DC Circuit: Vindicating Video Competition

In a sensible and straightforward ruling, the U.S. Court of Appeals for the District of Columbia Circuit struck down the Federal Communication Commission's (FCC) regulations limiting the market share of any single cable operator to 30% of all subscribers. In an opinion by Judge Douglas Ginsburg, the D.C. Circuit panel held that the FCC’s 30% limit is "arbitrary and capricious." The FCC's "open field" analysis supporting the 30% limit, ruled the D.C. Circuit, was contradicted by "overwhelming evidence" concerning "the dynamic nature of the communications marketplace" and by "the entry of new competitors at both the programming and distribution levels." The D.C. Circuit's ruling in Comcast v. FCC was significant for a few reasons.

First, the D.C. Circuit expressly recognized the increasingly competitive and dynamic marketplace for video:

First, the record is replete with evidence of ever increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992. Second, over the same period there has been a dramatic increase both in the number of cable networks and in the programming available to subscribers.

Judge Ginsburg went on to write that "[t]here can be no doubt that consumers are now able to receive far more channels than they could in 1999, let alone in 1992."

Second, the D.C. Circuit shredded the FCC's proffered reasons for disregarding direct broadcast satellite (DBS) competition with cable service. The D.C. Circuit held that the supposed cost-prohibitive barrier to switching from cable to DBS was belied by evidence that almost half of all DBS customers previously subscribed to cable. It also rejected the FCC's claims that DBS competition was not significant because cable operators typically offer triple-play packages that bundle phone and Internet access with cable video. As the D.C. Circuit observed, DBS providers have partnerships with phone companies to offer bundled services. Moreover, the D.C. Circuit dismissed as non-empirical conjecture the FCC's assertions that cable consumers will not switch to competitors because they can't know the quality of competitor’s programming before they consume it. Finally, the D.C. Circuit similarly dismissed the FCC’s claim that the 30% subscriber limit is needed to help upstart networks secure financing. DBS companies already serve more than 30% of the video provider market.

Third, the FCC demonstrated a willingness to discipline a defiant agency. The D.C. Circuit struck down an earlier version of the FCC's 30% subscriber cap on cable providers, and ordered the FCC to consider DBS competition in reformulating its rules. But the FCC refused to do this, essentially dismissing DBS competition as insignificant (as recounted above) and insisting that assessment of DBS competition is difficult. Wrote Judge Ginsburg, "That a problem is difficult may indicate a need to make some simplifying assumptions…but it does not justify ignoring altogether a variable so clearly relevant and likely to affect the calculation of a subscriber limit—not to mention one the court had directed the agency to consider." In reaching an appropriate remedy, Judge Ginsburg had sharp words for the FCC, writing that "[t]he Commission's dereliction in this case is particularly egregious," that it "failed to heed our direction," and that "[i]t is apparent that the Commission either cannot or will not fully incorporate the competitive impact of DBS and fiber optic companies into its open field model." The D.C. Circuit vacated the FCC's order, thereby eliminating the 30% subscriber limit.

Incidentally, the D.C. Circuit reiterated that First Amendment protections apply in the context of video service and media regulations. For Judge Ginsburg and concurring Judge Brett Kavanaugh, the First Amendment burdens imposed by the subscriber limits were a factor supporting the vacating of the FCC's order. (Senior Judge Raymond Randolph maintained that the Administrative Procedures Act requires courts to vacate all unlawful administrative rules or orders without any multi-factor analysis.) The recognition of First Amendment protection for cable providers doesn't break any new jurisprudential ground, as that must likely fall to the U.S. Supreme Court. But the principled application of the First Amendment to media outlets is significant, not a mere afterthought.

Stimulus Strings Tied to Uncertainties

Recent news and commentary have highlighted large incumbent broadband providers' apparent disinterest in federal stimulus dollars. But it's hardly surprising that large incumbents would forego federal broadband grants. Given current and projected private investment in broadband infrastructure, why would anyone expect large broadband providers to suddenly subject themselves to the administrative and legal uncertainties that come with federal stimulus dollars? And why would they want to invite media and public criticisms that would certainly follow from taking taxpayer dollars? One can't read the minds of broadband provider execs, and any number of factors could be playing into their decisionmaking. However, regulatory uncertainties surrounding the broadband grant program and public anti-stimulus sentiment are likely to be contributing factors to the major broadband providers' pass on federal dollars.

The incumbent providers are making broadband investments with their own money and based on their own best judgments about how to provide service in the marketplace. As many stories point out, these broadband providers are investing annually billions of their own dollars into broadband infrastructure. It's estimated that broadband providers have invested over $200 billion in broadband deployment in recent years. This means they’re investing billions and billions more than the entire $7.2 billion federal stimulus appropriation.

Attached to federal stimulus dollars for broadband are statutory conditions governing network management that include 'nondiscrimination obligations.' Those statutory conditions have been interpreted expansively by the National Telecommunications and Information Administration (NTIA) and the Rural Utility Service (RUS) so that 'nondiscrimination obligations' go beyond the Federal Communications Commission's (FCC) 2005 'Broadband Policy Statement' by mandating a so-called 'non-discrimination condition' that prohibits the favoring of any lawful Internet applications or content over others. The literal letter of these new rules might be interpreted to prohibit innovative attempts by broadband providers to more efficiently manage their networks through flexible billing options that tie consumer prices to amount of usage. But the new rules could reach even further into network management practices. Through administrative action, the FCC could conclude that a particular broadband provider’s network management techniques do NOT fit with 'reasonable network management practices.' (The FCC is the primary venue for hearing complaints alleging non-compliance with the broadband grant program’s requirements.) Uncertainties arise from the fact that the FCC has little or no precedent in interpreting and applying its 'Broadband Policy Statement.' And the 'non-discrimination condition' contained in the NTIA/RUS rules gives the FCC an added new hook to rely on.

Through administrative interpretation and enforcement actions, agencies can routinely impose expansive new obligations on private parties without clear pre-existing rules. Arguably, the FCC did precisely this in its recent attempt to impose network management requirements on Comcast concerning peer-to-peer traffic. Without any official rulemaking or any administrative adjudication of the facts, the FCC declared the 'voluntary principles' of its 'Broadband Policy Statement' to be enforceable regulations, and then immediately held Comcast to be in violation. The net result of all this is regulatory uncertainty piled upon regulatory uncertainty, compounded by more regulatory uncertainty. Such and atmosphere of uncertainty could hardly make participation in the broadband grants program more appealing to broadband providers.

Another contextual factor to keep in mind concerning the federal broadband stimulus is the media scrutiny and public outrage over the spending activities of major financial and auto execs whose companies were receiving federal bailouts. America is still in the grips of the Great Recession and a bailout backlash sentiment still exists. Surely, no company wants decidedly negative headlines each time its CEO takes a trip on a private jet that the press, public opinion, and political officials all view as being fueled by federal stimulus dollars. Banks and broadband are apples and oranges, but people recognize the distinction between government and private industry. When private competitors forego federal funds, any perks lavished on their execs are the shareholders' problem. But when private competitors do take federal funds, the shareholders' problem becomes reasonably viewed as the taxpayers' problem. I don't know for sure, of course, but it is certainly plausible that a broadband provider would take these kinds of concerns seriously when considering the broadband grants program. Accordingly, a large broadband provider could simply see its current and existing private investment in broadband deployment as the safer path.

