte regime imposed on cable and satellite operators as a means of addressing the violence issue almost certainly would violate the First Amendment. The piece, "The Constitution, A La Carte," was published on CNET on May 22.
On June 26 Harvard Law School professor Laurence Tribe testified at the Senate Commerce Committee's hearing on TV violence. Tribe, one of the country's foremost constitutional law scholars, retained in connection with his testimony by various media entities, concluded that all the proposals put forward by the FCC as a means of protecting children from exposure to violent programming --time channeling, a government-mandated ratings system, and mandatory a la carte unbundling--would contravene the First Amendment. You can find Professor Tribe's complete testimony here.
Having just written on the a la carte issue in my CNET essay, and given Professor Tribe's reputation, I was especially interested in his First Amendment analysis. Albeit at much greater length, and in more scholarly fashion, Professor's Tribe's constitutional analysis of the mandatory unbundling issue is fully consistent with my CNET piece. You can find the section on mandatory unbundling at pages 58-68. I was pleased --maybe, even relieved-- to find myself in good company.
Anyone interested in First Amendment jurisprudence, and especially its relationship to the TV violence issue, should read Tribe's entire paper. But here are a couple of salient quotes concerning the unconstitutionality of mandatory unbundling that mirror the views I expressed earlier:
On June 26 Harvard Law School professor Laurence Tribe testified at the Senate Commerce Committee's hearing on TV violence. Tribe, one of the country's foremost constitutional law scholars, retained in connection with his testimony by various media entities, concluded that all the proposals put forward by the FCC as a means of protecting children from exposure to violent programming --time channeling, a government-mandated ratings system, and mandatory a la carte unbundling--would contravene the First Amendment. You can find Professor Tribe's complete testimony here.
Having just written on the a la carte issue in my CNET essay, and given Professor Tribe's reputation, I was especially interested in his First Amendment analysis. Albeit at much greater length, and in more scholarly fashion, Professor's Tribe's constitutional analysis of the mandatory unbundling issue is fully consistent with my CNET piece. You can find the section on mandatory unbundling at pages 58-68. I was pleased --maybe, even relieved-- to find myself in good company.
Anyone interested in First Amendment jurisprudence, and especially its relationship to the TV violence issue, should read Tribe's entire paper. But here are a couple of salient quotes concerning the unconstitutionality of mandatory unbundling that mirror the views I expressed earlier:
- "It is tempting to think of any unbundling requirement as a purely economic restriction not based on speech, but that view is flatly incorrect. Any unbundling requirement would be a speech-based and even a content-based regulation subject to strict scrutiny. The Supreme Court has recognized that “[c]able programmers and cable operators engage in and transmit speech, and they are entitled to the protection of the speech and press provisions of the First Amendment.” Turner Broadcasting Sys., Inc. v. FCC, 512 U.S. 622, 636 (1994)."
- "[C]able/satellite providers are no different from other speakers. A decision to combine or package expressive materials is a speech act distinct from the decisions to distribute its individual components, separately considered."
- "Mandatory unbundling, however, raises distinct concerns because it directly intrudes on a cable operator's speech by precluding speech achievable only by combining channels. For example, a cable operator may wish to provide a public service by bundling C-SPAN or local public access channels with more popular fare such as ESPN. Similarly, a cable operator's decision to include adult channels--as much as another operator's decision to exclude those channels--is an exercise of core editorial discretion."
- "Proponents of mandatory unbundling have at times suggested that unbundling can avoid strict scrutiny so long as it is only focused on the compensation that cable/satellite operators hope to receive, rather than the content that they are empowered to convey....Such a proposal cannot escape strict scrutiny. The freedom to speak is inseparable from the freedom to decide what to charge for that speech, or, instead, to distribute it without financial remuneration."
Upholding the First Amendment's free speech principles does not, and need not, imply endorsement of "violent" --or for that matter, "indecent" or any other-- programming that appears on television. In my view, there is much programming aired that is inappropriate for viewing by children. But government-imposed mandates that do violence to free speech principles are not the answer. Much more parental responsibility is.
As I wrote here last week, and as Professor Tribe too emphasizes, easy-to-use filtering tools are now available that allow parents to take control of what their children watch. To be sure, these tools may not be absolutely perfect or fail-safe in every situation, even as they are constantly being improved. But in First Amendment parlance, there surely are a "less restrictive means" of achieving whatever legitimate interest the government has in protecting children than those means inconsistent with free speech values.
Thursday, June 21, 2007
Parental Controls: Tools and Methods
With ever-present concerns about the exposure of children to indecent and violent television programming and online material, I have used this space before to tout the tools available to parents to filter material that they deem inappropriate for their children's consumption. Due to technological advances and industry efforts, these filtering and screening tools are getting easier and easier for parents to access and use, if only parents will spend a bit of time familiarizing themselves with them.
In that vein, I recently called attention to the cable industry's new "Point Smart. Click Safe" campaign. This is an effort by cable operators to further educate parents concerning the tools available to keep their children safe online. You can access information about the safety tools available directly from the National Cable & Telecommunications Association's special "Point Smart" website.
Now comes PFF's Adam Thierer's just-released new special report entitled "Parental Controls & Online Child Protection: A Survey of Tools and Methods." This report is a very broad--and parent-friendly--guide to all of the tools available today that can help parents manage media content in all its manifestations in today's multi-media environment. Adam covers broadcast television, cable and satellite TV, music devices, mobile phones, the Internet, video game consoles, and more. (Hmmmm....just reciting the list of the various types of media has to make you wonder about those who still chomp at the bit for more restrictive ownership regulations....another subject I have discussed many times that will have to await another day.)
In recommending Adam's new report, I readily acknowledge Adam is a friend of mine. More significantly, with the release of his new "Tools and Methods" report, Adam is a friend to all parents who are willing to invest a little time in protecting their children from exposure to material to which they would rather not have their children exposed. It's up to parents to take responsibility to use the tools.
