State Regulators Shouldn't Meddle with AT&T/T-Mobile Merger

A small handful of state public utility commissions (PUCs) have opened their own proceedings to review the AT&T/T-Mobile merger. This despite the fact that the U.S. Department of Justice and the FCC are conducting independent reviews of the proposed deal. While as a general matter, we contend that State Regulators Should Refrain from Reviewing Wireless Mergers, this month there have been some encouraging signs coming from some of the states in which PUC reviews have been opened.

First, as National Journal's TechDailyDose blog pointed out on July 5:

The Arizona Corporation Commission, the state agency that oversees telecom providers, approved AT&T's acquisition of T-Mobile USA, the nation's fourth biggest wireless provider, without a hearing and with a minimal condition requiring the firm to notify T-Mobile customers by mail of the deal.

Next, TRDaily reported on July 13 that the West Virginia Public Service Commission's (WVPSC) legal and technical staff issued a recommendation that the WVPSC approve the AT&T-T-Mobile merger. Among other things, the WVPSC staff's recommendation pointed to T-Mobile's lack of substantial in-state presence as a factor for its conclusion.

Most recently, on July 25 TRDaily reported that the Louisiana Public Service Commission (LAPSC) staff issued a Report and Recommendation that the LAPSC approve the AT&T/T-Mobile merger. The LAPSC Staff Report and Recommendation is noteworthy for its recognition of the need to avoid unnecessary and duplicative merger reviews that should instead be undertaken at the federal level:

Sprint's comments are largely focused on the impact the merger will have on a national level, even stating, 'the national market is the relevant geographic scope on which to evaluate the proposed acquisition.' Sprint's comments also [contain] several references to the FCC, the DOJ, to federal jurisdictional issues, and to the proceedings that are ongoing before those agencies. Yet Sprint would presumably have the LPSC review those same issues, through a protracted proceeding not contemplated 301.M [ the LAPSC's streamlined rules for reviewing and approving telecommunications service providers mergers and acquisitions]. Staff is confident the FCC and DOJ, with their expansive resources and expertise on these matters, will perform a thorough review of Sprint[']s concerns regarding the impact this acquisition may have on a national level.

Rather than focus the Commission's resources on an unnecessary duplicative review, the Staff recommends the Commission zero in on the requirements of Section 301.M…

California's PUC would do well to take this point into consideration. With ongoing, overlapping reviews of AT&T/-T-Mobile by DOJ and the FCC, the merger will most certainly be scrutinized.

Unfortunately, the California PUC's review of AT&T/T-Mobile has expanded into a series of hearings and public workshops, with interest groups calling for a series of conditions on the merger's approval. Whatever one's view about the competitive aspects of AT&T/T-Mobile and whether the merger should ultimately be approved, Multiple Government Regulatory Reviews Burden Telecom Mergers with Too Many Conditions.

DC Circuit Vacates [Net Neutrality] Rule

Did you hear about the D.C. Circuit's opinion last week vacating the Commission's major new rule?

Here are just a few key quotes from the decision:

"Here the Commission inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters."

"The petitioners also maintain, and we agree, the Commission relied upon insufficient empirical data…."

"As we have said before, this type of reasoning, which fails to view a cost at the margin, is illogical and, in an economic analysis, unacceptable."

"By ducking serious evaluation of the costs that could be imposed upon companies from use of the rule…."

As you are reading this, you could be forgiven for thinking that the D.C. Circuit has ruled, anticipatorily, on the FCC's net neutrality regulations (aka the "Open Internet" rules), which were voted on last December but which have not yet become effective. But, alas, you would be wrong, and my blog title with the bracket is meant, for now, as only a tease. Sorry.

The above quotes are taken from the D.C. Circuit's July 22 opinion in Business Roundtable v. Securities and Exchange Commission in which the court vacated the SEC's rule requiring public companies to provide shareholders with information about, and their ability to vote for, shareholder-nominated candidates for the board of directors. Obviously, the SEC is not the FCC. And the SEC's enabling statutes required, in the Business Roundtable case, the SEC to consider the rule's impact upon efficiency, competition, and capital formation.

Nevertheless, the court's analysis, which ultimately concludes the SEC's shareholder information rule is arbitrary and capricious under the Administrative Procedure Act's judicial review standard, is certainly relevant to considering review of the FCC's net neutrality mandates. Quoting from the Supreme Court's leading case, the D.C. Circuit explained: "We must assure ourselves the agency has 'examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including a rational connection between the facts found and the choices made.' Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)."

The court's critique of the SEC's reasoning, as illustrated by the quotes above, surely has some applicability to the FCC's reasoning – more properly, the deficiencies in its reasoning – regarding the net neutrality order. Without rehashing the FCC's order here, the agency's market failure and competition analysis is decidedly thin, based much more on possible hypothetical problems that could occur in the future rather than on evidence of market problems that have occurred.

And the costs imposed by the regulation were certainly downplayed or ignored as evidenced by the fact that the FCC had failed completely to analyze the regulatory costs pursuant to the Paperwork Reduction Act requirements. A reviewing court is not likely to be impressed by the fact that such consideration is now taking place – a half-year after the rule was voted on -- rather than before. The House Energy and Commerce Committee's Report, dated April 1, 2011, accompanying its resolution of disapproval of the FCC's net neutrality regulation contains an excellent analysis of the FCC's arbitrary reasoning.

In short, in broad outline, the FCC's failure of reasoned decision-making mirrors that of the SEC's regarding promulgation of the shareholder information regulation. My guess is that, like the D.C. Circuit in Business Roundtable, a court reviewing the FCC's net neutrality regulations will find the Commission, in the words of State Farm, failed to make a rational connection "between the facts found and the choices made."

And, finally, there is this to consider: There was no question whatever with respect the SEC rule as to the agency's jurisdiction to promulgate the rule. With regard to the net neutrality order, the FCC's jurisdiction to regulate the business practices of Internet service providers is, to put the matter charitably, by no means clear. Indeed, many think it is highly doubtful. As Free State Foundation advisory board member Daniel Lyons explained recently in this Perspectives piece, jurisdiction-stretching agency orders should not receive Chevron deference upon review.

I understand that the FCC's lawyers can go about distinguishing the court's opinion in Business Roundtable from review of the FCC's order adopting new net neutrality regulations. But, in my view, the D.C. Circuit's decision is another foreboding sign.

City Should Stick to the Law and Evidence When it Comes to Cellphones and Health

Recently in the news is the San Francisco Board of Supervisors' latest misguided attempts to impose health warning mandates on stores selling cellphones. This latest stab by the San Francisco Board comes in the wake of yet another published scientific study suggesting cellphones do not pose the kinds of dangers that certain San Francisco politicians persist in claiming they might.

Apparently, the San Francisco Board is seeking to amend the wireless warnings ordinance it adopted last year that required stores to post each phone' "specific absorption rate" or SAR – a measure of radiation absorbed by a user's body. This prompted an industry lawsuit against the city, since the federal government has broad authority over the electromagnetic spectrum and wireless and exclusive authority over wireless "entry" under. As the initial lawsuit complaint spells out plainly, federal government clearly occupies the field when it comes to radio frequency (RF) emissions and SARs, including a number of FCC regulations dealing specifically with SARs. CTIA later amended its lawsuit complaint to include a First Amendment challenge to the ordinance. So now the San Francisco Board is trying to get around the lack of scientific merit, federal preemption, and First Amendment problems by dropping the SARs warning and instead imposing some kind of generic warning about radiation.

