'This Friday -- Register Now for FSF's "Future of Media" Seminar!'

If you are interested in what the FCC is doing examining the "future of the media" and why it is doing it, you shouldn't miss this Friday's lunchtime seminar at the National Press Club.

If you want to attend, RSVP to Susan Reichbart at sreichbart@freestatefoundation.org

'This Friday -- Register Now for FSF's "Future of Media" Seminar!'

Maryland’s Fiscal Future: Is There Trouble Ahead?

On April 8, the American Legislative Exchange Council (ALEC) released its Rich States, Poor States report, which ranks and compares the economic competitiveness of all 50 states. The study examines two categories: 1. economic performance over the last ten years, based on three factors heavily influenced by state policy – personal income; migration; and non-farm employment; and 2. economic outlook, the projected state performance based on 15 policy variables.

The study is co-authored by Arthur Laffer, inventor of the Laffer Curve. And despite its simple beginnings (it was initially drawn on the back of a napkin), the Laffer curve has proven an important economic concept. Simply put, as taxes rise people make decisions that reduce their tax burden. The curve itself does not say whether an increase in taxes will result in more or less revenue – there are many factors that influence this decision, such as the burden of the tax itself, how long the tax will last, etcetera. Generally, as the burden becomes higher, people are more likely to find alternatives, such as holding on to stocks longer in the hope that the capital gains tax will fall, or avoiding state taxes by leaving that state, or making purchases elsewhere.

A prime example of this is Maryland’s cigarette tax. On January 1, 2008, Maryland doubled its tax on cigarettes to $2.00 a pack, but only realized a fraction of the increase. In fact, this 100% increase in tax resulted in a 45.8% increase in revenue, much less than expected. The District of Columbia also tried to bridge its bloated budget by increasing its cigarette tax to $2.50, which actually resulted in less total revenue than before the hike. As the rate went up, people sought out alternatives, such as buying cigarettes somewhere else, or modified their activity, either by quitting, reducing the amount of cigarettes they smoked, or shifting towards cheaper brands.

But back to the ALEC report. How did Maryland do? Not that great, but not too bad either. Just fair to middling, Maryland was 20^th in “economic performance,” which takes into account how the state has performed over the past decade, and 28^th in “economic outlook,” which factors in Maryland’s fiscal policies and how they are likely to play out in the coming years. (Lower rankings are better). And there are some positive factors; from 1998 to 2008 Maryland’s non-farm employment has grown 11.7%, which ranks 17^th nationwide, and Maryland also ranks 7^th on sales tax burden (but considerably higher on other tax burdens).

But that’s not to say that the state’s outlook is rosy - there is certainly cause for concern and much room for improvement. Maryland ranks among the worst for top marginal personal income tax rates, the rate that the wealthiest pay on their next dollar of income, at 44^th nationwide, and in the recently legislated tax changes category, where it ranks 40^th. And as one of the study’s authors has noted, when the top marginal tax rates are raised, the rich move away.

And raise taxes Maryland has. Maryland passed a $1.3 billion package of tax increases in November 2007, as the Free State Foundation pointed out before. And while Maryland isn’t in the same financial dire straits as California is now (thankfully), the state should look toward the future, and seriously examine the consequences of its current actions.

More than many other states, Maryland faces a unique challenge in that its surrounding states offer close and easy alternatives. Live in the D.C. area and fed up with Maryland? You can move to Virginia (which ranks 4^th in Economic Performance and 8^th in Economic Outlook) or the District of Columbia easily, and you can even commute from Pennsylvania and West Virginia. Heck, Maryland’s regional rail even runs to West Virginia!

Baltimore, Hagerstown, and Cumberland also offer relatively easy extra-territorial commute options. Couple this ease of access with other factors, such as the general increase in telecommuting, and the potential trouble is apparent. As new tax packages and higher rates become more oppressive, other states become more attractive - leaving Maryland with less people and with less tax revenue. We can already see the beginning - Maryland has lost over 79,000 people the last decade, garnering a rank of 40^th in the nation in terms of migration. In other words, in the bottom fifth!

And to add further fuel to the fire, what if the Federal Government actually shrunk? Quit laughing. After all, there is another election in 2012 and who knows what could happen. With office space in the D.C area costing more than that of New York City, what would happen if a portion of those high-paying lobbying and professional jobs were to disappear? How would Maryland’s tax revenue look then?

So Maryland may not face an imminent California-style crisis, there is considerable cause for concern. Let’s hope that Maryland doesn’t continue to move down this path of higher taxes and outmigration, and moves towards fiscal responsibility, both for today and for the future.

National Broadband Plan: A Setback On Set-Top Box Regulation

Although the FCC dubs its recently unveiled National Broadband Plan a "21st century roadmap," the Plan prescribes a very 20th century approach to the set-top box market. In fact, the Plan calls for more set-top box regulation than ever before. To kick off its implementation of the Plan the FCC will be considering the release of two notices involving set-top box regulation at its public meeting to be held later this week. Instead of piling on additional set-top box regulations under the National Broadband Plan, we need a Plan B that takes stock of both the growth of competition in the video marketplace and Congress's intent that such regulation eventually sunset.

The Telecommunications Act of 1996 directed the FCC to adopt regulations to assure the commercial availability of electronic equipment such as set-top boxes to ensure consumer access to multichannel video programming from independent manufacturers and retailers. FSF President Randolph May recounted the history behind the FCC's implementation of Section 629 in his FSF Perspectives paper from 2006, "Don't Inflict Analog Era Equipment Rules On The Digital Age." In 1998, "the FCC directed the cable industry to develop a physical device—now called a CableCARD—containing security functions that could be inserted in the equipment of independent manufacturers so that their boxes could be used with cable systems around the country." Moreover, "although not required by Congress to do so, the agency went further and imposed the integration ban" whereby since July 1, 2007, MVPDs were required to stop selling or leasing new devices that integrate both security and non-security functions, such as program menus and other channel navigation features. Direct broadcast satellite (DBS) providers were exempted from the integration ban.