NTIA and RUS acknowledge that the eligibility rules for the broadband grant program and its implementation are works in progress that will be adjusted as the process goes along. Both agencies have received some 2,200 broadband grant applications, with smaller private businesses or municipal broadband providers actively seeking federal dollars. But uncertainties surrounding the regulatory mandates accompanying implementation of the program and consideration of public opinion are two factors that hardly seem favorable to large, incumbent broadband provider buy-in.

Governor O'Malley's Budget Cuts

Yesterday Governor Martin O'Malley announced $454 million in budget cuts, including $17 million in savings resulting from 205 layoffs and the elimination of 159 vacant positions. You can read the outlines of the cuts here. To close the anticipated budget gap of $1.5 billion, there definitely will need to be more trimming of people and programs. Arguably, Governor O'Malley should have done more trimming earlier and even now.

Laying off workers and cutting services is never easy. People's lives are affected. But the reality is that Maryland's budget has gotten bloated, with excessive spending on too many programs and entitlements that might be nice if money grew on trees or if taxpayers were cash cows. But money doesn't and taxpayers aren't.

In a Washington Post news article on the day the cuts were announced, Patrick Moran, director of the American Federation of State, County and Municipal Employees in Maryland, is quoted to the effect that his union is "disappointed by the governor's decision to balance the budget on the backs of state workers and residents…Even in these tough times, it is essential that we remember our priorities in Maryland and that the people of this state come first." Very nice sentiments, indeed -- if you like platitudes.

What does it mean to say that "the people of this state" come first and the governor's proposing to balance the budget "on the backs of state workers and residents"? Isn't that all of us? Of course, cuts are going to affect state workers and residents – because the state government employs workers to provide services to residents, even including many residents who are not lawfully in the country. Does Mr. Moran have some cuts in mind for Maryland's budget that would affect only residents of Mars, or at least only those in other states? Or that would affect only government workers in states other than Maryland?

I seriously doubt it. The point is, rhetoric like Mr. Moran's is not very helpful – indeed, it's harmful -- because it implies no tough decisions need be made to trim the deficit. They do. The time for smoke and mirrors is rapidly drawing to a close, and the public will be best served by straight talk.

 

 

What Andy Kessler Doesn't Get

It is possible that Andy Kessler was a good hedge fund manager in his day. But his recent Wall Street Journal commentary ("Why AT&T Killed Google Voice,") reveals there is a lot he doesn't understand about communications policy and communications network economics. Apparently in a heat because Apple rejected Google's voice application for its iPhone, Mr. Kessler launches into a misguided attack on AT&T and other broadband providers. He's especially perturbed that wireless broadband service providers have entered into certain exclusive arrangements with handset device manufacturers, such as Apple. And he makes clear he'd prefer to pay less rather than more for his wireless services, or at least to be offered a pricing package designed to fit his own particular usage patterns.

A few basic points in response. Mr. Kessler says that "the trick in any communications and media business is to own a pipe between you and your customers so you can charge what you like." Andy, it's no trick. These communications pipes don't grow on trees. Over the last few years, service providers like AT&T, Verizon, and Comcast have invested over $200 billion in private capital building out wireline and wireless broadband networks with the latest technologies, including fiber optic lines and 3G and 4G wireless platforms. Curiously, Mr. Kessler – while complaining about the "pricing power" of the wireless providers – acknowledges that "Verizon Wireless, T-Mobile and others all joined AT&T in bidding huge amounts for wireless spectrum in FCC auctions, some $70-plus billion since the mid-1990s." He doesn't understand that implicit in his statement concerning AT&T, Verizon, T-Mobile, and others is an acknowledgement that competition already exists in the wireless market, albeit as a result of a huge amount of investment of private capital. Indeed, five facilities-based providers offer nationwide coverage.

Mr. Kessler calls the Google Voice application "the new competition." Andy, how wrong! What Google wants is to continue using the wireless networks of AT&T, Verizon and the others without having to pay a market price for doing so, regardless of the costs incurred in creating and operating the networks. (For years it has employed the same "ride the back of others on the cheap" strategy with respect to broadband wireline communications.) While Google made feints a few years ago designed to cause the FCC and others to believe it might actually bid at auction for spectrum and build its own network – in other words, become a real facilities-based competitor -- when the FCC adopted "open access" policies for that spectrum block, Google quickly dropped out of the bidding. It realized it was much cheaper to lobby the FCC than to build and operate a communications network.

Mr. Kessler's complaints about exclusivity arrangements between wireless providers and handset manufacturers demonstrate a surprising lack of appreciation that such arrangements provide the incentives that lead to the development of innovative devices such as the iPhone, or the new Palm Pre, available exclusively through Sprint. And his complaints about wireless prices are equally puzzling in that he doesn't relate prices in any way to the cost of providing service. Nor does he seem to know U.S. consumers enjoy the lowest wireless prices per minute and highest minutes of usage of any developed nation.

There are other basic errors in his piece, such as his complaint that, with respect to video, cable needs "a little competition." Doesn't he know that in most areas there is vigorous competition among the telephone companies and satellite and cable operators for video services?

The short of it is that Mr. Kessler shows little comprehension of the role that competitive markets and respect for property rights play in encouraging investment and innovation and, ultimately, enhancing consumer welfare. While most people rightly look at the U.S. wireless marketplace, largely deregulated since 1993, as a real success story, Andy seems to just want regulators to allow him to pay less money for any particularized service plan that he imagines he might fancy. And to make sure the government continues to allow Google to ride on the backs of others' network investment without bearing any burdens of such capital costs.

I'm not sure I'd want to invest in one of Andy's hedge funds, but I'd sure like to have a debate with him about sound communications policy.

Or at least have a talk at a backyard Beer Summit to explain what he doesn't get about network economics and today's digital marketplace environment.

Interesting, But Deeply, Deeply Flawed

The OECD's broadband rankings have been misused by those with an agenda to talk down the progress the U.S. has made during the last decade in making broadband available. Now over 90% of America's households have access to broadband, with a subscription rate of 60%. The agenda -- to drive policymakers towards exercising much more regulatory control over, and even government ownership of, Internet networks -- is not subtle or hidden.

At a June 5 Free State Foundation seminar, Ambassador David Gross, State Department's immediate past U.S. Coordinator for Communications and Information Policy, stated: "Almost everyone agrees that the OECD's broadband statistics are useful and certainly interesting. However, virtually everyone agrees that they are deeply, deeply flawed." And, true to his title, Ambassador Gross was probably speaking diplomatically. The transcript is here.

Now comes the OECD with a new report that purports to show that the prices paid by U.S. consumers for wireless services are higher than those paid by consumers in many OECD countries. Perhaps the report is interesting, but it also looks, like the broadband reports, to be "deeply, deeply flawed."

The fundamental problem is that the OECD assumes, for purposes of determining price values, hypothetical usage packages that do not reflect the reality of the extent to which U.S. consumers use their mobile devices each month. In short, the calling profile of the average U.S. consumer is nearly three times as much as the calling profile for the assumed "high use" OECD package and six times as much as the "medium" use package.