Frankly, the San Francisco Board has little to no credibility when it comes to wireless handset technologies and medical health issues. Its ordinance and revision efforts are unwarranted, unwise, and a waste of time. The better approach is found in the American Legislative Exchange Council's Resolution Opposing State and Local Mandates Requiring Warning Labels on Wireless Devices and Packaging. The San Francisco Board should direct any concerns they have to the federal authorities that actually have jurisdiction over the matter.

Court Ruling Factors First Amendment into Video Regulation Review

In prior blog posts we have analyzed D.C. Circuit rulings that call into question the relevance and legitimacy of legacy video regulation in light of today's dynamic video market. Now comes Cablevision v. FCC (2011), a ruling issued in June by the D.C. Circuit. Directly at issue was whether the FCC had the delegated authority to adopt program access regulation "closing the terrestrial loophole." The D.C. Circuit upheld most of the particular regulation at issue on statutory grounds. But the real significance of Cablevision is the latest jurisprudential wrinkle it provides regarding the analytical basis for video regulation and the requirements the FCC must meet to justify such regulation under the First Amendment.

First, Cablevision v. FCC confirms a subtle shift in the D.C. Circuit's analytical basis for upholding video regulation in the face of First Amendment challenges. Early and mid-1990s video regulations were upheld by the U.S. Supreme Court in Turner v. FCC I (1994) and Turner v. FCC II (1997) against First Amendment free speech claims on the basis of a perceived "bottleneck" for cable video services. Such regulation was said to satisfy intermediate level scrutiny because it responded to concerns about so-called cable bottlenecks. But as the D.C. Circuit observed in Cablevision:

The video programming industry does indeed look very different today than it did when Congress passed the Cable Act in 1992…Although cable operators then controlled approximately 95% of the national market for video programming… by 2007 their share had decreased to 67%, and it has apparently continued dropping in the face of competition from DBS providers and, more recently, from telephone companies offering fiber optic services…In addition, the number of programming networks has increased dramatically while the percentage of networks vertically integrated with cable operators has declined.

Echoing a prior ruling, Cablevision v. FCC (2010), the D.C. Circuit ruling from last month characterizes the video market as "mixed," with some geographical areas experiencing higher levels of competition than others. Now one might question whether the D.C. Circuit's characterization of the video market as merely "mixed" provides an oversimplified understatement of the competitiveness of today's market. And such a characterization is perhaps less forceful than the D.C. Circuit's assertion in Comcast v. FCC (2009) that "the record is replete with evidence of ever increasing competition among video providers…Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992."

Those considerations aside, one should still recognize that by characterizing the video market as "mixed" in both cases the D.C. Circuit is effectively analyzing First Amendment challenges to legacy video regulation on a basis that differs from what the Supreme Court set out in Turner I and cases that followed.

This slight shift in the legal rationale for analyzing video regulation subject to First Amendment challenges makes it more likely that the Supreme Court will agree to revisit and perhaps reformulate its First Amendment jurisprudence regarding video regulation.

In such a future case the Supreme Court could, for instance, reexamine its precedents that give less speech protection to certain broadcast, cable, or other media than to print publications. On such an occasion, the Court could even address whether competition now present in the video market requires that legacy video regulation be subjected to strict scrutiny rather than to intermediate scrutiny – a possibility explored in prior writings by FSF scholars.

Second, Cablevision v. FCC is significant simply for taking First Amendment challenges to regulation of video market competitors seriously. The D.C. Circuit struck down the Commission's regulation that categorically treated as "unfair" all conduct involving terrestrially-delivered programming if similar conduct was designated "unfair" according to Communications Act Section 628(c)(2)'s provisions regarding satellite-delivered programming. In the court's words, the Commission "failed to justify its assumption that just because Congress treated certain acts involving satellite programming as unfair, the same acts are necessarily unfair in the context of terrestrial programming." At least when it comes to conduct in the video market not expressly prohibited by Congress, the court concluded that the Commission is required to consider and ultimately justify its prohibition of the types of conduct at issue. The D.C. Circuit's ruling pointed out that one of that the "substantially narrowed scope of [the Commission's] regulation…focusing on the effect of terrestrial withholding in individual cases…is one of the reasons why its [other] rules survive First Amendment scrutiny."

In other words, under the First Amendment the Commission cannot simply impose new video program regulations mirroring its old regulations without either statutory authorization or adequate analytical justification when using its ancillary powers. The ruling essentially requires that any FCC regulation of conduct in the video market involving programmers and multichannel video programming distributors (MVPDs) lacking express statutory authorization be justified by an analysis of the competitive aspects of the types of conduct at issue. And even where such justification exists, the First Amendment requires the Commission to provide a case-by-case process for inquiring into particular purposes or effects of conduct of particular video programmers and MVPDs such as cable operators and DBS providers.

The Communications Act, the Cable Act, and the Administrative Procedures Act, have long been recognized as providing statutory limitations on the FCC's power to adopt and enforce regulation of competitors in the video market. And the D.C. Circuit has given at least a slight nod to First Amendment considerations in recent cases. For instance, ruling by the D.C. Circuit in Comcast v. FCC (2009) offered First Amendment considerations for its remedial order vacating FCC regulation limiting video subscribership, though the Court invalidated the regulation on APA grounds.

But despite its upholding most of the FCC's expansion of video regulation, in this latest Cablevision ruling the D.C. Circuit took First Amendment claims head-on and made free speech considerations a matter of consequence to the validity of legacy video regulation. Without drastically reshaping First Amendment jurisprudence regarding video regulation, Cablevision suggests that First Amendment considerations will be taken more seriously in the times ahead, as they should be.

Engaging Regulatory Reform Efforts

The flurry of federal regulatory activity taking place in the last couple years has led to renewed attention to regulatory reform efforts to scale back the growing scope of government agency rules and ease the burdens of bureaucratic restrictions. In a newly-published article in Engage titled "Prospects for Regulatory Reform in 2011," Susan Dudley provides an excellent introductory and overview of current regulatory reform initiatives, with a special attention to legislative efforts in the 112th Congress. Dudley formerly served as Administrator for the Office of Information and Regulatory Affairs (OIRA) and currently serves as director of George Washington University's Regulatory Studies Center.

Dudley's Engage article begins with a useful background section, tracing regulatory reform implemented in the mid-1970s to mid-80s, as well as mid-90s reform proposals from the 104th Congress. Dudley focuses primarily on two categories of reforms for the 112th Congress to consider. The first category includes procedural reforms – that is, reforms to the processes by which regulations are adopted. The other category emphasized by Dudley includes decision criteria reforms – in other words, "improving upon the decisional criteria by which regulatory alternatives are evaluated." Both categories include a handful of different legislative approaches to regulatory reform that merit careful consideration by Congress.

And speaking of procedural regulatory reforms, FCC process reform, in particular, is a subject of continuing interest in policymaking circles this year. Free State Foundation recently posted the panel discussion transcript for its lunch seminar entitled "Regulatory Reform at the FCC: Why Not Now?" The panel followed a keynote address by Congressman Cliff Stearns, Chairman of the House Commerce Committee's Subcommittee on Oversight and Investigations. FSF President Randolph May moderated the event, and offered his own views in testimony at a June hearing on "Reforming FCC Process" before the House Commerce Committee's Subcommittee on Communications and Technology.