Importantly, Section 629 included a sunset provision, under which regulations shall cease to apply when the FCC determines: (1) "the market for multichannel video distributors is fully competitive; (2) "the market for converter boxes, and interactive communications equipment, used in conjunction with that service is fully competitive"; and (3) "elimination of the regulations would promote the public interest."

Given that a law passed back in 1996 contemplated its own sunset, and that video competition has significantly increased since that time on account of DBS providers and telephone competitors, one might expect that the proper agency response would be deregulation, or at least stasis. Just last fall in Comcast v. FCC, the U.S. Court of Appeals for the District of Columbia Circuit concluded that, due to DBS and telephone competitors in video, the purported cable "bottleneck" justifying various regulations under the Cable Act of 1992 no longer exists. But the National Broadband Plan takes a different course, instead calling for even more regulation of set-top boxes.

The National Broadband Plan's section on devices maintains that "despite Congressional and FCC intentions, CableCARDs have failed to stimulate a competitive retail market for set-top boxes." The Plan states that Motorola and Cisco combine for a huge share of the market. By contrast, CableCARD-enabled retail devices comprise 1% of all set-top boxes deployed in cable homes. Finding all this unacceptable, the Plan's "Recommendation 4.12" calls for the FCC to "initiate a proceeding to ensure that all multichannel video programming distributors (MVPDs) install a gateway device or equivalent functionality in all new subscriber homes and in all homes requiring replacement set-top boxes, starting on or before Dec. 31, 2012." The Plan insists that this gateway device requirement "should apply to all MVPDs," not just cable providers. A development and deployment deadline set for the end of 2012 is urged in the Plan, with regulatory milestones called for track MVPD progress in meeting the mandate.

All of these pronouncements might have more heft if it were 1996 and not 2010. But today's dynamic video market context matters – or, in the interest of responsible regulation, ought to. It now makes far less sense for regulators to zero in on the set-top box market when considering the state of market competition for MVPD equipment. Since consumers increasingly enjoy the ability to choose between cable, DBS and telco MVPDs, equipment for using each respective service are ready substitutes for one another. Other emerging alternatives include downloadable video through online services such as iTunes or Hulu, or delivery to video game consoles such as the Xbox360. Consequently, the case for cable set-top box regulation has diminished, thanks to the growth in video competition.

New regulation also risks freezing into place a future retail set-top box market that will be of little benefit or interest to consumers. Consumers may already find it more convenient to obtain their set-top boxes directly through their cable provider than to undertake separate trips to retail outlets to search for boxes. Moreover, thanks to technological and market developments cable consumers may be able to obtain set-top box services without needing set-top boxes.

Cablevision, for instance, has plans for remote-storage digital video recorder (DVR) service to be made available to customers. Network intelligence and remote delivery from cable head ends might therefore become the most convenient and cost-effective way for cable companies to provide video programming and related services to consumers. Additional FCC regulation hardly seems appropriate in the face of market innovations of this kind. At worst, might new regulation of retail cable set-top boxes serve to artificially prop up a market segment trending toward obsolescence?

Whether or not Section 629's government-managed, forced-competition provision for set-top boxes was ever a sensible policy remains a valid question. To be sure, no agency has the rightful authority to rewrite a federal statute. And so the FCC has to make do with the law, whatever its own policy preferences. But the task is made more manageable through Section 629's sunset provision – a pretty uncommon occurrence in regulatory statues -- which allows the FCC flexibility to take into account of rapidly changed and still-changing technologies and markets.

Rather than redoubling set-top box regulation under the National Broadband Plan, here is a Plan B worthy of adoption: Reduce regulation by eliminating the "integration ban." Citing its own Video Competition Report and the D.C. Circuit's holding in Comcast v. FCC, the FCC should declare the MVPD market fully competitive. The FCC can hang on (at least for now) to its requirements that cable providers make CableCARDs available for use with independents' equipment to use with cable systems. The FCC can then acknowledge that its prior judgment --that an "integration ban" was the only way to guarantee competition -- was not an infallible policy pronouncement, but a judgment call that is now irrelevant to today's dynamic video market. Instead, the FCC can affirm the public interest is best served by: (1) intermodal competition between cable, DBS and telco MVPDs; (2) efficiencies created by equipment containing advanced proprietary features or by similar advanced services delivered without equipment; and (3) avoidance of costs to consumers imposed by government-mandated technical standards.

In the end, the National Broadband Plan's gateway device recommendations seek a reinvigorated government-managed competition regime pointing back to the end of the last century. A forward-looking approach that better respects the dynamic nature of the video marketplace would not expand the "integration ban" but eliminate it. Such an approach would emphasize intermodal competition and the benefits of continuing technological innovation free of government mandates.

Comcast v. FCC: A Game Changer For Net Neutrality Regulation

In Comcast v. FCC, the FCC suffered a severe setback in its plans to impose network neutrality regulation on the Internet. The U.S. Court of Appeals for the District of Columbia Circuit vacated the FCC's controversial Comcast Network Management Practices Order from 2008. In a unanimous opinion authored by Judge David Tatel, the Court concluded that the Commission failed to establish its jurisdictional authority to regulate the network management practices of an Internet Service Provider (ISP). In particular, the Commission "failed to tie its assertion of ancillary authority over Comcast's Internet service to any 'statutorily mandated responsibility.'" The immediate result was the Court's vacating the Order. But the net neutrality saga is far from over, as the FCC's defeat has important implications for the current plans of an FCC majority to adopt a set of network neutrality rules.

Significantly, Comcast v. FCC clarifies the limited contours of the FCC’s ancillary authority to impose regulation in the context of broadband Internet. That authority is contained in Section 4(i) of the Communications Act of 1934, and it authorizes the Commission to "perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions." Judge Tatel's opinion for the D.C. Circuit extensively analyzed prior D.C. Circuit and U.S. Supreme Court rulings concerning the parameters of the FCC’s ancillary authority.