A report released in May 2009 by CTIA, the wireless industry trade association, indicates that Merrill Lynch's research shows the price per minute of service in the U.S. is the lowest of the 26 OECD countries and U.S. consumers have the highest minutes of use per month of the 26 OECD countries.

You can review both the OECD and CTIA reports, and you should do so. Aside from the pricing data, the CTIA report contains much data, fully consistent with other sources and not contested, which demonstrate the competitiveness of the U.S. wireless industry, and, concomitantly, the extent to which such competitiveness has led to a wide array of choices in applications and equipment for consumers.

Presumably, it is good that Americans, on average, use their wireless devices much more, on average, than do their counterparts in OECD countries. U.S. consumers must perceive value in doing so.

Before any policymakers begin to use the new OECD report as a pretext for regulating the highly successful U.S. wireless industry, they should understand, to borrow from Ambassador Gross, that the OECD report may be interesting, but "deeply, deeply flawed."

Riding the Back of the Internet Public Utility Tiger

There is a remarkable interview with Robert McChesney, a founder of the Free Press organization, in the current edition of a publication called "The Bullet." The Bullet is published by the Socialist Project. The interview with McChesney, a long-time guru to those advocating more government control and regulation of the media, may be found here on the Socialist Project's website.

To appreciate – or I should say understand – the radical vision that undergirds Robert McChesney's views concerning media policy, you should read the entire interview. The extreme nature of his anti-capitalistic views ought to be at home in only a few places in the world, say, in Hugo Chavez's Venezuela, Castro's Cuba, or perhaps Putin's Russia.

Here I only want to focus attention on what McChesney has to say about network neutrality. Again, read the entire interview, but this is a key statement:

"The battle for network neutrality is to prevent the Internet from being privatized by telephone and cable companies. Privatization would give them control over the Internet, would allow these firms to privilege some information flows over others. We want to keep the Internet open. What we want to have in the U.S. and in every society is an Internet that is not private property, but a public utility. We want an Internet where you don't have to have a password and that you don't pay a penny to use. It is your right to use the Internet."

I understand that there are several definitions that one might put forward for "net neutrality," and that the fact that this is so has caused some to suggest, including those broadband providers that would be subject to net neutrality mandates, that net neutrality might be a relatively benign concept. Well sure, it all depends on the definition. But it would be a big mistake to ignore what a founder of Free Press says he wants net neutrality to mean – "an Internet that is not private property, but a public utility" and one in which "you don't pay a penny to use."

I have explained over and over again for many years that, for most of its proponents, net neutrality means regulation of the Internet as a common carrier or traditional public utility. In the FCC's broadband policy proceeding and other venues, Free Press acknowledges that this is its position. See my recent pieces here and here, and my reply comments in the FCC's broadband proceeding.

Professor McChesney also says this in the Socialist Project interview:

"[W]e have had much success around the net neutrality struggle. I expect within the next twelve months, we will have a formal law passed by U.S. Congress, signed by President Obama, and backed up by orders from the Federal Communications Commission (FCC). Network neutrality is well on its way to becoming the new law of the land."

It may be that Professor McChesney's vision of a government takeover and control of the Internet, running it as a public utility, will come to pass. If it does, this takeover will occur in the form of net neutrality mandates that, initially, may seem to some as benign as the net neutrality label itself. But the ultimate harm to consumers caused by diminished private sector investment and discouraged innovation will be substantial.

Finally, the risk to free speech posed by government policing Internet "neutrality" and "non-discrimination" regulations should be cause for concern to all those who appreciate that the First Amendment's free speech values are not promoted by government control of the means of speech. I sounded an early warning about the threat to the First Amendment posed by net neutrality mandates in this September 2006 Broadcasting & Cable commentary entitled "Net Neutrality and Free Speech," and at greater length in this 2007 law review article entitled "Net Neutrality Mandates: Neutering the First Amendment in the Digital Age."

There is an old Chinese proverb, one of President John F. Kennedy's favorites, that goes like this: "Those who ride the back of a tiger may find themselves inside."

There will be a tremendous push at the FCC and in Congress during the next year to implement net neutrality mandates and the Robert McChesney/Free Press vision of the Internet as a public utility. Those who underestimate the push – or who suppose they might be able to work out the "right type" or "a manageable type" of net neutrality mandates -- are riding the back of a tiger. And I think I know where they are likely, ultimately, to be found.

Increasing Broadband Adoption

This piece by FSF Distinguished Adjunct Senior Fellow Deborah Tate is very useful in showing how the FCC can quickly implement targeted measures that should increase broadband adoption without jeopardizing the overall effort to reform the bloated and ineffcient USF regime. That USF reform effort is still desparately needed.

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New Potential for Forbearance at FCC

A noteworthy item on the FCC forbearance front is Qwest's recently-filed forbearance petition requesting regulatory relief for certain services it provides in the Phoenix-Mesa-Scottsdale Metropolitan Statistical Area (MSA). It seeks relief from unbundling obligations, dominant carrier requirements, price cap regulations, certain Computer III requirements, and some other rules. Qwest's new forbearance petition is its second petition seeking forbearance relief from these regulations for the greater Phoenix MSA. This time around Qwest maintains that it "provides 'an even stronger case for forbearance for the Phoenix MSA.'" How the FCC handles this new forbearance petition will be interesting for a couple of reasons.

First, Qwest's new forbearance petition for the Phoenix MSA will be considered by the FCC under part of its new procedures for forbearance petitions. How the FCC's new procedures might affect the outcome is uncertain. When considering Qwest’s prior forbearance petition, the FCC rejected calls to adopt new forbearance procedures. In a display of administrative discipline, the FCC insisted it would only consider adopting new procedures in its rulemaking proceeding.

Qwest's new forbearance petition must satisfy the formal burden of proof that the FCC has now erected. And Qwest is bound by the FCC's new procedural rules limiting petition withdrawal. Since Qwest's new forbearance petition was filed before the FCC issued its new forbearance procedures, however, the FCC itself suggests that Qwest's new petition won’t be obligated to meet the FCC's new "complete as filed" requirements.

Second, and more significantly, the FCC will have to take potential marketplace competition in the MSA seriously in its analysis under the Section 10 forbearance provision of the Telecom Act of 1996. (Or the FCC will at least be required to explain why potential competition should no longer be relevant to its own forbearance analysis.) This should weigh in Qwest’s favor for its new forbearance petition, particularly because the FCC failed to take potential marketplace competition seriously when it denied Qwest’s prior forbearance petition.

The importance of potential marketplace competition follows from the D.C. Circuit's recent ruling in Verizon v. FCC (also discussed in an earlier post). In that case, the Court held that the FCC had arbitrarily and capriciously departed from the FCC precedent in relying only upon existing market share in denying a Verizon forbearance petition. The Court remanded to the FCC for reconsideration of Verizon’s forbearance petition. For its part, the FCC will have to either consider potential marketplace competition or explain its departure from precedent.

Here's the connection between Verizon v. FCC and Qwest's prior forbearance petition: Qwest's prior forbearance petition was denied largely according to the same rationale that the FCC had used in wrongfully denying Verizon’s petition. Qwest's own court challenge of the FCC's denial of its prior forbearance petition was deferred pending the outcome of Verizon v. FCC.