In that vein, I recently called attention to the cable industry's new "Point Smart. Click Safe" campaign. This is an effort by cable operators to further educate parents concerning the tools available to keep their children safe online. You can access information about the safety tools available directly from the National Cable & Telecommunications Association's special "Point Smart" website.
Now comes PFF's Adam Thierer's just-released new special report entitled "Parental Controls & Online Child Protection: A Survey of Tools and Methods." This report is a very broad--and parent-friendly--guide to all of the tools available today that can help parents manage media content in all its manifestations in today's multi-media environment. Adam covers broadcast television, cable and satellite TV, music devices, mobile phones, the Internet, video game consoles, and more. (Hmmmm....just reciting the list of the various types of media has to make you wonder about those who still chomp at the bit for more restrictive ownership regulations....another subject I have discussed many times that will have to await another day.)
In recommending Adam's new report, I readily acknowledge Adam is a friend of mine. More significantly, with the release of his new "Tools and Methods" report, Adam is a friend to all parents who are willing to invest a little time in protecting their children from exposure to material to which they would rather not have their children exposed. It's up to parents to take responsibility to use the tools.
Sunday, June 10, 2007
Point Smart. Click Safe.
I have written a lot in this space, and others as well, about why it would be wrong as a matter of policy for the government to mandate an a la carte regime for cable operators as a means of protecting children from indecent or violent content, and why, if the government did so, a mandatory regime almost certainly would violate the First Amendment. I addressed the First Amendment argument most recently in "The Constitution, A La Carte."
The policy and constitutional arguments against a la carte have much to do with the fact that, for some time, parents have been able to block any channel that they wish to block. Cable operators already have spent much time and money educating parents concerning the blocking and other screening tools that are available on their cable systems.
Now, to its credit, the cable industry has just embarked on a new campaign to educate parents about online safety for children. A new website sponsored by the National Cable & Telecommunications called "Point Smart. Click Safe." contains much useful information regarding tips and tools for promoting safe Intenret usage for children. Check it out.
It is far better for the government to rely on ongoing voluntary educational efforts such as the new cable intitiative than to adopt new, constitutionally dubious regulations that infringe free speech rights.
The policy and constitutional arguments against a la carte have much to do with the fact that, for some time, parents have been able to block any channel that they wish to block. Cable operators already have spent much time and money educating parents concerning the blocking and other screening tools that are available on their cable systems.
Now, to its credit, the cable industry has just embarked on a new campaign to educate parents about online safety for children. A new website sponsored by the National Cable & Telecommunications called "Point Smart. Click Safe." contains much useful information regarding tips and tools for promoting safe Intenret usage for children. Check it out.
It is far better for the government to rely on ongoing voluntary educational efforts such as the new cable intitiative than to adopt new, constitutionally dubious regulations that infringe free speech rights.
Thursday, June 07, 2007
Maine Resolves to Monitor
Earlier I had heard some reports that the Maine legislature was considering passing a state net neutrality law containing a nondiscrimination mandate. So I was pleased to learn--maybe relieved to learn puts it more accurately--that what ultimately was adopted yesterday by the legislature was a resolution directing the Public Advocate to monitor state and federal actions, including the FCC's notice of inquiry, regarding Internet regulatory developments. Presumably the Public Advocate would have undertaken such monitoring without the legislature having to resolve that he or she do so.
The truth is the pro-regulatory net neutrality crowd was pushing to have a bill adopted that would have established a strict net neutrality regulatory regime in Maine. A bill to this effect was introduced by Sen. Ethan Strimling and went nowhere. And the further truth is there was nowhere for the bill to go. Because any state law purporting to mandate net neutrality almost certainly will be preempted by federal law. Why this is so was explained in Jim Speta's Free State Foundation paper entitled "Net Neutrality Is A Federal Issue."
So, now, the legislature has resolved that Internet access regulatory developments should be monitored. While there seems to be little harm in this, who would have thought a resolution to this effect even would have been necessary. Happy monitoring, Maine!
The truth is the pro-regulatory net neutrality crowd was pushing to have a bill adopted that would have established a strict net neutrality regulatory regime in Maine. A bill to this effect was introduced by Sen. Ethan Strimling and went nowhere. And the further truth is there was nowhere for the bill to go. Because any state law purporting to mandate net neutrality almost certainly will be preempted by federal law. Why this is so was explained in Jim Speta's Free State Foundation paper entitled "Net Neutrality Is A Federal Issue."
So, now, the legislature has resolved that Internet access regulatory developments should be monitored. While there seems to be little harm in this, who would have thought a resolution to this effect even would have been necessary. Happy monitoring, Maine!
Spending Transparency and Accountability
It's no secret that Maryland faces a looming $1.5 billion structural deficit that will require some tough decisions from Governor Martin O'Malley and our legislature. What is too often secretive, or at least not easily obtainable in a timely fashion, is basic information about how our tax dollars are being spent. That's why during the past legislative session the Free State Foundation championed the adoption by Maryland of a single Google-like Internet search engine that would enable citizens at no cost easily to track state spending.
You can find op-eds published in the Baltimore Sun and the Washington Examiner by Free State Foundation President Randolph May and Research Associate Trevor Bothwell here and here urging the legislature to enact a bill to establish such a single searchable spending website. To their credit, Delegate Warren Miller and Senator Alex Mooney introduced the "Maryland Funding Accountability and Transparency Act" to do just that. Unfortunately, the bill had no support from General Assembly Democrats, and it did not go anywhere in the past session.
Now comes word that Minnesota has just enacted a law like the one embodied in the Miller-Mooney proposal establishing a public website to track state spending. This follows on the heels of similar action earlier this year by Kansas. You can read about the Minnesota and Kansas laws at a special "Show Me the Spending" site dedicated to fostering transparency in state spending. In addition to containing much useful information, such as model legislation, the site tracks information concerning the status of efforts in the states to implement searchable spending websites.