In those cases where ancillary authority was sustained, concluded Judge Tatel, the FCC linked the policies backed by its ancillary authority to express declarations of regulatory authority. Judge Tatel explicitly rejected the Commission's arguments that mere statements of congressional policy that lack delegation of power by Congress can create 'statutorily mandated responsibilities' that support section 4(i) ancillary authority. Wrote Judge Tatel: "Policy statements are just that—statements of policy. They are not delegations of regulatory authority."

The FCC also failed to persuade the D.C. Circuit that any arguably express statutory delegations of regulatory power to the FCC supported the Commission's exercise of ancillary authority against Comcast. In particular, Judge Tatel rejected the Commission's reliance on: section 706 (promoting deployment advanced telecommunications capability), section 256 (establishing procedures for coordinated network planning and interconnection of public telecommunications networks), section 257 (granting 15 months to identify and eliminate market entry barriers for entrepreneurs and small businesses in provision and ownership of telecommunications and information services), Title III (authority over broadcasting), and section 623 (cable ratemaking authority). However, because the FCC did not rely upon the same line of argument concerning section 201 and Title II (telecommunications services common carrier regulation), the Court considered that argument forfeited and did not address its merits.

The D.C. Circuit's ruling in Comcast v. FCC vaporized the jurisdictional basis of the FCC's pending net neutrality rulemaking. After all, the FCC's Notice of Proposed Rulemaking relied entirely on the Comcast Order. (See NPRM page 36). As a technical matter, the Court’s ruling did leave the FCC some room in the future to offer a more limited rationale based on section 623 or a reinterpretation of section 706 to justify its ancillary jurisdiction to adopt the proposed rules. But with section 706, the FCC would have to explain its way out of its earlier order recognizing that it provides no separate delegation of regulatory authority. It's also highly unlikely that a narrower reliance by the FCC on section 623 cable ratemaking would fly in federal court.

Comcast v. FCC may render more likely a future FCC attempt to concoct a Title II common carrier basis for its proposed net neutrality regulatory regime. (See my prior blog post "Save The Internet From Title II Regressives.") This hardly means the D.C. Circuit would find Title II a more plausible basis for FCC ancillary authority over the Internet than the candidates it just rejected. But the Court never foreclosed a Title II basis for net neutrality regulation because it never reached the question in the first place. So without obtaining a congressional delegation of authority, how can the FCC break free of its ancillary authority limits and impose its net neutrality rules? Most likely by tearing up key deregulatory policies that have led to high-speed broadband being declared an "information service" not subject to "telecommunications service" regulatory mandates. This means foisting old monopoly-era telephone regulatory apparatus on the Internet. It also means subjecting cable modem services to common carrier regulation for the first time.

None of this is to say that an FCC regulatory reclassification of broadband Internet would survive legal challenge either. The Commission will have serious factual difficulties to overcome if it hopes to cobble together a rationale for suddenly reversing the agency's prior course. For starters, the FCC's record is devoid of instances of ongoing harm. Its NPRM could only cite two instances of alleged violations of Internet Policy Statement, and the order in one of those instances was just vacated in Comcast v. FCC. To date, the FCC's record also lacks any evidence of market power being possessed by ISPs. In particular, the FCC will be hard pressed to identify marketplace developments in the past 5 years that warrant disregard of its prior precedents.

At this point it's too soon to tell whether the FCC will strike back from defeat in Comcast v. FCC by urging that net neutrality regulation become a condition of pending or future telecommunications and media mergers, such as…Comcast-NBCU. Hopefully, the FCC won't make the mistake of using its merger approval process as a temporary means of imposing net neutrality “regulation by condition.” Merger conditions should only be targeted to specific anti-competitive harms posed by the transaction in order to remedy those perceived harms. And such conditions should not take the form of regulation more appropriate for industry-wide application and adoption through rulemaking proceedings. (I blogged about this previously in "Take Net Neutrality Out of Merger Review.")

In response to the D.C. Circuit's ruling, the FCC announced that the Court "did not close the door to other methods" for imposing net neutrality regulation. Rather than ratchet things up further by resorting to a Title II nuclear option, the FCC should consider less drastic steps on the road ahead. A much better option is touched on in FSF President Randolph May's statement from yesterday on the Comcast v. FCC ruling:

If the agency believes some form of Internet regulation is desirable, it should work with Congress to fashion a new statutory framework. Indeed, the court's decision ought to provide an impetus for Congress to begin a rewrite of the Communications Act which ties the Commission's regulatory activity over broadband explicitly to evidentiary showings of abuse of substantial market power and demonstrable consumer harm.

Wisdom and Knowledge – Who's To Judge?

The FCC's "Future of Media" project is, by its own terms, so ambitious in scope that it is difficult to say much about it in a short piece for fear of being accused of leaving much unsaid. Nevertheless, this will be a short piece.

Underpinning the initiation of this project is the notion, despite the abundance of today's various media outlets, including the Internet, that the information needs of the American people are not being met satisfactorily. To remedy this claimed "market failure" or "information deficit," the theory goes, the government needs to support so-called "public media" in a variety of ways.

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.

In preparation for the Free State Foundation's April 16 seminar on the "Future of Media" project, I just reviewed the comments filed by Ellen Goodman (with Anne Chen) in the FCC's National Broadband Plan proceeding. They are relevant because Ellen, whom I consider a friend and whom I respect, is now working on the FCC's "Future of Media" project as a Distinguished Visiting Scholar. (I was pleased that Ellen spoke about the role of public media on a panel at FSF's February 2009 Winter Telecom Policy Conference.)

Ellen's FCC comments in the broadband proceeding contain these statements:

"The mission of public media – to engage publics with information relevant to improving lives in particular communities and shared polities – is of growing importance in a world where information is abundant, but does not always reach the people who need it, and where wisdom and knowledge remain hard won."

"Public media should create content where there are market failures in accordance with a public service objective." (Emphasis in original).

"As the amount of media content proliferates, trusted public media entities have an important role to play as information curators. They can use their brand, community connections, technology, and editorial capacities to raise the profile of important, reliable, and innovative content." (Emphasis in original.)

"[T]o curate content, serving as both a filter to reduce information overload and a megaphone to give voice to the unheard."( This is described as one of the core functions of the digital public media.)