States Should Defer to DOJ on Antitrust Reviews of Interstate Wireless Mergers

Recent press reports point out that a handful of state attorneys general offices are now undertaking their own respective antitrust reviews of the proposed AT&T/T-Mobile merger. The reviews being conducted by Arizona, Florida, Hawaii, Illinois, Minnesota, NewYork, Pennsylvania, Texas and Washington come on top of the pending review of the merger by the U.S. Department of Justice's Antitrust Division and the review proceeding at the FCC.

Late last year I described the unnecessary and costly nature of duplicative state public utility commission (PUC) reviews of telecom mergers in a Perspectives paper titled "Multiple Government Regulatory Reviews Burden Telecom Mergers with Too Many Conditions." In that paper I pointed out that:

The existing multi-level, multi-agency telecommunications merger review process involves costly, time-consuming, redundant reviews by federal and state regulators. And it often results in merging carriers being subjected to numerous approval conditions that are unrelated to specific harms posed by such mergers.

Telecom mergers are already subject to review by two federal agencies – the FTC or DOJ as well as the FCC. Thus, I concluded that:

Once market power concerns are addressed by FTC-DOJ reviews, a law of diminishing returns kicks in with regard to subsequent FCC and state PUC merger reviews. There is little reason to expect seven, thirteen, or two-dozen government agencies will provide an optimum outcome that would not otherwise be reached through reviews conducted by one, two or even a few government agencies.

For similar reasons, I also made the case why state PUCs should stay out of the AT&T/T-Mobile merger in a blog post from June titled "State Regulators Should Refrain from Reviewing Wireless Mergers."

Most – if not all – of those same considerations that weigh against state PUCs creating a multi-state regulatory review pile-up on proposed interstate wireless mergers also weigh against state AGs creating their own multi-state review pile-up on such mergers. State antitrust analyses of intrastate conduct and effects based on consumer welfare criteria possibly might embody more disciplined approaches to interstate wireless mergers than state PUC "public interest" standards.

Nonetheless, state antitrust reviews pose similar concerns regarding expensive, repetitive, delay-prone processes that are most likely unnecessary in light of DOJ's antitrust review process.

In Wireless Report, FCC Sees Competition But Blinks

On June 27, the FCC released its annual Wireless Competition Report for 2011. The Report contains plenty of positive data points concerning wireless innovation, competition, and choice of service and price options. Numbers in the Report show that the wireless market is dynamic and highly competitive.

But the Commission passed up an opportunity to look more closely at the impact of intermodal competition and wireless substitution in the advanced telecommunications marketplace. And the Commission disregarded Congress's directive in Section 332(c)(1)(C) of the Communications Act that its Report "shall include…an analysis of whether or not there is effective competition" in the market."

This means another lost opportunity for the Commission to lay the groundwork for removing outdated, monopoly-era legacy wireline regulations. And the agency's agnosticism when it comes to effective competition gives it cover for a slate of proposals for imposing new wireless regulations that have been circulated in Congress and by the Commission itself.

Positive numbers from the Report include expanded coverage of the population by competing wireless voice providers. 99.2% of the population is served by two or more wireless voice providers, 97.2% is served by three or more providers, and 94.3% are served by four or more providers. Numbers for wireless broadband coverage and competition also stack up well. 91.9% of the population is served by two or more wireless broadband service providers, 81.7% is served by three or more providers, and 67.8% is served by four or more providers.

In addition, the Report indicates downward trends in prices. Average revenue per voice minute has continued to decline, lowering to $0.049 per minute in 2009, from $0.054 per minute in 2008 and $0.112 per minute in 2002. "[T]he unit price for text messages continued to fall in 2009" as "price per text yields dropped for the fifth consecutive year in 2009 to $0.009, a 25 percent decline from the previous year."

The Report also cites a survey indicating that a growing number of households – approximately 26.6% – are now wireless-only. And it also points out that "[a] Nielsen Company survey shows a similar rising trend in households who have 'cut the cord.'"

Given the Commission's goals for universal broadband access, shouldn't it be an agency imperative to gain better insight into the substitutability and competitive effects of wireless in delivering broadband services? Unfortunately, the Report's subsection on intermodal competition in voice services provides no analysis, no conclusions, nor any substantive insights regarding competitive pressures in the voice services market resulting from wireless and cross-platform competition.

Wireline telecommunications providers are in many instances still subject to legacy regulatory burdens premised on monopoly-era assumptions about competition in the market. On their face, those assumptions now appear unwarranted in light of competition from wireless and other competitors. But the lack of any such assessment in the Report suggests the Commission isn't much interested in better understanding what kind of competitive pressures wireless creates in the voice services market. The result is another missed opportunity for the Commission to reconsider the competitive underpinnings of its monopoly-era legacy regulation for wireline.

Repeating its approach to the 2010 Report, the Commission backs away from its statutory obligation to make an "effective competition" determination. In this year's Report the Commission again adopts an "effective competition" agnosticism regarding the wireless market, meaning no amount of positive data could satisfy the Commission that an effective competition finding is warranted. According to the Report,"[i]t would be overly simplistic to apply a binary conclusion or blanket label to this complex and multi-dimensional industry." But as Commissioner Robert McDowell responded in his concurring statement: "Nonetheless, this is what Congress asked us to do." The FCC effectively disregarded its statutory duty under Section 332(c)(1)(C).

For the FCC, the upshot to avoiding a finding of "effective competition" in the wireless market is that it renders new regulations more tenable. Over the last year, Congress and the Commission have proposals for wireless mandates includes: next generation wireless disclosure regulation, early-termination fee regulation, handset exclusivity regulation, bill shock regulation, text messaging and common short code regulation, smartphone app regulation and smartphone design regulation (such as FM chipset mandates). Not to mention the FCC's net neutrality regulation of wireless, adopted last year.

The Commission's agnosticism toward the existence of an "effectively competitive" wireless market gives such proposals for new wireless regulation a better chance of favorable reception in policymaking circles. And in the absence of any recognition of robust market competition, courts are more likely to subject regulation to less exacting scrutiny and to give greater deference to agency regulatory intervention.

Nonetheless, hard data in this year's Wireless Competition Report suggests a dynamic market that continues to be characterized by investment, innovation and competition. The numbers suggest that consumers of wireless voice and broadband services are benefitting from a wireless market that is effectively competitive. So while the Report's official glosses on that data might be pro-regulation, the data itself is strongly pro-consumer.

New Study Sheds Light on Costs of Heavy Wireless Taxation

On this blog we've pointed to the problems with the heavy wireless tax burden shouldered by consumers. Federal, state, and local taxes, fees, and surcharges hit wireless consumers hard. Now a recent study by Glenn Woroch, executive director of the Center for Research on Telecommunications Policy at the University of California Berkeley, describes in more detail the toll that wireless taxes are taking on consumers.

The study – "The 'Wireless Tax Premium' Harms American Consumers and Squanders the Potential of the Mobile Economy" – contains an estimate that "at current levels the American consumer forgoes over $15 billion in surplus annually compared to when cell phones receive the same tax treatment as other goods and services." Other insights from the study include a comparison of states' wireless taxes with states' "sin taxes" on cigarettes and beer. The study's comparison reveals the startling fact that wireless is overwhelmingly subject to higher state tax rates than beer.

As the study makes all too plain, our nation's tax treatment of wireless is at odds with our nation's policy for increasing wireless broadband deployment and affordable access. Federal, state, and local policymakers who have a say-so when it comes wireless taxation need to be reminded that while such taxes may generate government revenues, they also impose serious costs. Those costs include those imposed directly on consumers as well as those imposed indirect to the economy through dislocation and lost opportunities.