This brings me back to Maryland's projected $1.5 billion deficit. While citizens should be able to easily track state spending in good times and bad--after all, that is simple matter of fostering good government through accountability--the need to be able to do so arguably is even greater in an environment in which there already are calls to raise taxes substantially to cover state spending.
There is some talk that the legislature will meet this fall to begin to deal with the deficit. If it does, one of the first orders of business ought to be adopting the "Maryland Funding Accountability and Transparency Act" introduced by Delegate Miller and Senator Mooney in the last session. The rallying cry should be: "Accountability and Transparency First!"
You can find op-eds published in the Baltimore Sun and the Washington Examiner by Free State Foundation President Randolph May and Research Associate Trevor Bothwell here and here urging the legislature to enact a bill to establish such a single searchable spending website. To their credit, Delegate Warren Miller and Senator Alex Mooney introduced the "Maryland Funding Accountability and Transparency Act" to do just that. Unfortunately, the bill had no support from General Assembly Democrats, and it did not go anywhere in the past session.
Now comes word that Minnesota has just enacted a law like the one embodied in the Miller-Mooney proposal establishing a public website to track state spending. This follows on the heels of similar action earlier this year by Kansas. You can read about the Minnesota and Kansas laws at a special "Show Me the Spending" site dedicated to fostering transparency in state spending. In addition to containing much useful information, such as model legislation, the site tracks information concerning the status of efforts in the states to implement searchable spending websites.
This brings me back to Maryland's projected $1.5 billion deficit. While citizens should be able to easily track state spending in good times and bad--after all, that is simple matter of fostering good government through accountability--the need to be able to do so arguably is even greater in an environment in which there already are calls to raise taxes substantially to cover state spending.
There is some talk that the legislature will meet this fall to begin to deal with the deficit. If it does, one of the first orders of business ought to be adopting the "Maryland Funding Accountability and Transparency Act" introduced by Delegate Miller and Senator Mooney in the last session. The rallying cry should be: "Accountability and Transparency First!"
Monday, June 04, 2007
The Realities of Cable A La Carte
Forrester Research has released a new report entitled, "Cable A La Carte Pricing Creates More Problems Than It Solves." The entire report may be purchased here --on an a la carte basis--for a price of $279.
An excerpt from the report posted on NCTA's website, consistent with all the trade press reports I have read, is to the following effect:
In our research, we simply asked cable viewers to consider how much they would pay, if anything, to subscribe to any of 46 top cable channels, up to $10 a channel per month. Viewers chose a simulated bundle with an average of 26 channels, but were only willing to spend $24.08 a month, less than $1 a channel, half of what they pay now. Given the 8 hours of TV that US households watch daily, that’s about $0.10 per hour, compared with the $2.00 per hour we pay to rent a new release on DVD. In contrast, an hour of prime time costs advertisers $0.60 per head. At $0.10 per hour, Ã la carte pricing would never work: Producers and cable companies wouldn’t get paid enough to survive, and consumers would lose desired content.
I have not reviewed the entire Forrester report. But the research does seem to confirm what to me has seemed intuitive: Under an a la carte regime, subscriber's expectations about what they think they "ought" to pay or would "like" to pay for only their individual selections would not cover the costs of the programs and cable service. Thus, the significance of the last sentence above.
I do not know whether the producers and cable companies would, in fact, "survive" in the sense of not shuttering the windows ands closing the doors. Many surely would survive in one form or another. But there is little doubt that those cable companies that do survive under government-mandated a la carte will eliminate some networks or alter other programming within networks. This is the key to the argument I made in my recent piece, "The Constitution, A La Carte". Absent a compelling justification that cannot be met with less restrictive speech restrictions, a government mandate that causes a cable operator to eliminate or alter the programming almost certainly constitutes an infringement of the operators' free speech rights under the First Amendment.
Indeed, the likely constitutional infirmity of a la carte became even clearer only yesterday when a federal appeals court issued a decision vacating FCC orders imposing fines on Fox for allegedly indecent broadcast programming. Although the court did not base its decision on First Amendment grounds, it did say in a pointed aside: “Nevertheless, we would be remiss not to observe that it is increasingly difficult to describe the broadcast media as uniquely pervasive and uniquely accessible to children.” Of course, it is even more difficult to describe cable service as "uniquely pervasive" and "uniquely accessible to children." Not only do parents have to make an affirmative decision to subscribe to the service, they have to decide they don't want to use the readily available tools that allow blocking of any individual channel. It is not very likely that an a la carte mandate would find much in the way of support from the "uniquely pervasive rationale" in the 1970s Pacifica case involving an over-the-air radio broadcast.
The Executive Summary of the Forrester report concludes: "To satisfy the FCC and avoid legislation that would disorient consumers, cable operators should offer the benefits of a la carte pricing through smarter bundling of family, sports, or news programming in addition to the traditional tiered packages." I am not smart enough to know what, if any, degree of smarter bundling would satisfy the FCC and avoid legislation. But I do know that the video marketplace is sufficiently competitive that cable executives, who get paid big bucks to do their jobs, will do better at figuring out which business models meet consumers' needs than the folks at the FCC or on the Hill. And speaking of disorientation, I get disoriented just thinking about why the government would want to tread on such constitutionally suspect ground.
An excerpt from the report posted on NCTA's website, consistent with all the trade press reports I have read, is to the following effect:
In our research, we simply asked cable viewers to consider how much they would pay, if anything, to subscribe to any of 46 top cable channels, up to $10 a channel per month. Viewers chose a simulated bundle with an average of 26 channels, but were only willing to spend $24.08 a month, less than $1 a channel, half of what they pay now. Given the 8 hours of TV that US households watch daily, that’s about $0.10 per hour, compared with the $2.00 per hour we pay to rent a new release on DVD. In contrast, an hour of prime time costs advertisers $0.60 per head. At $0.10 per hour, Ã la carte pricing would never work: Producers and cable companies wouldn’t get paid enough to survive, and consumers would lose desired content.