Again, what is striking to me is the recognition of – indeed, reliance upon – today's media abundance and media content proliferation as a justification for suggesting more government involvement with the media. When I first became involved in communications law and policy in the 1970s, the Supreme Court's affirmance in Red Lion of the FCC's Fairness Doctrine was still relatively fresh. Then it was supposed scarcity, not abundance, that sanctioned government involvement in shaping media content. Some things don't change; they just get turned upside down.

The problem, of course, is that making determinations concerning whether there are, as apparently alleged, information deficits in an age of media abundance necessarily involves judgments about media content. How else to determine whether such a deficit exists? And how to define a "public service objective"? Certainly each person's answer involves judgments about content? I might have very different views than Ellen concerning what constitutes a "public service" objective. For example, as a public service objective, Ellen might wish, say, to have more coverage of Tea Party events based on the notion the Tea Partiers have been under-covered, and I might disagree. Or vice versa.

The idea that, in connection with performing the curator function, the public media should serve both as a "filter" for weeding out some content and a "megaphone" for amplifying other content is troubling. And it strikes me as discordant for those advocating rigid notions of net neutrality that would prohibit any content discrimination to, at the same time, support an outright filtering role for government-supported media.

Or, to take just one more example, what does Ellen mean when she asserts that, even in a world of media abundance, "wisdom and knowledge remain hard won." I am not sure. But I suspect I might not agree with Ellen, or the first ten people I happen upon on Pennsylvania Avenue, concerning what constitutes "wisdom and knowledge." In any event, consistent with my view of the First Amendment, I am wary of government-supported media deciding what constitutes wisdom and knowledge, or deciding whether it has been won or lost.

You get the drift.

If these questions interest you – and I bet they do – I hope you will attend the Free State Foundation's "Future of Media" lunch seminar on April 16 at the National Press Club. We are fortunate to have Steven Waldman, the FCC's "Future of Media" project leader, as the lead-off speaker to explain what the FCC is doing – and why. Then three stellar panelists – former CPB Vice-President for Legal Affairs Donna Gregg, Wall Street Journal editor James Taranto, and former FCC Commissioner Deborah Tate – will offer their own perspectives.

For information on the program and the speakers, click here. To attend, RSVP to FSF Events Coordinator Susan Reichbart here.

 

FCC Regulating Outside Its Orbit

Late last week the FCC served up another instance of "regulation by condition" through its merger approval process. Through its decision in the Harbinger-SkyTerra merger, the FCC claims authority to not only bind transacting mobile satellite service providers but also to give itself a power of sole discretion over the approval of future business dealings with the two largest wireless carriers--who are not even parties to the merger. Call it a feat of regulatory rascality.

Three FCC bureaus issued a Memorandum Opinion and Order and Declaratory Ruling that gives the green light for SkyTerra Communications to transfer control one if its subsidiaries and its licenses to operate a mobile satellite service ("MSS") and ancillary terrestrial component ("ATC") facilities to Harbinger Capital Partners Fund. As the FCC observed, "Inmarsat is the leading MSS provider," offering low-speed data and voice services and the only provider of high-speed data services over North America. SkyTerra competes with Inmarsat by providing low-speed mobile satellite data and voice-grade MSS. The private investment firm Harbinger, through a series of funds, holds voting shares of Inmarsat and debt instruments issued by Inmarsat subsidiaries. So the FCC maintained that the proposed transfer of SkyTerra's licenses to Harbinger did "raise some competitive concerns for customers of current mobile satellite services and for potential customers of future services might use the MSS bands."

However, the FCC concluded the transaction would likely have no anticompetitive effects on the current MSS market. As for future MSS, the FCC conceded that "there is considerable uncertainty about what new products all of these firms will roll out and what customer segments they could profitably serve" and that "these markets are not yet mature enough to allow us to determine the competitive effects, if any, of this transaction." Furthermore, according to the FCC:

it would be premature to evaluate the effect of this transaction on 'next-generation' mobile satellite services. Next generation services have not yet been commercially launched, and no customers yet exist. Indeed, the MSS companies' business plans, and the very nature of the service offerings, are fluid. The fact that companies have changed their plans over the past years, both in response to changing economic times and to changes in Commission rules, weighs against making any predictions about any potential harms that might arise from this transaction. Accordingly, it would be speculative as to whether any competitive harm would occur, and if there were harm, the extent of its magnitude.

The FCC pointed to significant potential benefits for consumers from the transaction: "Through Harbinger’s role as a wholesale provider, it may be a catalyst for market-changing developments in the use and sale of innovative new mass-market consumer devices." And: "If realized, Harbinger’s plans to offer 4G wireless broadband services will achieve substantial public benefits, relating to the build out and deployment of a new facilities-based broadband player that will serve more than 80 percent of the U.S. population by the end of 2015."

Ultimately, the FCC concluded that those potential benefits outweigh any potential harms. But it nevertheless made its grant of the transfer subject to conditions:

In a letter dated March 26, 2010, Harbinger made a number of commitments to the Commission and, by extension, to the public, that give us greater confidence that the promised benefits will occur. Because our conclusion that Harbinger’s acquisition of SkyTerra is in the public interest is dependent on those benefits being achieved, we are adopting Harbinger’s commitments, in Attachment 2 of its March 26, 2010 letter, as conditions to our approval. The first condition requires that if the Applicants seek to make spectrum available to either of the two largest terrestrial providers of CMRS and broadband services, they must obtain Commission approval. The second condition requires the Applicants to build a terrestrial network using Skyterra's ATC authorizations. The third condition requires the Applicants to obtain Commission approval before traffic to these largest terrestrial providers accounts for more than 25 percent of SkyTerra’s total traffic on its terrestrial network in any Economic Area.