Just this month, the FCC's General Counsel filed a motion with the D.C. Circuit requesting remand to reconsider Qwest's prior forbearance petition. The General Counsel acknowledged that "[t]he Qwest Forbearance Order involves the denial of petitions for forbearance of the same regulatory requirements" that were at issue in Verizon v. FCC, and it said that remand would enable the FCC "to issue a ruling on the Qwest petitions in light of the Court’s guidance provided by the Verizon decision."

So Qwest's new forbearance petition for the Phoenix MSA will be considered in light of the new arguments and information proffered by Qwest and under the FCC's new formal burden of proof. And both Qwest's new forbearance petition and its prior forbearance petition for Denver, Minneapolis-St. Paul, and Seattle MSAs should hopefully be analyzed by the FCC in light of both existing market share and potential marketplace competition.

In today's technologically dynamic and rapidly changing marketplace environment, it certainly doesn't make sense for the FCC to shut a blind eye to potential competition, which, after all, operates to constrain any market power that Qwest may retain.

Perhaps An Obvious Point

The D.C. Circuit rendered a little-noticed but nevertheless important decision regarding the regulation of incumbent telephone companies' special access broadband services on July 17 in Ad Hoc Telecommunications Users Committee v. FCC. In a unanimous opinion written by Judge Brett Kavanaugh, the Court affirmed an FCC order that, through forbearance, largely eliminated dominant carrier pricing regulation of certain of AT&T's – as well as two smaller telephone companies' – special access broadband services. As the Court noted, the FCC had not eliminated the basic common carrier requirements that the telcos' special access rates be reasonable and nondiscriminatory, but rather the dominant carrier regulation that required rate caps and tariff filing.

In the course of affirming the FCC's decision in a concise opinion, Judge Kavanaugh made several points well worthy of note.

First, he observed that "[b]roadband services do not correspond to the old telephone-cable regulatory divide" and that both Congress and the FCC have recognized that "regulation of broadband can pose different issues and challenges than regulation of local telephony."

Second, he pointed out that, "given the rapidly changing state of the overall broadband market and §706's direction that the FCC may look to and attempt to shape possible future developments in regulating broadband," the recent D.C. Circuit Earthlink decision had stated "that the law does not compel a 'particular mode of market analysis or level of geographic rigor' when the agency forbears from imposing certain requirements on broadband providers."

Third, he referred to the FCC's recognition that the often significant costs of replicating the incumbents' special access facilities could be justified, and were already being justified, by several competitive providers "by the sizable revenues that could be obtained."

Finally, and most importantly for present purposes, was this statement: "Perhaps an obvious point, but a decision that gives owners of telecommunications lines more control over access to those lines tends to increase the incentive for competitors to build competing lines."

I have been saying for a very long time that, in light of the current state of market development and technological advances, special access regulation has the perverse effect of inhibiting the development of further competition that those complaining about special access say they want. (For one example of my pieces from 2007, see here.) This point, although obvious to Judge Kavanaugh, is none too obvious to many.

Judge Kavanaugh's statement may not persuade those who reflexively insist we should regulate broadband in the same public utility-like manner local telephony was regulated in the last century. But the clarity with which he stated an "obvious point" – that the way to increase competition in a changing marketplace is generally not through more regulation -- may help persuade those with open minds.

A Supremely Sensible Ruling on Antitrust & Telecom Law

In the past few weeks there has been much discussion about the recently concluded term of the U.S. Supreme Court and the judge nominated to be the next justice on the high court. Most discussion about the Court's recent term has neglected discussion of its most consequential case for telecommunications and broadband policy: AT&T v. linkLine Communications. A few important implications of the linkLine case worthy of note come to mind.

One might say that the linkLine ruling was especially important because of what the Supreme Court didn't do: open the door to a potentially vast array of new antitrust claims against industries regulated by the FCC. In linkLine, the Court declined to recognize new antitrust legal liabilities for telecommunications companies based on interconnection mandates derived from telecommunications law and FCC regulation. Instead, the Court made clear that antitrust law—in this case, Section 2 of the Sherman Act—forms the basis for antitrust causes of action. In particular, the Court refused to recognize a Section 2 "price-squeeze" claim against AT&T where merger conditions approved by the FCC require AT&T to provide wholesale DSL transport to competitors at a price no greater than AT&T's own retail price for customers. Since AT&T's obligations did not arise under antitrust standards, the Court rejected any antitrust claims in the case.

What the Supreme Court did do in linkLine was re-emphasize that antitrust statutes create antitrust liability, not telecommunications statutes. Significantly, the Court's linkLine ruling reaffirms and extends Verizon Communications v. Law Office of Curtis V. Trinko (2004). In Trinko, the Court held that the Telecom Act of 1996 did not create antitrust claims that go beyond existing antitrust standards. More specifically, the Court in Trinko also held that a complaint alleging breach of an incumbent LEC's duty under the Telecom Act of 1996 Act to share its network with competitors does not state a claim under Section 2 of the Sherman Act. In linkLine, the Court concluded that the Trinko's rationale applied to and thereby precluded the "prize squeeze" claim at issue in the case.

By refusing to entertain a "price squeeze" claim where no duty-to-deal (at the wholesale level) or predatory pricing (at the retail level) exists, the Supreme Court implicitly reaffirmed its commitment to a consumer welfare model for antitrust. In an amicus curiae brief submitted to the Supreme Court in linkLine, several law and economics scholars offered some crucial insights:

It is not possible to advocate consumer welfare with an antitrust rule that punishes a firm for failing to ensure its competitors' profitability. If linkLine stands, the lower courts will have put antitrust at war with itself to a degree not witnessed since the years before the Court’s conscious decision, three decades or more ago, to infuse antitrust law with greater economic rigor so that it might better advance consumer welfare.

The alternative to consumer-welfare maximization is the view that antitrust law is simply one more tool of industrial policy, and thus its application may permissibly compromise consumer welfare to advance the welfare of competitors.

Consistent with the latter concern expressed by the law and economics scholars, in linkLine the Supreme Court's expressly recognized the severe limitations of antitrust as an ongoing regulatory device. Echoing Trinko, the Court reiterated that it is "ill suited 'to act as a central planners identifying proper price, quantity and other terms of dealing.'"

In sum, the Court's refusal to read antitrust into telecommunications law staves off a tidal wave of new telecommunications regulation by litigation. The Court's reaffirmation of a consumer welfare model for antitrust, and its recognition that antitrust is not regulatory hook and apparatus for the judicial branch to set public policy provide an important backdrop that the new Administration must keep in mind as it contemplates carrying out its antitrust enforcement responsibilities. Any kind of ramped up antitrust enforcement efforts could only succeed by meeting the antitrust standards developed over the past few decades—standards that embody a more rigorous economic analysis tied to the advancement of consumer welfare.

Maryland's 'Vulnerable Youth': How Good Is the News?

Marylanders have been hearing a lot more recently from their governor about StateStat, the O'Malley administration's performance measurement and accountability program. It would be encouraging if this was a response to my critique of the program, but alas it seems more geared to public relations than real accountability. But the videos about StateStat and the mapping tools are a nice touch -- nothing fancy – just Gov. Martin O'Malley talking to the camera.