I have not reviewed the entire Forrester report. But the research does seem to confirm what to me has seemed intuitive: Under an a la carte regime, subscriber's expectations about what they think they "ought" to pay or would "like" to pay for only their individual selections would not cover the costs of the programs and cable service. Thus, the significance of the last sentence above.
I do not know whether the producers and cable companies would, in fact, "survive" in the sense of not shuttering the windows ands closing the doors. Many surely would survive in one form or another. But there is little doubt that those cable companies that do survive under government-mandated a la carte will eliminate some networks or alter other programming within networks. This is the key to the argument I made in my recent piece, "The Constitution, A La Carte". Absent a compelling justification that cannot be met with less restrictive speech restrictions, a government mandate that causes a cable operator to eliminate or alter the programming almost certainly constitutes an infringement of the operators' free speech rights under the First Amendment.
Indeed, the likely constitutional infirmity of a la carte became even clearer only yesterday when a federal appeals court issued a decision vacating FCC orders imposing fines on Fox for allegedly indecent broadcast programming. Although the court did not base its decision on First Amendment grounds, it did say in a pointed aside: “Nevertheless, we would be remiss not to observe that it is increasingly difficult to describe the broadcast media as uniquely pervasive and uniquely accessible to children.” Of course, it is even more difficult to describe cable service as "uniquely pervasive" and "uniquely accessible to children." Not only do parents have to make an affirmative decision to subscribe to the service, they have to decide they don't want to use the readily available tools that allow blocking of any individual channel. It is not very likely that an a la carte mandate would find much in the way of support from the "uniquely pervasive rationale" in the 1970s Pacifica case involving an over-the-air radio broadcast.
The Executive Summary of the Forrester report concludes: "To satisfy the FCC and avoid legislation that would disorient consumers, cable operators should offer the benefits of a la carte pricing through smarter bundling of family, sports, or news programming in addition to the traditional tiered packages." I am not smart enough to know what, if any, degree of smarter bundling would satisfy the FCC and avoid legislation. But I do know that the video marketplace is sufficiently competitive that cable executives, who get paid big bucks to do their jobs, will do better at figuring out which business models meet consumers' needs than the folks at the FCC or on the Hill. And speaking of disorientation, I get disoriented just thinking about why the government would want to tread on such constitutionally suspect ground.
Thursday, May 24, 2007
Memorial Day 2007: A Baby Boomer's Appreciation 1995
I published the piece below in the Baltimore Sun almost twelve years ago now. I hadn't re-read it for many years, but when I did so today as I was contemplating the upcoming Memorial Day, it seemed to have some relevance for those of us living in America in 2007. Because it is a bit personal, maybe it reasonates just with me. It is not the usual fare found in this space. But, as a matter of personal privilege, I decided to share it anyway.
The Baltimore SunJune 20, 1995
A Baby Boomer's Appreciation
BYLINE: Randolph J. May
FOR THE World War II generation, this year's series of 50th anniversary commemorations compellingly evoke memories of bloody battles fought in faraway places -- and of lives lost and lives spared. For that generation, the anniversaries and the names associated with these commemorations -- Pearl Harbor, D-Day, the Battle of the Bulge, Midway, Okinawa, etc. -- call to mind times of supreme triumph and tragedy. They recall countless heroic and selfless individual acts of courage and sacrifice, even in the face of likely death, by ordinary men who were fighting for a cause in which they believed.
This is not to say that everyone who went to war in that generation was courageous and selfless. Human nature is not such. But it is true that an extraordinary number of ordinary men and women willingly volunteered in service to their country -- and thereby volunteered to die -- in a war they believed had to be won to preserve freedom and certain universal values. Whether volunteers or draftees, most of them performed in the same courageous way.
With that in mind, the 50th anniversary commemorations provide the nation with an opportunity to say thank-you to those who won the war and to pay homage to those who did not return.
For the baby boomers, these commemorations stir deep emotions that we don't often express. These emotions relate to our own war, which though not as costly in terms of lives lost, was costly enough, with over 58,000 American deaths. Like World War II, Vietnam certainly produced its own share of heroism and courage on the battlefields. But if the threat to America's vital interests in our fathers' war was as stark as black and white, Vietnam was nothing if not multiple shades of gray. The national interest in fighting the Vietnam War with American combat troops was not so apparent or readily agreed-upon, particularly by those called upon to do the fighting. And even many people who asserted that the United States indeed did have vital interests at stake in Vietnam disagreed about strategy and tactics.
The debate about whether Vietnam was the wrong war, at the wrong place, at the wrong time rages to this day, 20 years after the last helicopter departed from the last Saigon rooftop. Former Secretary of Defense Robert McNamara's new book "In Retrospect: The Tragedy and Lessons of Vietnam," in which he now states that the Vietnam War was "terribly wrong" and that he and other senior officials knew it early on, provides new fodder for the Vietnam debate. History ultimately instructs, and Mr. McNamara's book no doubt will become another important component of history's instruction materials.
Regardless, however, of anyone's opinions today -- in retrospect -- about the wisdom of the objectives or conduct of the Vietnam War, there is no gain saying that many young Americans of my generation were confronted with painful choices: some volunteered to fight because they believed duty called; many were drafted and served honorably; many accepted various student and other deferments; some fled to Canada before being drafted or after being inducted; others went to prison proclaiming their convictions, rather than be drafted. Many, like me, joined the Army Reserve, where we served out our six-year commitments, but never got closer to anything resembling the fighting in Vietnam than fighting the mosquitoes and snakes in the swamps at Fort Polk, La.