Keep in mind that the commitments were offered by Harbinger one year after it submitted the application for transfer. And the application for transfer was placed on Public Notice by the FCC back on May 1, 2009. Such a lengthy agency delay in resolving potential anticompetitive concerns is reason enough to question just how voluntary those voluntary conditions really were. This delay and conditional approval puts the Harbinger-SkyTerra in company with other FCC merger approvals that have resulted in what has been fittingly named "regulation by condition": the FCC lets its 180-day shot clock to approve license transfers lapse, and puts the parties in a precarious position that prompts them to make "concessions" to the FCC after lengthy delays. Here, the FCC can stick a "voluntary" label on those commitments, but that doesn't negate the fact that it chose to impose them as key conditions for approval. The voluntary commitments following a year-long delay resulted in the FCC imposing itself on future MSS and wireless broadband market transactions that it would otherwise have no authority to impose.

One also has reason to ask how the FCC's conditions remedy the perceived potential anticompetitive threat posed by the transfer. The FCC pinned its hopes on Harbinger providing additional facilities-based competition in the wireless broadband market. After analyzing the current and future MSS markets, the FCC imposed conditions limiting Harbinger's ability to enter into marketplace arrangements with the two leading wireless carriers—currently AT&T and Verizon, respectively. Exactly how would such limiting conditions prevent competitive harm to the current and future MSS markets characterized by the FCC as uncertain and fluid? No market analysis or public interest analysis tied to mobile wireless broadband networks appears in the ruling or public notice.

What's more, the "voluntary" approval conditions imposed by the FCC bind not only the parties involved in the merger but also third parties or potential new third parties who had no reason to expect to be implicated by the FCC's decision. Otherwise, does anyone doubt that either of those two major wireless carriers or any of their major rivals would have weighed in during the merger's comment period? But no comments were filed in the proceeding by either of the two largest wireless carriers or their leading.

The FCC has now set up haphazard and unprincipled precedent for specifically regulating an industry or its key players through merger approvals involving smaller entities competing in the same market or in adjacent markets. Should every company, association or interest group now submit comments in merger approvals that do not directly implicate them or appear to even indirectly implicate them, just to be on the safe side? Unsurprisingly, AT&T has now filed a petition for reconsideration with the FCC.

As the FCC's Paul de Sa blogs, the conditional approval technically doesn't prevent any particular transaction. Still, it gives the FCC new oversight powers it never possessed before – and without even seeking public comment before doing so. The FCC has devised a backdoor method for inserting itself into the regulation of MSS and wireless broadband networks. The Commission should shut that backdoor on reconsideration.

Broadband Plan Not Costless

PFF's Adam Thierer has a good post debunking the notion that the broadband plan will somehow be costless. We don't need the CBO to figure out that this ain't likely to be so. Read Adam's post here.

Red Flags Over The FCC's Broadband Plan

Politico has posted what is described as a late draft of the executive summary of the FCC's "National Broadband Plan." Here are some quick reactions.

Foremost, the plan is breathtaking in its scope, although some of the goals propounded are clearly hortatory and admittedly long-term. As for the scope, I do not think it is ungraceful to acknowledge the hard work and good faith of Blair Levin and his team, while at the same time suggesting that an overly ambitious and diffuse plan, with too much government direction, ultimately is likely to make it more difficult to achieve the widely shared goal of getting broadband to the increasingly few unserved areas and the increasingly few unserved citizens. At least ot achieve that goal in a sound and economic fashion.

The plan's overly ambitious scope is somewhat at odds, right from the outset, with this up-front acknowledgement:

"Fueled primarily by private sector investment and innovation, the American broadband ecosystem has evolved rapidly. The number of Americans who subscribe to broadband has grown from eight million in 2000 to nearly 200 million last year. Increasingly capable fixed and mobile networks allow Americans to access a growing number of valuable applications through innovative devices."

Here are a few specific (not meant to be exhaustive) red flags based on the leaked executive summary:

· The suggestion of a "comprehensive review of wholesale competition rules" to ensure competition is troubling. In plainer English, this means considering requiring that some Internet service providers unbundle and share their networks with other would-be competitors. The FCC tried that approach of "managed competition" in the late '90s in implementing the Telecom Act of 1996. The result was not pretty. Investment was stifled. The court ultimately overturned the FCC's mandatory sharing rules – but not before a lot of damage was done. The FCC shouldn't even start down this road again.

· The focus on freeing up and allocating "unlicensed spectrum" is misplaced. Licensing spectrum, and creating property-like rights, ensures that the spectrum resource will be developed to its highest and best use. Consumers and taxpayers are the beneficiaries.

· The proposal to consider conditioning a spectrum block on the offering of a free or low cost service should be rejected. It is an uneconomic and inefficient way of addressing a problem that, if it exists, should be addressed on a narrowly targeted basis that provides support to low-income persons. Conditioning spectrum disserves consumers and taxpayers.

· The proposal to create new Connect America and Mobility Funds are problematic. It looks like, with the Universal Service Fund tax now at 15% on all interstate calls, the plan's drafters recognize that the legacy USF fund supporting voice calls no longer represents sound policy, if it ever did. The problem is that the plan apparently envisions creation of new mechanisms that will work somewhat similarly to the existing regime by collecting fees from telecom users assessed on the services they use. This approach provides government administrators with an unending pot of money to spend with no endgame in sight or defined. The money keeps flowing arguably long after even any perceived problem has been addressed. Witness the difficulty in reforming the existing universal service regime, more than a decade or so after nearly all economists agreed the program had outlived its usefulness. So, here, the plan proposes an overly long transition period of another ten years to sunset the support of the existing voice regime. A better approach is to have Congress appropriate funds directly from the Treasury, so there is greater accountability to the public, and to rely on Linkup-LifeLine programs (which the plan proposes) to provide targeted support to low-income persons who need subsidies to acquire service.

· The executive summary refers to "creating a robust public media ecosystem and modernizing the democratic process." Suffice it to say here that when government officials propose getting into the business of creating and foster the "public media" it inevitably means they will end up exercising control over the media they create, even though they will almost always deny it. This is troubling for many reasons, not least of which is the jeopardy to the First Amendment. Those who are some of the fiercest advocates of creating public media tend, whether inadvertently or advertently, not to recognize that the First Amendment is intended to protect against government censorship and control, not to offer cover for increased government control or interference with the media.