What Did The FCC Know And When?

Remember Senator Baker's famous Watergate question: "What did the President know, and when did he know it?"

Here's another: What did the FCC know about its broken intercarrier compensation regime, and when did it know it?

We don't need to find any missing 18 minutes of tape to know the answer to the above question. It's right in the FCC's official books.

Here's what the FCC said back in 2001:

“We believe it essential to re-evaluate these existing intercarrier compensation regimes in light of increasing competition and new technologies, such as the Internet and Internet-based services, and commercial mobile radio services (CMRS). We are particularly interested in identifying a unified approach to intercarrier compensation – one that would apply to interconnection arrangements between all types of carriers interconnecting with the local telephone network, and all types of traffic passing over the local telephone network.”

“The existing intercarrier compensation rules raise several pressing issues. First, and probably most important, are the opportunities for regulatory arbitrage created by the existing patchwork of intercarrier compensation rules.”

Of course, with the development of even more competition and the deployment of even newer technologies, the patchwork intercarrier compensation regime is even more problematically anachronistic today than it was a decade ago. In short, the regulatory arbitrage enabled by the current uneconomic regime creates significant inefficiencies in our telecom networks and increases consumer prices.

Well, ten years later it looks like the FCC may – in light of past inaction I emphasize "may" – shortly be prepared to finally address in a serious way intercarrier compensation reform, along with reform of the universal service subsidy regime.

That's why the Free State Foundation's seminar on Wednesday, July 13, at 8:45 AM, at the National Press Club is so important and timely. We have an excellent lineup of leading experts ready to explain what should be done, when, and how: Tom Tauke, Verizon; Jerry Ellig, Mercatus Center; James Assey, NCTA; Mike Romano, NTCA; and Deborah Taylor Tate, former FCC Commissioner and FSF Distinguished Adjunct Senior Fellow. Event details and RSVP information are in the sidebar to the right.

Now you know the answer to what the FCC knew and when it knew it. Please bring all your other USF/ICC questions and comments to the seminar to get all the skinny.

"Broadband for All" - Spreading the Freedom Flame

I just had a chance over the Independence Day weekend to read FCC Commissioner Robert McDowell’s address, “Broadband for All: A Networked and Prosperous Society” which was delivered on June 27 in Stockholm. I heartily commend it to you. And as you will shortly see, while the speech is an important read at any time, it was entirely fitting to read the address on July 4^th.

Commissioner McDowell’s address is about the power of the Internet and the power of governments, and what ought to be the proper relationship between the two. Not only in this country, but around the globe. Referring to the Internet, McDowell declares: “The power of competition, private sector leadership and regulatory liberalization has wrought a wonderful explosion of entrepreneurial brilliance, economic growth and political change.”

According to McDowell, “deregulation has produced not only increased transmission capacity but falling costs as well.” This is of more than mere academic interest. What it means is that:

“As the costs of computing power and transmission decrease, more people have the opportunity to own these transforming technologies and become more empowered than at any other time in human history. This transformation is not only vital to the advancement of human rights, but to the reduction of poverty as well. Each day, new studies prove that the proliferation of communications technologies spurs efficiencies and economic growth.”

No one really doubts the truth of the above statement. It is the relationship between the power of the Internet and the exercise of government power that engenders more controversy. For there are some who look to government to enable and promote “more” or “better” Internet speech, or to ensure “fairness” or “balance” for Internet users, or to enforce “non-discrimination” mandates. There are others, like Commissioner McDowell and myself, who believe that, at least absent a demonstrable market failure, governments should not interfere with, or exert control over, private sector Internet providers.

It is difficult to put the matter better than McDowell did in Stockholm:

“Perhaps the most important lesson here is that as we look across the globe, it is state interference with the ’Net that has been undermining liberty, not private sector mischief. Government control of the Internet is antithetical to the entire notion and architecture of the Internet itself. By definition, the Internet is decentralized and defies authoritarian top-down control – be that technical control, political control or both. In fact, its very structure is helping to shape governments in its image.”

We all know about governments around the world that have tried, sometimes successfully for a while, sometimes not, to control the Net in order to suppress the freedom of their people. No need for recitations here.

Without suggesting or even implying that the adoption last December of net neutrality regulations by the FCC places the United States in league with countries like China, Iran, and Syria that affirmatively interfere with their citizens’ use of the Internet, I do suggest that, in the absence of a market failure or evidence of abusive practices, it was wrong for the FCC to adopt new regulations arrogating to itself the power to control important aspects of private Internet providers’ offerings. And, as I have written often, I believe, as a matter of law, this assertion of government control by the FCC likely violates the First Amendment. Here is just one early piece, “Net Neutrality Mandates: Neutering the First Amendment in the Digital Age.”

It is not necessary to suggest – and I don’t – that the United States is in the league of the world’s offender nations to make the obvious counterpoint: America should lead the world, not follow, in promoting the fundamental idea that the power of the Internet should not be stifled by government power over the Internet. And, of course, the FCC’s role, and the way it sees itself, is important here.

On this score, Commissioner McDowell had this to say: “To me, the core mission of the FCC is to promote freedom, especially the freedom of speech – or the freedom to communicate.”

You don’t have to try to square Commissioner McDowell’s sentiment with a parsing of the Communications Act’s provisions to appreciate that the FCC ought to understand its role similarly in today’s digital environment. Indeed, the freedom-enabling power of the digital revolution ought to compel this free speech-centered view of the FCC mission – a view in which the FCC comes to appreciate that the First Amendment was adopted by the Founders to protect speech from abridgement by government, not to grant power to the government to protect us from private speech restraints.

Speaking of the Founders and revolutions brings me back to the Fourth of July just celebrated. In my Independence Day message, I focused on some of the natural law antecedents to Jefferson’s Declaration of Independence. In his famous 1821 letter to John Adams, nearly a half-century after the Declaration, Jefferson wrote: "The flames kindled on the 4 of July 1776, have spread over too much of the globe to be extinguished by the feeble engines of despotism; on the contrary, they will consume these engines and all who work them."

Commissioner McDowell’s Stockholm speech is in the worthy tradition of carrying forward the Founders’ freedom message to our Internet age, and spreading the flames kindled in 1776 around the globe.

Technorati Tags: FCC Commissioner Robert McDowell,Randolph May,Randolph J. May,Net Neutrality,Independence Day,Broadband Regulation,Internet Regulation

Independence Day 2011

On March 22, 1775, in his speech to Parliament "on conciliation with the colonies," Edmund Burke declared: "In this character of the Americans, a love of freedom is the predominating feature which marks and distinguishes the whole….This fierce spirit of liberty is stronger in the English colonies probably than in any other people of the earth."

"A love of freedom is the predominating feature..."

The following year – 1776 -- Thomas Jefferson wrote one of the most famous sentences in history: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness."

In penning that sentence in the Declaration of Independence, and referring to "unalienable Rights," Jefferson invoked the natural law tradition which was so influential among many of the Founders. In the face of the impending conflict with England, it is not surprising he would do so. Because in contrast to the natural law position stood the view that acts of Parliament – think the various statutes imposing taxes on the colonies --- were supreme and absolutely binding as law. If this absolutist view of legislative supremacy were accepted, then America's act of declaring independence in order to secure inalienable rights would be essentially lawless.