Even if there were now widespread agreement in hindsight that our mission in Vietnam was ill-conceived and wrong (I'm not suggesting there is or ought to be such agreement), I believe that many of my generation who did not serve in Vietnam still harbor doubts about the individual choices we made at the time, despite what we may say publicly, or even privately. I believe many of us wonder whether our individual actions really reflected strongly held views about the rightness or wrongness of the war and its moral implications, as many proclaimed, or did such choices instead reflect a lack of personal courage on our part? We now wonder how readily we would have marched off to war like our fathers, if the rightness of our country's cause had been less ambiguous? How much less ambiguous? Finally, we question whether we should have said to the less fortunate (i.e. deferment-less) members of our generation: "Well, if you have to go, then so should I."
Being deprived of the moral clarity which confronted our fathers in their war, we were left to grapple with profound "what-ifs" about how we would have responded in less ambiguous circumstances. We can never answer definitively these nagging "what-ifs." I doubt if Mr. McNamara's book will provide the necessary cover to resolve our doubts. We can only live life on a going-forward basis -- which brings me back to this year's 50th anniversary commemorations.
These solemn commemorations give my Baby Boomer generation the opportunity to show our respect and, above all, gratitude, for the sacrifices of the war generation. When my father came home from the war after serving in Europe, he stowed away his Army uniforms, patches and other war paraphernalia. For many years, he was not much interested in talking about the war and the horrors he witnessed. Now he and some of his fellow soldiers are passing on their physical and mental remembrances.
But beyond the opportunity for final thank-yous, this season of commemoration is also a time when we baby boomers are of an age to understand that no two generations face the same challenges. While we can never know how each of us would have responded to the particular challenges and circumstances confronted by our fathers -- including being called upon to fight a war that had to be won for the country's sake -- that is not really what matters now. We can honor the war generation best by drawing inspiration from all that its members accomplished. That should help us understand that opportunities to display courage and leadership in the service of our country may take different forms in each generation. Then, not only will we honor these of the war generation, but also we will honor those of our own generation, especially those who gave their lives in Vietnam.
Randolph J. May is a Washington lawyer.
I was indeed a Washington lawyer at the time I wrote this in 1995. That has changed. But on this Memorial Day 2007, the sentiment I expressed then has not: "These solemn commemorations give my Baby Boomer generation the opportunity to show our respect and above all, gratitude, for the sacrifices of the war generation." This Memorial Day we are fighting another war in a distant place, and American soldiers are dying even as I write in Iraq and Afghanistan in the belief they are fighting to preserve the liberties we enjoy here at home. Regardless of any differences we may have about the justness of the cause--or the way it is being waged--we owe those in uniform on this Memorial Day weekend, and everyday, our highest respect and deepest gratitude.
Wednesday, May 16, 2007
A Case of Farsightedness
National Cable & Telecommunications President and CEO Kyle McSlarrow spoke yesterday at the Media Institute, and his speech represented a fairly rare phenomenon here in Washington among leaders among major trade associations: It was farsighted in looking past current disputes to suggest major fundamental change in communications law and policy that would better reflect the new competitive marketplace realities than does the current regime. And the speech was devoid of a lot of the special pleading that one often hears in major addresses from industry trade association leaders.
The essence of McSlarrow's speech was a call for a communications paradigm that replaces the current technology-based silo approach to regulation with a competition-based model that would rely much more heavily on ex post adjudication rather than ex ante rulemaking to remedy any real marketplace abuses. That way the focus would be on a concrete complaint in the context of a specific marketplace situation. And McSlarrow called for structural reform of the FCC as well.
McSlarrow candidly acknowledged that many of his ideas were taken from the work of PFF's Digital Age Communications Act (DACA) reform project (so, as they say in the standard disclaimers, I am not an uninterested bystander here because I played a lead role in the work of the DACA project, along with Ray Gifford, Kyle Dixon, and other of my former PFF colleagues.) And McSlarrow appropriately credited Verizon's Executive Vice President Tom Tauke's "New Wires, New Rules" speech of five years ago with spurring the debate about the need for a new communications paradigm. And Senator Jim DeMint, of course, was credited for taking the DACA model and embodying it his "Digital Age Communications Act" bill, S. 2113, introduced in December 2005.
I remain convinced that the competition-based DACA approach is the correct model for the reforming our nation's communications laws. I also understand that fundamental change such as that embodied in DACA does not happen overnight in Washington, nor as a rule, should it. There is necessarily a gestation period for the bold ideas of farsighted leaders to take hold.
Kyle McSlarrow's speech at the Media Institute yesterday was in the best tradition of a leader with a case of farsightedness, a leader looking over the horizon at the road ahead, not at the present waystation. Senator DeMint has a good case of farsightedness as well. He needs for more of his congressional colleagues to share his vision.
A final but key thought: McSlarrow highlighted some of the steps that past FCC Chairmen have taken in adapting the then-current regulatory regime to changing technological and marketplace developments, starting with Dick Wiley. Current Chairman Kevin Martin has played a significant role in solidifying and extending the regime of minimal regulating broadband, and for this he deserves credit and kudos. But, frankly, I would like to see him (and whichever of his FCC colleagues are willing to go along) start using their bully pulpits and their positions as the nation's communications policy experts to articulate more forcefully and clearly the need for the fundamental paradigm change that Kyle McSlarrow articulated yesterday. Not only is there nothing improper about the Chairman and his colleagues advocating such substantive reform--while implementing and enforcing the current law--in my view it is their responsibility to do so. In the language of a bygone era, such public education and advocacy is on their "job sheets."
Back in the 1970s, CAB Chairman Alfred Kahn--who knows more than a bit about communications too--became the nation's leading advocate of deregulation of the nation's airlines, explaining to Congress and the American public why deregulation was needed and why it would serve the interests of consumer, even though there would be dislocations in particular situations.