As for "modernizing the democratic process"? It should be enough to say great caution is warranted here. The Founders did a pretty good job, and they should be looking on at this effort warily.

Maryland's Political Speech Ban Bills

There is something profoundly unsettling about elected officials using the political process to stifle free speech about the political process. Unfortunately, a recent batch of bills introduced in the Maryland legislature seeks to do precisely that.

Political speech bans introduced in the Maryland House of Delegates this session include: HB 616, HB 690, HB 917, HB 986, HB 1087, and HB 1251. These legislative proposals run the range from bans on independent expenditures for public contractors, to forced-speech disclaimer requirements, to taxpayer-financed political campaign programs with “rescue funds” for less successful candidates, to bans on corporate political campaign contributions, and to requirements that shareholders explicitly authorize political spending. In particular, both HB 917 and HB 1251 ban corporate political contributions, and appear to allow unions to make such contributions.

Many of these bills are clearly contrary to principles laid down by U.S. Supreme Court precedents, and others are likely unconstitutional by a reasonable application of those precedents. Buckley v. Valeo (1976), for instance, bars government restrictions on independent political expenditures. Davis v. Federal Election Commission (2008) prohibits "rescue funds" designed to give public funding to electoral candidates whose opponents whose private spending exceeds a certain amount.

And the recent Citizens United v. FEC (2010) struck down speech restrictions based on speaker identity. In that case, the Court reiterated that the worth of speech doesn’t depend on the speaker’s identity, regardless of whether it’s a corporation, union, or an individual. Rather, the Court concluded that the First Amendment prohibits "restrictions distinguishing among different speakers, allowing speech by some but not others," because "restrictions based on the identity of the speaker are all too often simply a means to control content." (I discussed the case at some length in my FSF Perspectives piece "What Citizens United Means for Free Speech in the Digital Age").

To the extent these bills are part of elected officials' pushback against the Citizens United ruling – which struck down as unconstitutional bans on independent political contributions by profit and not-for-profit corporations as well as unions – the are ill-advised and ultimately futile. The wheels were already coming off the restrictions on independent political contributions when last year the U.S. Solicitor General told the Supreme Court that the federal government could ban books under the law. Or e-books. (Directly at issue in the case were speech restrictions applied to a movie.)

Political campaign finance restrictions also make far less sense in a world where websites, blogs, YouTube, Podcasts, and other forms of new media allow public and private individuals and associations to reach a far wider audience than every before with little to zero barriers to entry into the political speech marketplace.

One must also point out the absurdity of using taxpayer dollars in a time of recession and budget shortfalls to pay for political campaign speech. Is that really such a priority?

Most important of all, limits on government power to restrict speech are grounded in the U.S. Constitution's First Amendment. The issue here isn't so much about giving corporations a right to freedom of speech; it's really about consistently limiting the powers of government to ban speech by individuals or by associations of individuals however constituted—as corporations, non-profits, unions, or other organizational forms. Political speech bans adopted under the guises of campaign finance limits stifle public criticism of current office holders and also help tilt the field toward incumbents up for re-election. The First Amendment was enacted to help ensure the right of citizens to criticize the government. And that same First Amendment will stand in the way of legislative attempts to squelch that right.

Maryland's Mobile Millionaires

The Wall Street Journal has an editorial in today's paper entitled "Maryland's Mobile Millionaires." With the final data now in for 2008, the editorial takes note of the decline in the number of tax returns filed by millionaires in the last reporting year – from 7898 in 2007 to 5529 in 2008. Most significantly, instead of increasing after passage of the Governor Martin O'Malley-led "millionaire's surtax" in 2007, millionaires' tax payments declined by approximately $257 million in 2008.

As the Journal editorial points out, certainly not all the decline in the filing of millionaire returns is due to flight from Maryland. Millionaires die too. And they lose money in stock market declines. But no doubt many just decided to take up residence elsewhere, or to extend their winter vacations in Florida beyond 180 days.

The WSJ editorial concludes:

"States like Florida and Texas have no personal income tax, so the savings for a rich person who stops paying taxes in Baltimore or Montgomery County can be in the hundreds of thousands of dollars each year. Montgomery County, outside of Washington, D.C., is Maryland's wealthiest and was especially clobbered, losing nearly $4 billion in taxable income in 2008, with some 80% of those lost dollars from high-income returns. Thanks in part to its soak-the-rich theology, Maryland still has a $2 billion deficit and Montgomery County is $760 million in the red. Governor Martin O'Malley's office tells us he wants the higher rates to expire 'as scheduled at the end of 2010.' But there are bills in both chambers of the legislature to extend the surcharge. The state's best hope is that politicians in other states are as self-destructive as those in Annapolis."

It is not very smart – much less a sound basis for making policy – for Maryland's politicians to hope that their brethren in other states are equally as self-destructive. It could turn out to be a false hope.

Comcast-NBCU: Vertical Integration And The Difference It Makes

The Congressional Research Service (CRS) just released "The Proposed Comcast-NBC Universal Combination: How it Might Affect the Video Market." Prepared early last month, the now-public CRS report takes no overall stance on the proposed merger itself. Rather, it notes that the U.S. Department of Justice and the FCC will likely approve the Comcast-NBCU deal. Nor does CRS report make any hard predictions about the likely effects of the merger, if approved. But the report does provide an overview of some of the arguments that recently have been advanced from different quarters about the perceived benefits or perceived harms that the merger would bring.

Although the CRS report purports to summarize claims being made about the proposed Comcast-NBCU merger made by others, the report does seem to offer an overly sympathetic treatment to claimed vertical integration threats to programming access. The report reads:

Perhaps the greatest danger that a vertically integrated company poses to a non-integrated competitor is to deny the competitor access to must-have programming that it owns or controls. Lack of access could even foreclose competitors from the market. Inferior or more expensive access to that programming also could place non-integrated rivals at a competitive disadvantage.