Of course, Jefferson and his revolutionary compatriots, steeped as they were in English law, had good authority for their natural law view – from Magna Carta, through Bracton and Sir Edward Coke, to Sir William Blackstone. In the decade preceding the Declaration of Independence, some 2500 copies of Blackstone's Commentaries on the Law were purchased in the American colonies. And in the Commentaries, published in four volumes from 1765-1769, Blackstone had said this: "For the principal aim of society is to protect individuals in their enjoyment of those absolute rights, which were vested in them by the immutable laws of nature; but which could not be preserved in peace without that mutual assistance and intercourse, which is gained by the institution of friendly and social communities."

Certainly, when Jefferson, in the Declaration, invoked "the Laws of Nature and of Nature's God" as a source for "unalienable Rights," he knew he was invoking the weight of Blackstone, Coke, and the Magna Carta.

Ever since the Constitution's ratification in 1789, there has been a lively debate concerning whether the Declaration of Independence's principles have any continuing legal import or significance, or whether the Constitution alone now constitutes our fundamental law. If you are getting ready to head off to a Fourth of July picnic or down to the local pool, you'll be relieved to know I am not going to begin a discourse on that subject here. (Maybe next year!)

For my present purposes, it is enough to know the Declaration of Independence is included at the head of the United States Code under the heading of "Organic Laws of the United States of America." And to know Abraham Lincoln's response to Stephen Douglas in 1858 in one of their famous debates: "If the Declaration is not the truth, let us get the statute book, in which we find it, and tear it out!"

No doubt in many ways this Fourth of July holiday carries somber overtones, with very serious challenges confronting America at home and abroad. It would be easy to be pessimistic about America's future. But I think – at least hope desperately -- it would be wrong. For whether or not the Declaration has any legal import is certainly not determinative concerning whether it continues to embody the most fundamental American principles which define us as a nation. And whether its spirit continues to animate us.

With Lincoln, I would say this: If the Declaration is not the truth, then tear it out of the statute book.

With Burke, I would say this: In this character of the Americans, a love of freedom is the predominating feature which marks and distinguishes the whole.

In a letter to Edward Rutledge in 1788, Jefferson wrote: "My confidence is that there will for a long time be virtue and good sense enough in our countrymen to correct abuses."

It is far too easy to take for granted what we have in this country, and too many of us do. But as long as Americans' love of freedom remains strong, I remain optimistic that, for a long time to come, there will be virtue and good sense enough to sustain our ability to maintain our liberties and our prosperity.

***

On that hopeful note, I wish you a most happy Independence Day. And, as always, all of us at the Free State Foundation are grateful for your support for the work we do promoting free market, limited government, and rule of law principles. Most of all, we are grateful for your friendship.

PS – Here are previous Independence Day blogs: 2010, 2009, 2008, and 2007.

Technorati Tags: Randolph J. May,Randolph May,Independence Day,July 4th,Thomas Jefferson,Edmund Burke

OECD: Formal Regulatory Regime Risks Undermining Growth

The paragraph below is excerpted from the just-released OECD document concerning principles for Internet policy-making.

It’s short and worth reading in its entirety. Note the OECD says the development of a formal regulatory regime “could risk undermining growth.”

Wouldn’t it be nice if the FCC regulators were as knowledgeable about the working of this “decentralised network of networks” – and as sensitive to the regulatory risks of straight-jacking this “continuously evolving interaction and independence among the Internet’s various technical components” – as are their European counterparts.

Time was when we were.

“Promote the open, distributed and interconnected nature of the Internet:

As a decentralised network of networks, the Internet has achieved global interconnection without the development of any international regulatory regime. The development of such a formal regulatory regime could risk undermining its growth. The Internet’s openness to new devices, applications and services has played an important role in its success in fostering innovation, creativity and economic growth. This openness stems from the continuously evolving interaction and independence among the Internet’s various technical components, enabling collaboration and innovation while continuing to operate independently from one another. This independence permits policy and regulatory changes in some components without requiring changes in others or impacting on innovation and collaboration. The Internet’s openness also stems from globally accepted, consensus driven technical standards that support global product markets and communications. The roles, openness, and competencies of the global multi-stakeholder institutions that govern standards for different layers of Internet components should be recognised and their contribution should be sought on the different technical elements of public policy objectives. Maintaining technology neutrality and appropriate quality for all Internet services is also important to ensure an open and dynamic Internet environment. Provision of open Internet access services is critical for the Internet economy.”

Technorati Tags: Broadband regulation,FCC,Net neutrality,Randolph May,Randolph J. May

In Congress, More Spectrum and Less Regulation is Key to 4G

"Regulate first, ask questions later" makes for a backwards policymaking process. Unfortunately, legislation recently introduced in Congress adopts that backwards approach. The Next Generation Wireless Disclosure Act (H.R. 2281) would require the FCC to adopt new regulation of next-generation wireless network service disclosure practices…and then later conduct a study on network disclosure practices and performance in market. The bill would also call on the FCC to assume new responsibilities as a 4G wireless reliability ratings board.

H.R. 2281 would saddle advanced services with special regulatory burdens without having established any kind of actual problem that warrants specific new rules. There already are laws against unfair and deceptive trade practices. And the regulation called for by H.R. 2281 ignores the check provided by competition in the wireless market. Such regulation risks hampering rapidly evolving wireless networks that are only now beginning to reach 4G service levels.

And compelling wireless carriers to publish government-set reliability standards even poses First Amendment questions, since less intrusive alternatives are available to the FCC to address network reliability concerns. H.R. 2281 looks to tie down wireless networks with added regulatory burdens when Congress should instead be looking to free up more spectrum for commercial wireless use so that carriers can meet surging consumer demands and give them next generation services at faster speeds and with greater reliability.

According to the text of H.R. 2281, within 180 days of passage the FCC must adopt new rules requiring wireless providers of 4G services to disclose: (1) "guaranteed minimum transmit and receive data rates for Internet protocol packets to and from on-network hosts for the service, expressed in megabits per second"; (2) "[t]he reliability rating of the service" based on a standard method to be established by the Commission "which shall be based on the data session start success percentage (network accessibility) and the data session completion success percentage (network retainability) of the service"; (3) service price; (4) any additional charges not included in the service price; (5) detailed descriptions of its "network management policies of the service with respect to Internet protocol packets to and from on-network hosts"; (6) [t]he "technology used to provide the service" – whether it be LTE, WiMax or HSPA+; and (7) a website address containing terms of service and coverage areas. Also, wireless carriers would have to provide these disclosures prominently and frequently "in all marketing materials for such service, at the point of sale of such service, and (in the case of postpaid advanced wireless mobile broadband service) in all bills for such service" (emphasis added).

Apparently, the regulation called for in H.R. 2281 is motivated by concerns that wireless carriers are puffing up their services' data speeds and reliability beyond actual performance capabilities. Strangely, however, the bill directs the Commission to conduct a study of 4G wireless practices and performance within one year after the bill's passage. That is, the FCC would be required to complete its study within 185 days after it adopts rules governing the subject it's supposed to study. Here, apart from all other problems, H.R. 2281 surely takes a wrong-headed approach.

Obviously, it makes far more sense to first conduct a study of the subject under consideration before imposing regulation on the subject. Such a study could help provide a factual basis for deciding whether there is an actual problem in the market and for deciding whether new regulation specific to 4G wireless service is the best way to address any such problem.

The bill's findings provide no data-driven basis for concluding that a unique, 4G wireless service disclosure problem exists. After all, wireless carriers are only in the early stages of rolling out 4G services. So H.R. 2281 instead requires specific new regulation on a speculative, prophylactic basis.