Earlier in the month, O'Malley testified before Congress about the new maps tracking the use of stimulus money that I blogged about, and then he gave a keynote speech to an international conference in San Diego on GIS mapping programs.

Last week, O'Malley released a new video reporting on "efforts to protect Maryland's vulnerable youth." Juvenile Services and Human Resources, two of the most troubled departments in state government, were some of the first agencies to take part in the intensive StateStat review. This has produced some improvement in some numbers, and that's what O'Malley was touting.

But the nonprofit watchdogs who track youth services closely said there is less good news than meets the eye. "The governor's office picked statistics where there was some improvement," said Angela Conyers Johnese, juvenile justice director at Advocates for Children and Youth in Baltimore.

Advocates for Children and Youth organization is not very popular with the O'Malley staff or the governor himself, based on a rather snippy exchange he had with Johnese at a Board of Public Works meeting last month.

Johnese points out that last week's video and press release claimed that there were now 300 slots for evidenced-based services -- intensive family-centered therapy for lower-risk and less-violent young criminals. But the data on StateStat (p. 17) say it's only 270 slots.

Even worse, the governor makes no mention of recidivism, the number of youths who are sent back into the justice system within a year. "That rate has actually grown worse in the last year," now up to 57%, Johnese pointed out. Recidivism is so important that ACY makes it one of the 10 measures on its "Maryland Can Do Better for Children" Data Dashboard. In other words, more than half of juvenile criminals return to their equivalent of jail. You can find that on page 23 of the department's latest report on StateStat, which is, by the way, generally the same old 39 pages of numbing statistics, the same old data dump that I cited as hard to decipher both in my May "Perspectives from FSF Scholars" report and in a Sun op-ed.

And what about April's 12% rise in incidents of assaults on juvenile residents in state facilities, 203 incidents among 1,455 juveniles? On the other hand, assaults on staff did go down 12%, but use of "physical restraints" (318 in April) reached a high for the year. What do these numbers mean? Choose your page and pick your statistic, and you see progress for "vulnerable youth" or you see relapse.

For evidence-based services, the data that O'Malley cites "doesn't really tell a particularly meaningful picture because it combines services that treat distinct populations and does not address where the services are available," Matthew Joseph, ACY executive director, said in an e-mail. "When you compare massive increases in incarceration vs. small increases in community-based services, it shows the real priorities of the agency."

Some readers are likely saying to themselves: Sure, these ACY guys just want to spend more money to coddle these delinquents. Actually, said Johnese, ACY studies show that these intensive family-based and community based counseling services cost less and do a better job at keeping these youngsters out of they juvy jails where young thugs become old thugs. By slowing the revolving door of recidivism, the state could ultimately lower costs, ACY maintains.

On the other side of the coin, there's an increasing push for treating more violent juvenile criminals as adults, a legislative push reported on Wednesday by the Sun's Julie Bykowicz, who follows the juvenile justice system closely.

In the press release on StateStat – "the first in a series of StateStat Reports to make Maryland's state government more accountable, open, and transparent" – O'Malley says, "I hope the families of Maryland find these StateStat reports useful in holding their state government accountable."

As I said in the original report, StateStat would be a heck of a lot more useful if the governor and his staff posted their internal analyses and commentary on ALL the data in the department's numbers -- not just pick and choose what makes them look good. Then maybe I wouldn't have to go to lobbying groups like Advocates for Children and Youth to get the story behind the press release.

Wireless Regulation: "First, do no harm"

Senator Herb Kohl has written to the FCC and Department of Justice asking that these agencies "take action to enhance competition in [the wireless] market and to remove barriers to competition preventing the emergence of new competitors." In light of the fact that the wireless market already is quite competitive, and that government intervention in markets as competitive as wireless usually does more harm than good, this is a case where the old adage "leave well enough alone" surely applies. Or the even older one from Hippocrates: "First, do no harm!"

The second sentence in Senator Kohl's letter is somewhat of what lawyers call an admission against (his) interest: "Wireless telephones have become a vital means of communications for the vast majority of Americans, with over 270 million subscribers nationwide." Eight years ago the number of U.S. subscribers was 100 million. Since there is no government mandate that requires every American to possess a cell phone, the very rapid increase in the number of subscribers should be taken as a good indication that the wireless industry is delivering services and products that provide American consumers with a high degree of satisfaction.

It is important to have in mind that the subscribership growth and delivery of value has occurred in the largely deregulated wireless environment put in place by Congress in 1993.

A few facts and figures are relevant to appreciating the current situation. There is little dispute that the U.S. has the lowest price per minute of service and the highest minutes of use per month of the 26 OECD countries. Over thirty companies manufacture wireless devices for the U.S. market, and over 630 handsets are sold in the U.S. Already, U.S. consumers have access to over 40,000 wireless applications sold through multiple "apps stores." Another 20,000 apps are anticipated to be made available this year. The U.S. has a higher percentage of active mobile broadband users than any other country.

As for the competitive environment, the top four facilities-based providers currently have 86% of the market, and another four facilities-based providers each have over a million subscribers. More than 98% of Americans have a choice of three or more providers.

In reality, competition and consumer benefits have flourished hand-in-hand under the deregulatory regime mandated by Congress in 1993. Senator Kohl's references to the "concentrated nature" of the marketplace and to "prices increases" by the providers (focusing only on one little-used text messaging option) do not reflect this market reality.

This is not to say it is inappropriate for the Justice Department and the FCC to review competitive developments in the wireless marketplace and to consider acting if it were determined a market failure existed. But, as of now, there is plenty of evidence to the contrary. And, to the extent that the government is going to expend scarce resources examining the competitive status of the wireless marketplace, the DOJ's Antitrust Division, which traditionally engages in a more fact-based, rigorous economic analysis than the FCC, should be the primary agency that undertakes such task.

While ongoing competitive assessments based on rigorous fact-based marketplace analysis are appropriate, the problem with Senator Kohl's letter is that he urges the FCC to pursue regulatory policies that, in light of the evidence of existing competition, are more likely than not to stifle the development of further competition and continued investment and innovation. I have written about these problematic policies often in this space, so just a few additional words here should suffice.

With respect to special access, as I explained in a recent paper, "Assessing the FCC's Competition-Assessing Competence," the fact that there are many "competitors" that continue to resist providing their own customer and location data is telling. If they had no customers or market presence, they surely wouldn't expend so many resources resisting disclosure.

It is also telling that the non-incumbent facilities-based special access competitors, such as the cable operators and fiber-based providers such as FiberTower, are not complaining to the FCC about the incumbents' rates. This is because, if the FCC forces incumbent special access rate reductions, it will make it more difficult for these facilities-based special access providers to grow their business and become stronger competitors. Such forced rate reductions would be an example of how -- as markets are in the process of becoming effectively competitive or are already so -- policies urged on the FCC by "competitors" that are really more essentially resellers often are, in practical effect, anti-consumer. Certainly, it is not in anything but the short-term interests of consumers for the FCC to regulate "down" the incumbents' special access services in a way that deters further facilities-based investment and innovation by new entrants.

Finally, the problem with Senator Kohl's call for the FCC to "take action to prevent dominant cell phone providers from gaining exclusive access to the most in-demand cell phones" is that government intervention along the lines suggested surely would also deter investment and innovation to the detriment of consumers. If there were a single dominant wireless provider, then perhaps (although economists differ) the concerns about handset exclusivity would warrant regulatory concern. But, as explained above, more than 98% of Americans have a choice of three or more facilities-based providers. In most parts of the country there are at least four facilities-based providers.