The report then discusses disputes over cable company ownership of regional sports networks (RSN) as a situation that "[t]he FCC has identified…where a vertically integrated cable company is likely to benefit from exclusivity, to the detriment of competition and consumers." The report points out that Section 628 of the Communications Act and the program access rules adopted by the FCC to implement that section, among other things, prevent vertically integrated cable operators from discriminating in the prices, terms, and conditions at which it makes its satellite-delivered programming available to its competitors. The CRS report insists those same rules "prohibit a vertically integrated cable operator from having exclusive access to the programming in which it has an attributable interest." (Whether the statute permits application of the program access rules to terrestrially-delivered programming as the FCC concluded in a recent rulemaking order is a matter of debate and will likely be litigated.)

All of what the CRS report says in this regard may be true, or at least mostly true. But taken in a vacuum, it can also be somewhat misleading and thereby exaggerate the potential competitive harm. Vertical mergers do not typically present the kind of competitive harm to consumer welfare characteristic of horizontal mergers. As the FCC observed in the Adelphia Order, "vertical transactions, standing alone, do not directly reduce the number of competitors in either the upstream or downstream markets."

FSF Distinguished Adjunct Senior Scholar Richard A. Epstein addressed some of these issues in his recent FSF Perspectives paper "The Comcast and NBCU Merger: The Upside Down Analysis of Dr. Mark Cooper." Describing the potential harm from merger transactions as "increase in market concentration to the extent that it allows the new firm to raise its prices above the competitive level," Professor Epstein wrote: "As a matter of basic theory, this risk may materialize in horizontal mergers, but rarely will appear in vertical ones, which involve the integration of two facilities or services at different levels in the chain of production." And, " the vast bulk of this transaction lies on the vertical side of the line, which involve the linkage of a transmission company — Comcast — with a content company—NBC Universal."

Absent contextual emphasis on the contrasting competitive dynamics of horizontal and vertical mergers, one can easily read too much into conceivable harms posed by a vertical integration like Comcast-NBCU. The CRS report, however, puts vertical integration threats to programming access more in the context of "big-is-bad" concerns. The report's opening line reads: "The proposed combination of Comcast, the largest distributor of video services in the United States, and NBC Universal (NBCU), a major producer and aggregator of video content, would create a huge, vertically integrated entity with potentially enormous negotiating power." But reduction of transaction costs and technology economies resulting from vertical mergers that make a merged entity bigger typically benefit consumers.

In addition, it's worth remembering that although the FCC has previously concluded in the Adelphia Order and NewsCorp-Hughes Order that a vertically integrated cable or DBS provider might have incentive to temporarily foreclose RSN access to its competitors, it has not so held that cable or DBS providers have the incentive to engage in permanent foreclosure. Regardless, Comcast will not be acquiring any RSNs in the proposed merger.

Of course, the CRS will hardly be the last word out of Congress on Comcast-NBCU. The Senate Commerce Committee will continue the ongoing examination of the merger with a hearing Thursday. FCC Chairman Julius Genachowski will testify about the Commission's license transfer approval process. DOJ Antitrust Division Chief Christine Varney is also set to speak. But all such testimony and discussion of the proposed merger should be considered in the context of a vertical integration.

"Public Interest" Media Regulation

Anyone interested in the radically changed media marketplace environment -- an environment in which media consumers have more choices and more diversity than ever before -- should read Adam Thierer's testimony before the FCC yesterday on "Serving the Public Interest in the Digital Era."

As usual, Adam, president of the Progress & Freedom Foundation, does a very good job in setting forth the case against continued, and especially expanded, "public interest" regulation of the media by the FCC.

As Adam explains, there are practical and normative reasons counseling against such media regulation -- as well as constitutional ones.

Delaying Deregulation, Again

At Free State Foundation's Winter Conference, FSF President Randolph May stated that it was his experience that agencies tend to err on the side of regulating. The Federal Communications Commission's history with Section 10 forbearance seems to fit the mold. How else to describe the FCC's hesitation to use Sec. 10's deregulatory mechanism that Congress provided it in the 1996 Telecommunications Act? The FCC has declined to use its regulatory forbearance powers on a sua sponte basis that the '96 Act almost certainly countenances. And the FCC has hardly been prompt in deciding on forbearance petitions filed by telecommunications providers, instead waiting until its statutory shot clock period and time extension runs the full fifteen months before making its decision.

Just this week the FCC granted itself a ninety-day extension for its consideration of Qwest's petition that the FCC forbear from continuing to impose certain regulations in the Phoenix Metropolitan Statistical Area (MSA). This is keeping with the Commission's regrettable pattern of granting itself extensions in similar forbearance proceedings. (This is something I wrote about in greater detail last year in my FSF Perspectives piece "Delaying Deregulation: Forbearance at the FCC"). Hopefully the Commission won't be furthering that pattern by holding off on a decision until just before the final buzzer.

One can reasonably question why it would take the Commission over a year's time to make its decision. This may be a particularly apt question with respect to the Phoenix MSA since the FCC had previously considered the state of telecommunications service in that same area as part of the Qwest 4 forbearance proceeding. (The FCC previously denied the Qwest 4 forbearance petition, but more on that denial in a minute.)

Perhaps the Commission is seeking extra time to make its decision on Qwest's Phoenix MSA forbearance petition in conjunction with a prospective remand order on the Verizon 6 MSA and Qwest 4 MSA petitions. This week's extension order does note that the Verizon 6 and Qwest 4 remands are "relevant" to the Qwest's Phoenix MSA petition since they involved the same unbundling regulations.

Last fall, the U.S. Court of Appeals for the District of Columbia took the Commission to task for acting contrary to its own precedents in denying forbearance relief to Verizon. As FSF President May wrote in his FSF Perspectives piece "Assessing the FCC's Competition-Assessing Competence," although “in a couple of forbearance cases, the FCC has acknowledged that potential competition should be considered in assessing whether continued regulation was necessary," when considering Verizon's forbearance petition, the FCC "focused single-mindedly on present market share, ignoring the fact that potential entrants constrain whatever market power the existing providers may possess." The D.C. Circuit remanded to the FCC, instructing the commission to provide consider potential market competition or to give a reasoned explanation for its departure from its precedent. Just days later and on the exact same grounds the Court remanded the FCC's order rejecting the Qwest 4 forbearance petition. (In October, 2009, FSF submitted comments to the FCC on the Verizon 6 / Qwest 4 remand.)