Given the competitiveness of the wireless market there is good reason to question whether specific new regulation regarding next generation wireless network disclosure and performance is necessary or wise. According to the FCC's 2011 Wireless Competition Report, "[t]he percentage of the population covered by at least two mobile providers using 3G or 4G network technologies increased from 73 percent in May 2008 to nearly 92 percent in July 2010. In addition, the percentage of the population covered by three or more providers increased from 51 percent in May 2008 to 82 percent in July 2010." And "approximately 68 percent of the population is covered by at least four mobile broadband providers." (We will have more to say about the Report in a subsequent blog post.) Even assuming the AT&T/T-Mobile merger goes through, consumers in most parts of the country would continue to have choice of service from three national carriers – the merged AT&T/T-Mobile, Verizon and Sprint – plus at least one other carrier. Fourth carrier candidates include multi-metro regional providers such as MetroPCS, Leap (Cricket), and US Cellular, recent entrants such as Clearwire also providing choices to consumers; and any of the more than one hundred small, facilities-based regional providers operating in single geographic areas.

With that kind of marketplace competition, carelessness and dishonesty becomes risky business for wireless carriers. Those carriers that routinely overstate their network performance capabilities risk losing customers to their competitors. And those carriers offering realistic assessments of their network capabilities and providing reliable service are well-positioned to lure customers away from those who might be careless or dishonest. Choice and churn provide a check and a balance on the conduct of wireless carriers that should not be ignored.

Most consumers are probably not likely to closely track the data speeds and other performance characteristics of their purchased services with exacting precision. But it's certainly within the ken of most consumers to recognize when their service drops calls, allows for mobile web-surfing at a snail's pace, or takes too long to download files to their handsets. Dissatisfied consumers can change wireless carriers. And even without new regulation specific to next-generation wireless services, in particularly egregious circumstances consumers can still consider legal action.

Wireless carriers are already subject to general prohibitions on unfair and deceptive trade practices. If a wireless carrier were to push particularly egregious kinds of deception in its sales pitches, most consumers in most states could file consumer protection lawsuits. Generally, state consumer protection laws require plaintiffs to prove an unfair or deceptive act or practice affecting the public interest occurred within a trade or business causing the plaintiff an injury to his or her business or property.

H.R. 2881's requirement that the FCC come up with a next generation wireless network reliability ratings system and require wireless carriers to display FCC conclusions also raises concerns. As an institutional matter, there is good reason to be skeptical about government establishing ratings system for advanced information networks in dynamic markets. Even the FCC concedes this general point in its 2011 Wireless Competition Report, stating that "[t]he measurement and representation of the overall quality of a provider's network…present a number of challenges…there is neither a single definition of network quality nor a definitive method to measure it." Engineering and operating wireless networks involves a complex series of constraints that must be balanced by competing carriers, depending on the particular kinds of wireless technologies and devices they are supporting as well as spectrum propagation characteristics, geography, backhaul facilities usage, and data traffic volumes. Wireless networks undergo constant upgrades as new cell towers and are constructed and co-located, as new backhaul arrangements are made, as new devices are put to market, and as data traffic trends on the network change.

Those complexities also pose challenges to any practical implementation of government-set standards. There is the risk of creating a snapshot, partial picture of network reliability based on data session start and completion success percentages that may reflect the FCC's own judgment about reliability but that others may think leaves out other considerations. There is also the likelihood of government standards becoming a drag on wireless carriers that are constantly upgrading their networks. Reliability testing disclosure burdens may not take stock of the latest wireless network performance upgrades, aspects of particular network management such as data prioritization, or geographical factors.

Regulation requiring wireless carriers publish government-set standards also amounts to a compelled speech mandate that raises constitutional issues. Advertising that is inherently or implicitly misleading receives no First Amendment protection. But where no deception is involved, commercial speech regulation is subject to the test set out by the Supreme Court in Central Hudson Gas & Electric Company v. Public Utilities Commission of California (1985). Under Central Hudson, non-misleading commercial speech regulation is permissible where: (1) it advances a substantial government interest; (2) it directly advances that interest; and (3) it is not more extensive than necessary to achieve that interest. The government bears the burden in justifying its regulation to alleviate a real problem in a material way, as opposed to regulation with only a vicarious connection to a merely conjectured problem. And the government must demonstrate that less burdensome alternatives will not suffice to directly advance the substantial interest at stake.

Finally, it is important to consider H.R. 2881's proposal for next-generation wireless regulation in the context of wireless' recent regulatory history. Since 1993, wireless has flourished thanks in significant part to light-touch regulatory treatment. The absence of government intrusion has fostered approximately $285 billion in capital expenditures over the last dozen years, declining revenues per minute for voice and text messaging, and rapid innovation in new smartphone devices, applications, and services. But next generation wireless disclosure regulation now joins the pipeline of regulatory proposals that includes: early-termination fee regulation, handset exclusivity regulation, bill shock regulation, text messaging and common short code regulation, smartphone app regulation and smartphone manufacturing regulation (such as FM chipset mandates). Not to mention wireless network neutrality regulation that was adopted by the FCC in December.

Rather than risk harm to one of the most productive sectors of our economy with a regulatory pile-up, the Congress should instead focus its efforts to what will undoubtedly ensure faster and more reliable wireless service in the future: freeing up more spectrum. The best thing that Congress can do to ensure high speeds and reliability for wireless broadband is to promptly enact legislation giving the FCC authority to identify and auction additional spectrum for commercial use.

Right now, more spectrum, not more regulation, will benefit wireless consumers the most.

The FCC's "Future of the Media" Report: More Madisonian Than Madison Avenue

When the FCC's "Future of the Media" project was announced, I expressed skepticism concerning the need for the FCC to embark on a wide-ranging study of the media. And I expressed concern that the study -- and what I supposed might be proposed recommendations for new regulations and government subsidies – would have serious First Amendment implications that would be minimized. Here is a snippet from what I wrote in an April 2010 blog a few weeks after the project's launch:

"You might think that in an age of media abundance the justification for government support of, and involvement with, the media would be reduced, not heightened. Certainly, this view would be more consistent with my understanding of First Amendment sensitivities. But, rather perversely, media abundance is viewed by some as a rationale justifying more government support and direction of public media."

I was invited to testify at one of the public hearings on "Public and Other Noncommercial Media in the Digital Age," and my April 30, 2010 testimony is here.

The FCC has now released its 450+ page study, prepared under the leadership and direction of Steven Waldman, its principal author, under the title, "The Information Needs of Communities." When I learned that the report was going to be released under this more academic-like title, rather than the more grandiose "Future of the Media" moniker, I suspected that perhaps Madison Avenue-types were laying the groundwork to downplay recommendations for far-reaching regulatory and government policy changes.

With the caveat that I only have had an opportunity to review the Executive Summary, which itself is 25 pages, and that I and other FSF scholars may have more to say in the future, I am pleased to acknowledge that the report appears to be much more Madisonian that Madison Avenue. Although I certainly don't agree with all the report's recommendations, I am happy to concede that the report generally does not propose intrusive new media regulations or expanded government subsidies of "public media".

Here I only want to present two short excerpts that capture key elements of the general tenor of the report:

"Although each citizen will have a different view on which information is important—and who is failing at provid­ing it—Americans need to at least come together around one idea: that democracy requires, and citizens deserve, a healthy flow of useful information and a news and information system that holds powerful institutions accountable."