One of the admitted difficulties of serving as an FCC Chairman or a Commissioner is that it is understandably easy to be preoccupied with today's pressing issues. The "items" just keep coming at you. In the hurly-burly of today, the natural tendency is to take a rather static or even backwards-looking view of the world. How much market share does X have right now compared with Y? How have we handled this situation in the past? But one of the characteristics of a leader is always to be looking ahead at what's over the horizon, like the scouts sent ahead of a trailing wagon train. I'd like to see Kevin Martin and his colleagues take a good look at DACA as a model for the future. I would like them to catch a good case of farsightedness.
The essence of McSlarrow's speech was a call for a communications paradigm that replaces the current technology-based silo approach to regulation with a competition-based model that would rely much more heavily on ex post adjudication rather than ex ante rulemaking to remedy any real marketplace abuses. That way the focus would be on a concrete complaint in the context of a specific marketplace situation. And McSlarrow called for structural reform of the FCC as well.
McSlarrow candidly acknowledged that many of his ideas were taken from the work of PFF's Digital Age Communications Act (DACA) reform project (so, as they say in the standard disclaimers, I am not an uninterested bystander here because I played a lead role in the work of the DACA project, along with Ray Gifford, Kyle Dixon, and other of my former PFF colleagues.) And McSlarrow appropriately credited Verizon's Executive Vice President Tom Tauke's "New Wires, New Rules" speech of five years ago with spurring the debate about the need for a new communications paradigm. And Senator Jim DeMint, of course, was credited for taking the DACA model and embodying it his "Digital Age Communications Act" bill, S. 2113, introduced in December 2005.
I remain convinced that the competition-based DACA approach is the correct model for the reforming our nation's communications laws. I also understand that fundamental change such as that embodied in DACA does not happen overnight in Washington, nor as a rule, should it. There is necessarily a gestation period for the bold ideas of farsighted leaders to take hold.
Kyle McSlarrow's speech at the Media Institute yesterday was in the best tradition of a leader with a case of farsightedness, a leader looking over the horizon at the road ahead, not at the present waystation. Senator DeMint has a good case of farsightedness as well. He needs for more of his congressional colleagues to share his vision.
A final but key thought: McSlarrow highlighted some of the steps that past FCC Chairmen have taken in adapting the then-current regulatory regime to changing technological and marketplace developments, starting with Dick Wiley. Current Chairman Kevin Martin has played a significant role in solidifying and extending the regime of minimal regulating broadband, and for this he deserves credit and kudos. But, frankly, I would like to see him (and whichever of his FCC colleagues are willing to go along) start using their bully pulpits and their positions as the nation's communications policy experts to articulate more forcefully and clearly the need for the fundamental paradigm change that Kyle McSlarrow articulated yesterday. Not only is there nothing improper about the Chairman and his colleagues advocating such substantive reform--while implementing and enforcing the current law--in my view it is their responsibility to do so. In the language of a bygone era, such public education and advocacy is on their "job sheets."
Back in the 1970s, CAB Chairman Alfred Kahn--who knows more than a bit about communications too--became the nation's leading advocate of deregulation of the nation's airlines, explaining to Congress and the American public why deregulation was needed and why it would serve the interests of consumer, even though there would be dislocations in particular situations.
One of the admitted difficulties of serving as an FCC Chairman or a Commissioner is that it is understandably easy to be preoccupied with today's pressing issues. The "items" just keep coming at you. In the hurly-burly of today, the natural tendency is to take a rather static or even backwards-looking view of the world. How much market share does X have right now compared with Y? How have we handled this situation in the past? But one of the characteristics of a leader is always to be looking ahead at what's over the horizon, like the scouts sent ahead of a trailing wagon train. I'd like to see Kevin Martin and his colleagues take a good look at DACA as a model for the future. I would like them to catch a good case of farsightedness.
Tuesday, May 15, 2007
The Right Way to Regulate Violent TV
My former colleague Adam Thierer, a Senior Fellow with the Progress and Freedom Foundation, has just issued a marvelous paper, The Right Way to Regulate Violent TV. Adam's paper contains a wealth of information concerning the availability of technical controls such as the V-Chip and set-top box blocking features that can be used to filter television content. The paper contains a very useful discussion as well of non-technical controls such as informal household media rules.
Anyone interested in the debate concerning whether we need new laws or regulations dealing with TV violence should read Adam's paper. As importantly, parents concerned with understanding the tools available to "regulate" their children's TV viewing should read the paper. If they do--and if they take seriously their parental responsibilities--there would be far fewer calls for the government to do for them what they can and ought to do for themselves.
Anyone interested in the debate concerning whether we need new laws or regulations dealing with TV violence should read Adam's paper. As importantly, parents concerned with understanding the tools available to "regulate" their children's TV viewing should read the paper. If they do--and if they take seriously their parental responsibilities--there would be far fewer calls for the government to do for them what they can and ought to do for themselves.
Friday, May 11, 2007
Net Neutrality: Of Chickens and Eggs
Yesterday Mark Cuban, who owns the high-def TV network HDNet, along with other enterprises too numerous to mention, told the House Energy and Commerce Committee that unless there is significant continued investment in broadband infrastructure, further technological and economic advancements will be hampered. According to a Technology Daily report [subscription required], Cuban said "net neutrality" is an example of how constrained bandwidth creates conflict between consumer and broadband provider interests. Cuban said of net neutrality: "The issue goes away completely if bandwidth constraints go away."
This is probably true (for all but the hard-core net neut enthusiasts for whom the issue is never likely to go away). But it begs, or at least avoids, the important question: If net neutrality mandates were adopted, would they be more or less likely to cause bandwidth constraints to "go away"? (Because all goods are scarce in the sense that economists understand scarcity, I don't expect that bandwidth constraints will ever entirely go away.) But I am sure that bandwidth constraints are less likely to become an inhibition on Internet infrastructure growth if net neutrality mandates are not adopted. This is because these mandates prohibiting differential treatment by broadband providers of unaffiliated entities--in other words, the imposition of common carrier regulation--will inhibit the very investment and innovation that is needed to counteract bandwidth constraints.