In this competitive market environment, the ability of wireless providers and device manufacturers to enter freely into voluntary agreements to provide for a period of handset exclusivity provides financial incentives necessary for the parties to undertake the investment necessary to develop, say, an innovative I-Phone. And then if a device, say the I-Phone, actually succeeds in the marketplace, such success provides incentives for other device manufacturers and providers to enter into risk-sharing agreements with a period of exclusivity to develop innovative competitive models, say the Palm Pre. And so on and on. With the spate of innovative, feature-rich new handset devices coming to market in rapid succession, and with over 630 handset devices available, the market is working well without government intervention, all to the long-run benefit of consumers.

In conclusion, for various reasons, it is often difficult for legislators and regulators to resist calling for more regulation when urged on by particular interests or interest groups. That seems to be the case with the potpourri of regulatory interventions suggested by Senator Kohl. But, particularly with regard to competitive markets such as wireless, such regulatory interventions more often than not ultimately harm consumers, even though they might offer some protection to the special interests calling for marketplace intervention. In the face of such regulatory pleas, Hippocrates remains very good authority: "First, do no harm!"

(In calling Hippocrates into service here, I should acknowledge my debt to Dennis Weisman and Glen Robinson, whose chapter in the shortly forthcoming Free State Foundation book, "New Directions in Communications Policy," is titled: "Lessons for Modern Regulators from Hippocrates, Schumpeter and Kahn." As a teaser, I will say, as explained by Professors Weisman and Robinson, modern regulators have much to learn from all three great teachers. And, fortunately, Fred Kahn is still with us, and teaching still.)

Fancy Maps Show Maryland Bailout, Not Stimulus

Gov. Martin O'Malley was on Capitol Hill Wednesday bragging about how accountable and transparent was Maryland's spending of $3.9 billion in federal stimulus dollars over the next two years. But the highly sophisticated mapping tool he was touting makes clear that the money going to the state from the American Reinvestment and Recovery Act is as much a bailout for the state's fiscal hole as it is a stimulus for jobs.

"We are using our GIS mapping technology to track ARRA funds from the moment they enter the state's coffers through the time they flow through agencies and down to the local jurisdictions," O'Malley said in written testimony to the U.S. House Committee on Oversight and Government Reform. "Through our interactive website, we are giving those maps to the public, live, in real time."

The maps are an impressive feat of computer imaging developed by ERSI out of Redlands, Calif. The sophisticated computer user with a well-tuned mouse can find a lot of information about where and how the stimulus funds are being spent – including information about why. In fact, the maps have so much data and so many charts that pop up as you move the mouse across the screen that the task is a bit daunting.

ERSI and O'Malley have developed quite a partnership. The company developed the state's Greenprint map that shows the entire state and its land use, targeting state acquisition of open space. For this, O'Malley nominated the company for the Public-Private Partnership Award they got from the National Governors Association in February. On Monday, O'Malley will in turn accept ERSI's President's Award at its international Education User Conference in San Diego.

Indeed, the stimulus interactive map shows that one-mile stretch of New Hampshire Avenue near White Oak in Silver Spring that was the first-in-the-nation, shovel-ready road resurfacing project. After some degree of fiddling, I was even able to find the data box that showed the project cost $2.1 million and would generate an estimated 77 jobs. There are objections that these road resurfacing projects, which make up the bulk of the use of the highway funds, do not solve long-term transportation needs or reduce congestion. But they do put to work contractors that had faced a drastic cutback in state transportation spending.

Other categories are more troubling as "economic stimulus" goes. Only about one-sixth of the money ($610 million) is going to transportation projects. Two-thirds of Maryland's ARRA money is going to health and education, and the bulk of the $1.5 billion for health is going for expansion of Medicaid services as more of the unemployed qualify. This may be a worthy use of federal funds, but in a state coping with a shortage of primary care physicians, especially those accepting Medicaid, this is hardly economic stimulus. In fact, a GAO study released this week showed that most states are spending the bulk of their ARRA money this way.

Perhaps the most troubling of the pie charts that come and go as the mouse scans the screen is the one that shows education spending of $572 million. The largest single chunk goes not to poorer schools (23%) or to fund early childhood education for the disabled (18%) or even for technology (1%), but for "retirement equity" -- $137 million for teachers' pensions (24%). Admittedly, funding these pensions out of the state's own dollars would take away from other things, but coping with the shortfall in the state's retirement system seems hardly a stimulus for anyone but the fund managers who have underperformed.

O'Malley freely admitted to the committee that the stimulus dollars prevented "devastating cuts" in the state budget, including layoffs of 700 state employees. But the bells and whistles of the Reinvestment and Recovery mapping don't hide the fact that much of the money is not going out into the private-sector economy but to prop up state spending on things such as teachers' pensions.

Faulty Forbearance Rulings & Remedies

My prior blog post, "Giving Forbearance the Red Tape Treatment," contained some reflections on the Federal Communications Commission’s recently-adopted procedures governing the forbearance petitioning process. The FCC’s new procedures impose certain obligations on forbearance petitioners, such as requiring that petitions be filled out completely, that they explain what rules they are seeking relief from, and that they provide evidence that the requisite elements are satisfied. Certain consequences follow for petitioners who fail to satisfy the FCC’s new procedural rules. But what happens when the FCC fails to meet its own obligations in ruling on forbearance petition—say, by departing from its precedent without supplying a reasoned analysis for doing so? Section 10 of the Telecom Act of 1996 (47 U.S.C. § 160) requires that the FCC rule on forbearance petitions within one year’s time (plus 90 days, if the agency grants itself an extension). When the FCC errs in making forbearance rulings, should the consequences include a deadline to match Section 10's mandate?

A couple weeks ago, the U.S. Court of Appeals held that the FCC acted arbitrarily and capriciously in denying a Verizon forbearance petition from certain unbundling obligations under Section 251. FSF President Randolph May sums up the Verizon v. FCC case in his recent FSF Perspectives piece "Assessing the FCC’s Competition-Assessing Competence":

…the D.C. Circuit remanded a case to the FCC for the agency’s failure to explain why, in evaluating a Verizon forbearance request, it refused to consider the marketplace impact of potential competition. In a couple of forbearance cases, the FCC has acknowledged that potential competition should be considered in assessing whether continued regulation was necessary. In the Verizon case, the FCC has focused single-mindedly on present market share, ignoring the fact that potential entrants constrain whatever market power the existing providers may possess.

As a consequence of the FCC’s failure to explain its departure from its past precedent in rejecting the forbearance petition, the D.C. Circuit panel sent the case back to the FCC to either consider whether competition can be established by evidence other than existing ILEC market share or justify its disregard of precedent. The FCC was also ordered to consider on remand whether and how the existence of potential competition would affect its Section 10 forbearance analysis. But the D.C. Circuit panel refused to impose a requested deadline for timely agency response. In particular, the Court expressly declined to require the FCC to issue any new decision within 30 days or consider the forbearance petition granted.