"Our basic conclusion: with the media landscape shifting as fast as it has been, some current regulations are out of sync with the information needs of communities and the fluid nature of modern local media markets. In crafting recommendations, this report started with the overriding premise that the First Amendment circumscribes the role government can play in improving local news. Beyond that, sound policy would recognize that government is simply not the main player in this drama."

I agree wholeheartedly with both statements. For our democracy to thrive – and I would say, survive – we need a healthy flow of information and news to hold powerful institutions, especially government at all levels, accountable. And as I emphasized in my testimony, the First Amendment circumscribes the role government can play.

At bottom, I still have doubts that such a mammoth government-funded effort was needed, when foundations, universities, and independent academics produce so much research on the subject matter of the report. Nevertheless, I want to commend Steve Waldman, the project leader, and his team, for the effort and dedication they brought to the work.

And I especially want to commend Mr. Waldman for what I came to see, during the study preparation process, as his open-mindedness, his genuine desire to seek out as much information as possible from diverse perspectives, and his sensitivity to the First Amendment concerns raised by government regulation or support of the media. Perhaps I should not have been surprised in this last regard. Mr. Waldman emphasized his appreciation for First Amendment sensitivities when he delivered a keynote last year at a Free State Foundation seminar.

And after I read Mr. Waldman's well-regarded book, "Founding Faith – How Our Founding Fathers Forged a Radical New Approach to Religious Liberty," an insightful study concerning the development of the First Amendment's religion clauses, I came away with the sense he possesses a real appreciation for the Founder's purposes in adopting the First Amendment's protections. In Federalist No. 48, James Madison famously stated: "It will not be denied that power is of an encroaching nature, and it ought to be effectively restrained from passing the limits assigned to it." If you read Mr. Waldman's chapters on Madison, you will understand what I mean when I say his "Information Needs" report is cast in a Madisonian frame.

Finally, I should add that FCC Chairman Julius Genachowski deserves credit for allowing Mr. Waldman the leeway to prepare the study the way he did, and to draw the conclusions he did. I am not privy to any "inside baseball" here, but it is no secret that Commissioner Michael Copps and outside pro-regulation groups wanted a report that recommended much more government regulation and subsidization of the media. Without knowing exactly what the Chairman's role was in the preparation of the final report and recommendations, it was released on his watch, and, in the respects I have mentioned, the effort redounds to his credit.

Technorati Tags: Steven Waldman,FCC,Randolph May,Randolph J. May,Media Regulation,FCC's Future of Media Report,Free State Founfation

Of Timeliness and the Talmud: The FCC's Perspective

On June 8, 2011, the FCC denied a petititon for reconsideration that was filed by the United Talmudical Academy on December 23, 2003. The Talmudical Academy's petition sought reconsideration of two FCC orders,  one issued on January 4, 2000, and the other on October 24, 2003. Both orders involved determinations concerning UTA's eligibility to receive certain universal service subsidies.

The FCC denied the reconsideration petition as untimely because it was not filed within 30 days of the public notice of the action sought to be reviewed as the FCC rules require. Fair enough.

But it does make you wonder why it took the FCC more than seven years to deny a reconsideration petition as untimely when all the agency had to do was calculate that the petition was not filed within the required 30 days. After all, counting the days did not present an issue requiring a lengthy discussion among Talmudic scholars.

Granted, the FCC's action -- inaction, really -- here may not be of great moment. But the fact that the Commission can deny a petition as untimely filed six or more years after the agency should have acted does not inspire confidence in the Commission's ability to handle more important matters.

And the fact that the FCC can do so without displaying any sense of irony makes you wonder whether the Commission really appreciates that it is an institution in need of reform.

I've suggested other reform measures recently, but here's another modest reform suggestion: If the Commission doesn't act on a reconsideration petition within 18 months, it will be deemed granted.

PS. I have a hard copy in hand but I can't find the order on the FCC's website. The agency's website is a whole other story -- one consistent with the theme of an agency that often looks to fix non-existent problems while not fixing real ones. Don't get me started.

The AT&T and T-Mobile Merger: Thinking Things Through - Part III

The AT&T-T-Mobile merger proposal has prompted opponents such as Free Press and others to mount a mass email campaign against the merger. As thousands of identical, or nearly identical, three or four sentence comments have flooded the FCC's electronic docket, discussion of the role these mass campaign web-generated comments should play in the FCC's deliberative process has increased.

Here's my comment on the FCC's consideration of mass comments.

It is a fact of digital-age life that such mass comments increasingly flood administrative agency dockets. To be sure, there are some downsides to this phenomenon, not least of which are the costs imposed on the agency in terms of personnel, data processing, and other resources required to handle the comment tsunami. Nevertheless, there is a value in enabling citizen participation and citizen input in government decisionmaking processes that cannot ignored. While letter-writing campaigns to influence agencies occurred before e-filing became commonplace (the FDA's rulemaking proposal in the 1990s to assert its authority over tobacco generated approximately 100,000 citizen postcards and letters), electronic filing obviously greatly facilitates such citizen input.

While the FCC's merger review proceeding is not technically a rulemaking, the FCC, for procedural purposes and to facilitate public participation, treats it essentially as an informal rulemaking proceeding under the Administrative Procedure Act. With respect to rulemaking proceedings, the APA states simply that the agency shall consider "the relevant matter presented." This directive generally governs the FCC's actions on merger applications as well. In other words, in reaching a decision, the agency can't just ignore relevant facts and arguments presented.

Of course, the directive to consider relevant matter doesn't tell us much at all about the weight to be accorded thousands of identical or nearly identical e-comments. As I mentioned at the outset, the pro-regulatory group, Free Press, is leading a campaign to generate mass comments opposing the merger in which it suggests sending this (or a similar) comment to the FCC:

"AT&T's takeover of T-Mobile would stifle choice and innovation in the market, harm, consumers, and lead to higher prices and fewer jobs nationwide. Don't let AT&T put our mobile future at risk. Please stand with me and reject such reckless consolidation of the mobile industry."

So, the FCC's docket now contains thousands of three sentence comments identical to this one. After you have read the very first one, the next 10,000, or the second 10,000, do not add any "relevant matter presented" at all.

Now, this is not to say that the FCC's decisional process should totally ignore the fact that thousands of identical comments have been submitted. Even taking into account the increasing ease with which Free Press and others can generate mass comments through web-based campaigns, the sheer number of such comments may indicate to the Commission that the AT&T-T-Mobile proposal has generated intense interest among the American public concerning the merger's potential impact and that, much more than in the run-of-the-mill proceeding, the agency should carefully consider such impacts.

But the FCC should take care that it not become, or allow itself to be viewed as becoming, an agency that makes decisions based on counting noses, or that gives undue weight to comment counts. Because if it does so, it will substantially diminish whatever credibility it possesses as an "expert" independent agency that renders decisions based on the facts and the law. Certainly, the agency would destroy any notion that its decisions are "data-driven," as FCC Chairman Julius Genachowski is fond of proclaiming. If you take another look at the mass comment generated by Free Press reproduced above, you will see that it contains no data at all.

Of course, the aversion to mere nose-counting is not a one-way street. For example, AT&T has made a point of highlighting the number of mayors and governors that have submitted comments supporting the merger. Standing alone, the sheer number of these public officials submitting comments shouldn't be outcome-determinative either. But to the extent that individually-drafted submissions by public officials, such as this letter from Arkansas Governor Mike Beebe, contain information concerning present or projected wireless coverage, local businesses, schools, and other institutions that will be affected by increased or faster wireless service, investments made by infrastructure providers in the local area, and the like, they ought to be given considerably more weight than the three-sentence mass comments. Certainly, there is a degree of political accountability that arises when public officials express views on issues that lend credence to the substance of their positions.