So, if you think of a world without any bandwidth constraints as the "chicken," then Mr. Cuban is correct that you are likely not to ever see the net neutrality "egg." On the other hand, if you think of net neutrality mandates that are implemented as the "chicken," you likely would see as the "egg" a world of real and increasing bandwidth constraints.
I suspect that Mr. Cuban, being the astute billionaire businessman that he is, understands chickens and eggs in a real world practical sense. Or to put the matter another way, I suspect that Mr. Cuban understands that net neutrality mandates, if adopted, would constrain the development of consumer-friendly business models as the Internet continues to evolve, thereby dampening investment and innovation incentives--and thereby killing the chicken that is laying the golden egg.
This is probably true (for all but the hard-core net neut enthusiasts for whom the issue is never likely to go away). But it begs, or at least avoids, the important question: If net neutrality mandates were adopted, would they be more or less likely to cause bandwidth constraints to "go away"? (Because all goods are scarce in the sense that economists understand scarcity, I don't expect that bandwidth constraints will ever entirely go away.) But I am sure that bandwidth constraints are less likely to become an inhibition on Internet infrastructure growth if net neutrality mandates are not adopted. This is because these mandates prohibiting differential treatment by broadband providers of unaffiliated entities--in other words, the imposition of common carrier regulation--will inhibit the very investment and innovation that is needed to counteract bandwidth constraints.
So, if you think of a world without any bandwidth constraints as the "chicken," then Mr. Cuban is correct that you are likely not to ever see the net neutrality "egg." On the other hand, if you think of net neutrality mandates that are implemented as the "chicken," you likely would see as the "egg" a world of real and increasing bandwidth constraints.
I suspect that Mr. Cuban, being the astute billionaire businessman that he is, understands chickens and eggs in a real world practical sense. Or to put the matter another way, I suspect that Mr. Cuban understands that net neutrality mandates, if adopted, would constrain the development of consumer-friendly business models as the Internet continues to evolve, thereby dampening investment and innovation incentives--and thereby killing the chicken that is laying the golden egg.
Wednesday, May 02, 2007
Siriusly. Are The English Really That Different?
The NAB and other opponents of the Sirius-XM satellite merger contend that satellite radio constitutes a separate market for purposes of competitive analysis. Under this theory, the Sirius-XM merger can be charaterized, as former FTC Chairman Jim Miller did yesterday in a Washington Times piece, as "a two-down-to-one merger." Case closed if you define the market in such a narrow, static fashion.
In my essay published on CNET a couple of weeks ago, I explained why, especially in light of the dynamism in the communications marktplace, the relevant market for purposes of assessing the competitive impact of the proposed Sirius-XM merger ought not to be the narrow satellite radio market, but rather a broader audio information and communications marketplace. I won't repeat that here.
In his Washington Times piece, Miller asks: Would the "threat of switching to broadcast radio or listening an iPod really restrain the merged company from raising its prices?" I fail to understand why Miller and other merger opponents presume that America's satellite radio subscribers are so peculiar as to be immune to the effect of price hikes in the face of substitutes. And it is on this question of substitutes that a smallish item in today's Communications Daily [subscription required] caught my eye. The item reports that a new study sponsored by Sony indicates that one in three Britons listens to radio via the Internet. The study indicates "that new technology is changing listening habits." According to Sony's UK Managing Director: "Internet radio is no longer the preserve of technology enthusiasts. This research shows that it is hugely popular among millions of people from a wide range of ages."
Now Miller does not mention Internet radio as an alternative to satellite. But why not? Are the English really that different from us? I know they are peculiar in some ways. They still have a queen, for instance. But even if we suppose on this side of the pond Americans are not presently tuning in to Internet radio at quite the same one-in-three rate as the Brits, to me, it is fanciful to ignore the impact of Internet radio. And absent fundamental changes in the laws of economics, not to mention human nature, it is fanciful to think that a price hike by satellite radio would have no impact on the habits of audio consumers.
In my essay published on CNET a couple of weeks ago, I explained why, especially in light of the dynamism in the communications marktplace, the relevant market for purposes of assessing the competitive impact of the proposed Sirius-XM merger ought not to be the narrow satellite radio market, but rather a broader audio information and communications marketplace. I won't repeat that here.
In his Washington Times piece, Miller asks: Would the "threat of switching to broadcast radio or listening an iPod really restrain the merged company from raising its prices?" I fail to understand why Miller and other merger opponents presume that America's satellite radio subscribers are so peculiar as to be immune to the effect of price hikes in the face of substitutes. And it is on this question of substitutes that a smallish item in today's Communications Daily [subscription required] caught my eye. The item reports that a new study sponsored by Sony indicates that one in three Britons listens to radio via the Internet. The study indicates "that new technology is changing listening habits." According to Sony's UK Managing Director: "Internet radio is no longer the preserve of technology enthusiasts. This research shows that it is hugely popular among millions of people from a wide range of ages."
Now Miller does not mention Internet radio as an alternative to satellite. But why not? Are the English really that different from us? I know they are peculiar in some ways. They still have a queen, for instance. But even if we suppose on this side of the pond Americans are not presently tuning in to Internet radio at quite the same one-in-three rate as the Brits, to me, it is fanciful to ignore the impact of Internet radio. And absent fundamental changes in the laws of economics, not to mention human nature, it is fanciful to think that a price hike by satellite radio would have no impact on the habits of audio consumers.
Wednesday, April 25, 2007
The "Talking Broadband Down" Crowd
The predictable laments from those who cite the latest OECD broadband penetration statistics are getting tiresome. Quite simply, those here in the U.S. who continue to talk down this country's broadband achievements clearly have a policy agenda in mind. The agenda is to impose net neutrality (read: common carrier regulation) on broadband providers on the perverse theory that somehow consumers will take more broadband if all the providers are required to offer exactly the same service--just as in the good ol' days of Ma Bell.