Ruling for the D.C. Circuit panel, Chief Judge David Sentelle wrote that "the appropriate remedy in a case such as this is to remand for a reasoned explanation," and that "[t]here is now statutory requirement that Sec. 10(c)’s mandate of deeming a petition granted applies to the FCC’s receipt of a petition on remand from this Court." Chief Judge Sentelle also pointed to a 2004 Verizon v. FCC case in which another D.C. Circuit panel similarly held the FCC erred in rejecting a forbearance petition and declined to impose on the FCC a 30-day deadline for a response.

Both Chief Judge Sentelle’s reading of the statute and his description of the result in the 2004 case are entirely correct. Yet, there’s still plenty of good reason to think that a future D.C. Circuit panel can and should properly attach a time deadline and "deemed granted" remedy to a remand order when the FCC improperly rejects a forbearance petition.

For starters, just as the statute doesn’t require that forbearance petitions rejected arbitrarily and capriciously must be remanded with a mandatory deadline for agency response, neither does the statute forbid the D.C. Circuit from adopting such a remedy when reviewing a forbearance petition ruling. In fact, remand with an accompanying deadline is perfectly appropriate in light of Section 10’s shot clock and deemed granted clause.

To recap, under Section 10(c), if the FCC fails to respond to a forbearance petition within one year (or fifteen months pursuant to an extension), the petition "shall be deemed granted." In AT&T v. FCC (DC.Cir.2006), Judge David Tatel described Section 10 as "[c]ritical to Congress’s deregulation strategy." The shot clock and deemed granted clause ensures prompt FCC action on forbearance petitions. A deadline attached to a remand order on a forbearance petition ruling is entirely consistent with the Congressional policy of prompt agency action that underlies Section 10.

Moreover, given the deadline Congress has imposed on the FCC to act on forbearance petitions, it hardly makes sense to give the FCC an unlimited timeframe for it to act when it arbitrarily and capriciously acts on a forbearance petition. That’s like telling an agency to make its ruling promptly--unless it chooses to make a mess out of its ruling, in which case it can take all the time it needs. Instead, it is sensible for a remand order relating to an erroneously forbearance petition give the FCC a deadline of 30, 60, or 90 days to respond. A court could set the deadline based on factors such as (1) amount of time FCC had left on the shot clock when it made its erroneous ruling; (2) whether or not FCC invoked the 90 day extension, (3) whether the FCC is being asked to rule on the record established at the time of its erroneous ruling or on a record that is still open or contains new information; and (4) the amount of time the FCC has taken to respond to prior remands in forbearance petition matters. (In the Verizon case decided by the D.C. Circuit last month, Verizon unsuccessfully requested the Court to order the FCC to clarify its prior ruling within 30 days. By contrast, in the 2004 Verizon case, it took the FCC about 90 days to make its ruling on remand.)

In addition, the D.C. Circuit panel in the 2004 Verizon v. FCC case referenced earlier expressed receptivity to requiring the FCC explain its ruling on a forbearance petition within 30 days in light of Section 10’s deadline for agency action. In that case, Judge David Ginsburg (who was Chief Judge at the time the case was decided) intimated that the panel would have imposed a deadline on the FCC except that Verizon had asked for an expedited ruling based on a record that was supplemented by new information subsequent to the date that the FCC rejected the forbearance petition. Wrote then-Chief Judge Ginsburg:

Lest the intention of the Congress in Section10 to expedite forbearance decisions be set to naught, we would have required the Commission to issue a new order within 30 days had Verizon itself not made clear that it wants a decision based upon the record compiled through the present. It would be inappropriate, however, for the court to require so expedited a decision based upon a record that, as far as we can tell, is not yet closed and may, in any event, require the Commission to consider such material that was not before it as of last October 27 [the date the FCC denied the forbearance petition].

Thus the D.C. Circuit ruling in the 2004 Verizon v. FCC case presents a more nuanced and hospitable approach to court-imposed agency response deadlines in forbearance remand orders than one might read into Chief Judge Sentelle’s brief reference to that case.

In sum, should the FCC erroneously rule on a forbearance petition in the future, a panel of the D.C. Circuit should continue to take seriously its discretion to fashion a deadline for FCC response. With forbearance petitions, Congress has given the FCC a job to do and a timeframe for doing it. It follows that when the FCC fails to do its duty it shouldn’t be rewarded by an indefinite timeframe for response, but that a court-imposed deadline most effectively furthers Congress’s deregulatory purpose.

Independence Day - 2009

The Declaration we celebrate proclaims it a self-evident truth that we are endowed with certain "unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." We may be endowed with these rights, and they may be unalienable, but to secure them, as John Kennedy put it in his Inaugural Address in a slightly different context, "here on Earth God's work must truly be our own."

The Founders not only inspired us with their words, but through their labors in Philadelphia in the summer of 1787 they bequeathed a government designed to give us the best chance to enjoy the liberty of which the Declaration spoke. The principal means to the end, of course, was a constitutional framework based on enumerated and separated powers. When Franklin was asked what the Framers had wrought, he responded "a Republic, if you can keep it."

So far, we have. But America is a continual work in progress. Vigilance is required to preserve the liberty to which the 1776 patriots pledged their lives and sacred honor.

At the Free State Foundation our mission statement proclaims our commitment to free market, limited government, and rule of law principles. In my view, these principles are predicates to securing the rights the Declaration proclaims. Certainly, the principles are put to the test today as politicians seek to expand government power in the name of addressing economic problems at home and national security threats abroad. Many politicians and governments officials with natural proclivities for aggrandizing government power see opportunities to achieve their grand designs in these challenging times. President Obama's Chief of Staff put it bluntly: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before."

So Bill Clinton misspoke when he proclaimed "the era of big government is over." In reality, there is always an ongoing political struggle over the proper size and shape of government and extent of government control. While there is no mathematical formula to be applied, the realm of individual liberty necessarily shrinks as government's realm expands. This does not mean a particular exercise of government power is improper or ill-advised. It just means we should be aware of the relationship between the exercise of such power and liberty.

A significant part of our work at the Free State Foundation is centered on the project of promoting sound, free market-oriented communications laws and policies. Although I am mindful there are other policy elements, in the spirit of Independence Day, I want to focus here on aspects of communications policy relevant to the liberty interests protected by the free speech and property rights secured in the First and Fifth Amendments. These rights are crucial to maintaining the Declaration's promise.

Today there are voices, including some in the Obama Administration and Congress, calling for more government intervention and control of the media. They suggest that more government control is necessary to ensure more "balanced" viewpoints and more "fairness" in what's aired, or to ensure "better," or more "educational," or more "cultural," or less "violent" programming, or, well, to ensure programming that is just more suitable for the citizenry in one way or another. And now they also want the government to mandate and enforce "neutrality" on the Internet and to prevent "discrimination" by Internet service providers.

All this sounds well and good, even appealing, to those who have faith in government officials to determine that the right balance of viewpoints is struck, to know better programming when they see it, and to discern discrimination when it is alleged. Media regulatory regimes with names such as the Fairness Doctrine, Net Neutrality, and Open Access are devised to exercise the desired control. For many, these regimes have a seductiveness about them that makes it easier to excuse the amount of control placed in the government's hands to dictate the content of the speech of private persons.