In the end, neither the sheer number of mass-produced comments, nor the number of filings of mayors and governors, ought to be as important to the FCC's decision concerning the merger as its fact-based analysis of the wireless marketplace and the public benefits that the merger may be expected to produce. While Free Press and others should not be precluded from generating mass comments, if that is their wish, it is incontrovertible that the FCC's competitive and public benefit analysis is not going to be aided much by such comments.

As readers of this space know, I have been very critical for many years of the FCC's merger review process for reasons I think are entirely valid. A recap with links to several more pieces is here. And I remain critical of this Commission's pronounced pro-regulatory proclivities and general disposition to downplay marketplace competition and dynamism. Be that as it may, it does not seem too much to ask, as the merger review process moves forward, that the Commission separate the wheat from the chaff when it considers comments.

Technorati Tags: AT&T and T-Mobile merger,FCC merger review process,FCC,rulemaking comments,Randolph J. May,Randolph May

State Regulators Should Refrain from Reviewing Wireless Mergers

The U.S. Department of Justice and the FCC are undertaking their respective reviews of the AT&T/T-Mobile merger. But Sprint is urging state regulators to conduct their own merger review proceedings. For instance, Sprint urged the West Virginia Public Services Commission to review the merger. Meanwhile, the Louisiana Public Service Commission has sought public comment on the AT&T/T-Mobile merger, but not opened an actual investigation. And the California Public Utility Commission has opened an inquiry concerning the proposed merger.

State regulatory reviews of wireless mergers raise policy concerns about needless and harmful duplication of review efforts. Like other telecom mergers, AT&T/T-Mobile is already subject to separate reviews by two federal agencies. State reviews add yet another layer of multi-agency proceedings to the merger review process. The more agencies conducting reviews, the more likely such reviews are to delay the overall merger process and saddle merging parties with administrative and lost market opportunity costs. And federal law preempting states' authority over wireless rates and entry casts serious doubt about the legal authority of state regulators to place conditions on wireless mergers.

We have previously pointed out significant process concerns with state public utility commission (PUC) reviews of telecom mergers. Many times merging parties gain approval only after state PUCs obtain a series of so-called voluntary concessions that serve as conditions for approval. Those conditions, such as broadband investment and build-out imposed by some state PUCs in the CenturyTel-Embarq merger and in other mergers, may, by themselves, appear laudable. But they are frequently unrelated to any conceivable competitive harm posed by the mergers. For example, some state PUCs reviewing the Qwest-CenturyLink merger and the Frontier-Verizon transactions expressed concerns about the financial solvency of the respective parties following the proposed deals, but they nonetheless imposed conditions requiring the acquiring parties to spend even more money on broadband. Such conditions can also result in ordinary business decisions regarding service and pricing options being cemented into enforceable regulatory mandates that quickly become outdated, assuming they are not unwarranted at the time they are adopted.

State PUCs' leverage over merging parties makes it tempting for such agencies to impose ambitious regulatory-minded conditions on proposed mergers. This is especially so when outside interest groups and competitors press for conditions on the merging parties. In some instances, state PUCs impose conditions on merging parties that they otherwise lack the power to impose through rulemaking because of the narrow scope of their delegated authority. This only heightens concerns about regulatory power grabs posing as state merger reviews. But the individualized nature of mergers means that onerous conditions amount to company-specific regulation that may result in unequal and unfair treatment. Significant policy initiatives should not be the subject of state merger conditions, but where necessary should instead be implemented through industry-wide rulemaking proceedings.

There are additional reasons unique to wireless for keeping states out of the merger review process and avoiding a further agency review pile-up. Wireless merger reviews are incommensurate with states' limited scope of jurisdiction over wireless. And wireless carriers typically don't have carrier-of-last resort or other special public interest obligations that legacy wireline providers have by virtue of rate-of-return or price cap regulation.

All of these policy concerns raised by state regulatory reviews of wireless mergers apply with vigor when it comes to the AT&T/T-Mobile merger. The proposed deal is already subject to scrutiny by DOJ and the FCC. Reviews by those federal agencies will focus on any anticompetitive harm posed by AT&T/T-Mobile. To the extent that the merger raises any anticompetitive concerns in particular geographic markets, the federal agencies conducting market analyses can adopt targeted remedies. In recent telecom merger reviews such as AT&T/Centennial and Verizon/ALLTEL, for example, the FCC ordered partial divestitures of assets in specific geographic areas by merging parties as conditions for approval.

Importantly, serious legal questions about jurisdictional authority surround state regulatory reviews of wireless mergers. For starters, it is questionable whether states have any authority to review such mergers under federal law. The FCC is primarily entrusted with managing the spectrum resource. And in 1993, Congress amended the Communications Act, thereby providing in Section 332 that the federal government has exclusive authority over the "rates charged" for wireless services and "entry" of wireless carriers. States, however, were permitted to continue regulating only "other terms and conditions" of wireless services.

It is reasonable to regard any state regulatory approval for mergers of wireless carriers as a regulation of wireless entry. But if that's the case then states are categorically preempted from subjecting mergers of wireless carriers to regulatory approval.

But even assuming federal law jurisdiction over wireless entry does not categorically preempt state regulatory approval requirements for wireless mergers, one could still reasonably conclude that federal law prohibits states from requiring wireless carriers to receive PUC approval under certain circumstances.

A strong case can be made that federal law restricts state merger reviews of wireless carriers in at least some important respects. For instance, if a state's PUC's review becomes especially prolonged and demands made by the state agency become particularly onerous, such a review could effectively serve as a barrier to market entry for merging wireless carriers within the contemplation of Section 332's preemption provision. Also, federal preemption of wireless rates would most likely mean that no state PUC could make wholesale or retail or other rate-related terms a condition for its approval of a wireless merger.

To be sure, there is a dearth of case law authority concerning state merger approval of wireless carriers. But that is hardly surprising given the similar dearth of cases regarding the merger review authority of the FCC. Merging parties essentially give up any grounds for challenging onerous conditions on the approval of their respective deals because they are said to be voluntarily agreeing to them. Moreover, merging parties who have already spent vast sums of money and time in moving their proposed mergers along the process want to close the deal. Moving administrative disputes into litigation incurs even more costs, delays and uncertainties that merging parties cannot afford in today's competitive landscape.

One shouldn't expect state PUCs to go out of their way to suggest they lack regulatory authority to subject wireless mergers to conditions. But given their limited authority over wireless, they should be expected to realize they are not typically in the best position to review wireless mergers. In fact, the West Virginia Commission provides an example of state regulators sensibly deciding to avoid entangling themselves in mergers that are already subject to review by federal agencies. On prior occasions, West Virginia regulators declined to review mergers involving voice carriers such as Bell Atlantic/GTE, SBC/AT&T and Verizon/MCI, citing ongoing federal reviews. And when it comes to AT&T/T-Mobile, the PUCs in West Virginia and elsewhere should follow the hands-off course once again.

Whatever one's opinion about the merits of the AT&T/T-Mobile merger, those merits should be addressed at the federal level. No wireless merger should be bogged down with the unnecessary costs and delays resulting from duplicative state merger reviews that, in any event, may be in conflict with federal law. Hopefully, West Virginia and other states will show a lot of restraint when it comes to wireless mergers such as AT&T/T-Mobile and defer to the DOJ and FCC merger reviews already underway.