Today's Communications Daily [subscription required] refers to a letter David Gross, U.S. Coordinator for International Communications and Information Policy, sent to the OCED pointing out the flaws in the OECD's broadband statistics. Gross explained that the OECD reports rely too heavily on counting mere subscriptions as a measure of broadband use (this ignores, for example, the fact that most colleges today have campus-wide WiFi access where thousands of students have high-speed access but no "subscriptions," that millions of others use thousands of WiFi hot spots throughout the country, and that many businesses obtain broadband through high-capacity special access facilities that are not even counted as "subscriptions" in the OECD reports). OECD also ignores important factors such as geographic diversity and population density differences that impact broadband penetration.
The plain fact of the matter is that the U.S. has more broadband subscribers--64 million as of June 2006--than any country in the world. And the most recent FCC report, encouragingly, showed that the largest increase in the number of broadband subscribers occurred in the wireless segment. From June 2005 to June 2006, the number of broadband wireless subscriptions increased exponentially from 380,000 to 11 million.
Rather than celebrating this good news, which is at least partly attributable to the FCC's deregulatory broadband policies under the leadership of FCC Chairmen Michael Powell and Kevin Martin, the "talking broadband down" crowd continues to relish trotting out the flawed OECD statistics to advance a pro-regulatory agenda. FCC Commissioner Michael Copps is a leader of this choir. A prominent member of the chorus is Ben Scott, policy director of the Free Press organization. Again, according to today's Communications Daily, Mr. Scott is quoted as telling a Senate Committee yesterday: "Roughly 10% of the households still do not have a wireless broadband provider. The market is not competitive. It remains a rigid duopoly at the residential level."
Recall that it was only a short while ago that the "talking broadband down" crowd claimed that most Americans had a choice of only one broadband provider. Now we have a "rigid" duopoly because 10% of American households do not have a wireless provider. This is silly. It is plain for all to see that the U.S. broadband marketplace is highly dynamic and increasingly competitive. Compared to most all other countries around the globe, it is hyper-dynamic and competitive.
In somewhat contradictory fashion, Mr. Scott goes on to say: "It's not that broadband isn't available to most Americans--we're just not buying it...We need more competitive, affordable services with attractive features to make it worth the family's hard earned dollars." What Mr. Scott is really saying is that the "attractive feature" he would like to see is for the government to mandate "neutrality" by regulating the Internet in the same way he wants the government to mandate the "fairness" of broadcast content. I think Americans would prefer to see their "hard earned" tax dollars used in other ways.
As I have written many times before (see here and here), apart from the deleterious impact on new investment and innovation caused by implementing the pro-regulation policies advocated by the "talking broadband down" crowd, laws and regulations mandating "neutrality" and "fairness" in content carried raise very serious First Amendment issues in today's digital environment, whether we are talking about broadband Internet providers or other communications providers. More about the First Amendment interests at stake regarding the net neutrality issue and other current communications issues in the coming weeks.
Today's Communications Daily [subscription required] refers to a letter David Gross, U.S. Coordinator for International Communications and Information Policy, sent to the OCED pointing out the flaws in the OECD's broadband statistics. Gross explained that the OECD reports rely too heavily on counting mere subscriptions as a measure of broadband use (this ignores, for example, the fact that most colleges today have campus-wide WiFi access where thousands of students have high-speed access but no "subscriptions," that millions of others use thousands of WiFi hot spots throughout the country, and that many businesses obtain broadband through high-capacity special access facilities that are not even counted as "subscriptions" in the OECD reports). OECD also ignores important factors such as geographic diversity and population density differences that impact broadband penetration.
The plain fact of the matter is that the U.S. has more broadband subscribers--64 million as of June 2006--than any country in the world. And the most recent FCC report, encouragingly, showed that the largest increase in the number of broadband subscribers occurred in the wireless segment. From June 2005 to June 2006, the number of broadband wireless subscriptions increased exponentially from 380,000 to 11 million.
Rather than celebrating this good news, which is at least partly attributable to the FCC's deregulatory broadband policies under the leadership of FCC Chairmen Michael Powell and Kevin Martin, the "talking broadband down" crowd continues to relish trotting out the flawed OECD statistics to advance a pro-regulatory agenda. FCC Commissioner Michael Copps is a leader of this choir. A prominent member of the chorus is Ben Scott, policy director of the Free Press organization. Again, according to today's Communications Daily, Mr. Scott is quoted as telling a Senate Committee yesterday: "Roughly 10% of the households still do not have a wireless broadband provider. The market is not competitive. It remains a rigid duopoly at the residential level."
Recall that it was only a short while ago that the "talking broadband down" crowd claimed that most Americans had a choice of only one broadband provider. Now we have a "rigid" duopoly because 10% of American households do not have a wireless provider. This is silly. It is plain for all to see that the U.S. broadband marketplace is highly dynamic and increasingly competitive. Compared to most all other countries around the globe, it is hyper-dynamic and competitive.
In somewhat contradictory fashion, Mr. Scott goes on to say: "It's not that broadband isn't available to most Americans--we're just not buying it...We need more competitive, affordable services with attractive features to make it worth the family's hard earned dollars." What Mr. Scott is really saying is that the "attractive feature" he would like to see is for the government to mandate "neutrality" by regulating the Internet in the same way he wants the government to mandate the "fairness" of broadcast content. I think Americans would prefer to see their "hard earned" tax dollars used in other ways.
As I have written many times before (see here and here), apart from the deleterious impact on new investment and innovation caused by implementing the pro-regulation policies advocated by the "talking broadband down" crowd, laws and regulations mandating "neutrality" and "fairness" in content carried raise very serious First Amendment issues in today's digital environment, whether we are talking about broadband Internet providers or other communications providers. More about the First Amendment interests at stake regarding the net neutrality issue and other current communications issues in the coming weeks.
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