Granted, many government officials may be perfectly well-intentioned in their desire to gain more power over the media and the Internet in order to implement their version of the "public interest." But surely there are those who actively seek greater government control as a means of cementing and protecting their own political power or the power of their party.

Now, I understand, of course, the seduction is always – repeat, always -- couched in terms of the government's need to ensure that the private person or operator, whether a broadcast station, cable operator, Internet services provider, or the like, does not itself suppress certain speech, or does not present unbalanced or unfair programming. The government's rationale is always put in terms of promoting fairness, neutrality, or openness by the private media owner. Nevertheless, the seduction is exactly that – an excuse for the exercise of government control over private speech.

No doubt it is true that those who operate private media may present programming that is unbalanced, unfair, or discriminatory. But the Founders knew the far greater danger to liberty lies with government control of the media, not private censorship. Hence the First Amendment. History is full of countless examples of governments using their control to suppress the freedom of their citizens. Unfortunately, there are many examples to cite today – Russia, Cuba, Venezuela. And, of course, at the moment we only need look to Iran. It is silly – and naïve – to ignore the fact that it is not the private media in these countries suppressing speech, degrading and impairing Internet transmissions, screening web sites. It is the government.

And note that derogation of property rights and free speech rights usually goes hand-in-hand. If the government can seize your printing press or deny your authorization to operate, or confiscate the profits from your media operation, your right to free speech becomes much less meaningful, or non-existent. So, although the Fifth Amendment's protection of property rights is often minimized in the context of communications policy, it shouldn't be.

None of the above is intended to suggest that the United States resembles Russia, Cuba, Venezuela, or Iran, in its media policy. To the contrary. We have a constitutional tradition and culture that is, on the whole, generally free speech and property-rights protective. And remarkable technological advances have facilitated the development of a competitive marketplace environment in which the newer "technologies of freedom," to borrow from Ithiel de Sola Pool, render attempts at government control more difficult -- and claimed justifications less convincing. See Twitter, YouTube, Facebook, cell phones, broadband, satellite dishes, and the like.

On this Independence Day, I do intend to suggest, however, that at a time when much of our communications policy is under review, and many are urging the need for more regulation and government control, we would do well to appreciate the extent to which our liberty interests are related to the preservation of free speech and property rights.

Who better to turn to in closing than Thomas Jefferson himself, who later in life declared: "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." I suspect that Jefferson knew full well he was – once again -- stating an aspiration rather than a fact. The engines of despotism are not feeble; nor have they been extinguished.

But the Fourth of July is a fine time to reaffirm the aspirations for liberty rooted in the Declaration of Independence and our Constitution – and to affirm that a communications policy grounded in our constitutional tradition is the best way to protect and further those aspirations.

Giving Forbearance the Red Tape Treatment

When the Federal Communication Commission’s report and order concerning new forbearance petition procedures was circulating in draft form it furnished the occasion for my recent FSF Perspectives paper, 'Delaying Deregulation: Forbearance at the FCC.' On June 29, the FCC adopted its new procedural rules governing forbearance petitions. While some of the new rules appear designed to facilitate more efficient petition processing, others appear to arm the FCC with new procedural devices to facilitate denying petitions. Under the new forbearance procedures, a deregulatory process just got more regulated.

The new procedural rules include certain proceedings management and petition completeness requirements. Among other things, petitioners are now required to clearly identify the petitioning parties who are seeking relief from regulation. Petitioners must also specify the regulations from which from which they seek relief. These requirements have the ring of reasonable administration. Petitions containing specific requests for relief are probably easier to process than ambiguous or confusing requests. But just how necessary are such completeness requirements? If a petition was unclear about what rules a petitioner is seeking relief from, what’s keeping the FCC from helping things out a bit by framing the petition’s ambiguities in the most common-sense and coherent way it can and then trying its best to make its ruling? A grant or denial of a forbearance petition under those circumstances would likely survive any subsequent court challenge by petitioners. Courts presume good faith on the part of federal agencies, and they analyze agency action in such cases under a deferential review standard.

Petitioners are now formally required to make a prima facie showing that each element of the forbearance criteria is satisfied. Petitions must also factor FCC precedent into their petitions. All things being equal, more thorough petitions that focus on the statutory criteria could bring more immediate agency focus and deliberation to filed petitions. But don’t petitioners already have incentive to make the strongest case possible to meet the forbearance criteria?

What’s more, the new procedural rules place the burden of proof on petitioners. Keep in mind the fact that petitions not acted on by the FCC within the statutory timeline or extension period are automatically 'deemed granted' by operation of law. This fact makes placement of formal burdens on petitioners during the statutory time limit counterintuitive. The disconnect is apparent when one considers the different tie-breaking effects of the FCC’s new procedural rule and the (Telecom Act of 1996) Section 10 'deemed granted' clause. In effect, under the new procedural burdens, a tie goes against the petitioners. The party carrying the burden of proof must persuasively present evidence showing the statutory elements are met. But under the 'deemed granted' clause, a tie essentially goes against the FCC. (In fact, a forbearance petition filed by Verizon that resulted in a deadlocked 2-2 vote at the FCC was 'deemed granted' by operation of law.)

One gets the sense that in adopting these new forbearance procedural rules the FCC is attempting to move itself out of the hot seat. Section 10 is a unique statutory provision precisely because it puts the onus on a government agency to make time-limited decisions about whether it must deregulate. By putting procedural burdens of production and proof on forbearance petitioners, the FCC to shifts some of the attention away from itself and onto the petitioners. Appeals to a quasi-legal procedural apparatus allow the FCC to strike a more judicious tone in its rulings, rather than continue in a discretionary policymaking posture. Reliance on formalities such as burdens of proof can also add a kind of heft to an agency’s decision whereas a substantive rationale alone can make for a closer call.

The FCC’s order and report suggests that more assertive use of one of the Telecom Act of 1996's key deregulatory policies is nowhere on the radar. Section 10 was enacted to give the FCC the discretionary authority to forbear from applying outdated and unnecessary regulations that it had previously been denied by court rulings. To the extent that the FCC interprets forbearance in light of its new procedural regimen for petitioners, the FCC’s own authority to forbear from enforcing onerous and outdated regulations sua sponte appears to have gone by the wayside.

The new procedural rules may be a disappointment but they do not spell doom. A couple bright spots to the FCC’s report and order are worth brief mention. For starters, the new rules include forbearance petition transparency. The FCC pledges in its report and order that it will post to its website a timeline of pending forbearance petitions containing relevant information for each. That is a welcome development. Since the FCC’s website is difficult to search for information, having available and relevant forbearance petition information accessible from a specific part of the site will make pending petitions much easier to track.

Importantly—and contrary to the fears of some commentators in the forbearance rulemaking proceeding—the FCC did not adopt new rules to authorize it to revisit previously deemed granted petitions. This was a wise move by the FCC. There is no basis in Section 10 or any other part of the Telecom Act of 1996 for the FCC to undo congressional policy by revisiting petitions that have been 'deemed granted' by operation of law. As the D.C. Circuit has recognized, when a petition is deemed granted it is a result of Congress’s decision, not the FCC’s.

In sum, the FCC’s report and order on forbearance procedures favors more regulated deregulation. Or should it be called deregulatory regulation? Whatever the case, the result can definitely be called forbearance red tape.