As I related in a prior blog post, one of the unhappy consequences of litigating FCC orders rejecting forbearance petitions is that even court rulings favoring forbearance petitioners have resulted in victory without any immediate enforcement remedy. Instead, forbearance petitioners are kept waiting well after the expiration of the shot clock for the FCC to reformulate and issue orders on remand.

Hopefully the FCC will use its extra time as an opportunity to get things right on all accounts—Phoenix MSA, Qwest 4 and Verizon 6—by carefully considering both actual and potential marketplace competition. Regardless of the Commission's specific ruling on any of those petitions, the most important thing will be for the Commission to return to its precedents that take both actual and potential marketplace competition seriously. Let's hope the Commission won't be erring on the side of regulation by attempting to rationalize a departure from those precedents by mistakenly treating modern communications markets as static rather than dynamic.

Will the Supreme Court Decide "Must-Carry" Must Go?

Under the Cable Act of 1992, when certain TV broadcasters want their programming carried on cable networks serving the same geographical area, they can invoke federal communications law to force cable operators to carry their programming. These "must-carry" requirements are a relic of 90s-era claimed cable "bottlenecks." And they're a forced-speech mandate of dubious constitutionality. Must-carry makes no sense in the dynamic video marketplace of 2010, and it runs contrary to a clear and consistent application of First Amendment protections against forced speech mandates. Now the U.S. Supreme Court could finally lay must-carry to rest.

Late last month Cablevision filed a petition with the Supreme Court, seeking review of the U.S. Court of Appeals for the 2nd Circuit’s June, 2009 decision upholding the "must-carry" statute as well as the Federal Communications Commission's application of the statute to Cablevision. Cablevision v. FCC stems from an FCC ruling that Cablevision must carry the signal of a home-shopping station on Cablevision’s Long Island cable systems. In addition to its claims that the existing case law does not support the FCC’s ruling and that the FCC misapplied the statute, Cablevision has asked the Court to reconsider and overrule its prior Turner I and II decisions from the mid-1990s (barely) upholding the must-carry statute.

It is important that the Supreme Court agree to hear this case. As an initial matter, it would be extremely unfortunate for the Court to let stand the FCC's improper expansion of the must-carry regulatory regime. Whatever its merits or demerits, the must-carry statute was intended to protect free, local, over-the-air TV broadcasting. But WRNN, the broadcast TV station at issue in Cablevision v. FCC, is licensed to a community 195 miles away from the cable systems on which it demanded carriage. The station primarily offers home-shopping programming content, and has no over-the-air viewership. One can excuse the 2nd Circuit for not proclaiming that the Supreme Court's rulings in Turner I and II are no longer good law. But surely the 2nd Circuit got the law wrong by upholding the FCC's expansion of must-carry mandates beyond the statute's narrower confines.

More important still, the Supreme Court should agree to answer the big question posed by Cablevision v. FCC: "Whether the imposition of must-carry obligations is consistent with the Constitution now that the facts undergirding the Turner decisions have evaporated with the emergence of vibrant competition and other dramatic market and technological changes."

The current state of video competition renders the 1990s rationale for must-carry obsolete. Only a person who has spent the last decade or so living deep inside a cave with no video reception capabilities whatsoever could be excused for not understanding that the video marketplace has undergone drastic change since the 1990s. Significantly, direct broadcast satellite has proven a strong source of competition with cable. The U.S. Court of Appeals for the District of Columbia Circuit recently acknowledged this in its August, 2009 decision in Comcast v. FCC, striking down the FCC's cable subscribership caps. As I related in a prior blog post ("D.C. Circuit: Vindicating Video Competition"), that court expressly recognized the increasingly competitive and dynamic marketplace for video:

[T]he 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.

In fact, the D.C. Circuit observed that "satellite television companies, which were bit players in the early '90s, now serve one-third of all subscribers." DBS subscribership growth over the last decade marks a dramatic change in the competitive video marketplace.

Moreover, cable operators also face growing competition from telecommunications providers offering new video services. Two large telco providers have spent the last few years rolling out IPTV services to challenge cable incumbents. AT&T, for instance, surpassed 2 million subscribers to its U-verse TV service in 2009. Verizon's FiOS service competes directly against cable incumbents in several markets, including Cablevision.

Because must-carry rules were justified in the 1992 Act and in the Turner decisions largely by the presence of a cable "bottleneck" (and the threat it posed to free, local over-the-air broadcast TV), the dramatic changes witnessed in video market conditions is highly significant for First Amendment purposes. With the claimed bottleneck rational rendered obsolete, the Turner decisions' application of intermediate-level scrutiny to the must-carry statute is thoroughly unsupportable.

Four of the nine Justices on the Supreme Court when Turner I & II were decided disagreed with the intermediate scrutiny that was applied to the must-carry statute. They would have subjected must-carry to strict scrutiny, requiring a compelling governmental interest and a narrow tailoring to uphold such a forced-speech mandate. And the Turner I & II majorities and concurrences conceded that factual conditions might require a scrutiny level reevaluation at a future time. That future time is now here, and the Supreme Court can build off of its own warnings against favoring or disfavoring different forms of speech media technologies in Citizens United v. FEC by extending strict scrutiny to must-carry mandates. (I discuss Citizens United's implications for future free speech cases in my FSF Perspectives piece, "What Citizens United Mean for Free Speech in the Digital Age.")

Many of the above considerations were well-summarized by FSF President Randolph May in his recent law review article Charting a New Constitutional Jurisprudence for the Digital Age. As predicted in that law review article, the Supreme Court passed up its earlier opportunity in last year's FCC v. Fox Television Stations to acknowledge the recent developments in the dynamic video marketplace, instead issuing a ruling on other grounds. (See the blog post "Constitutional Reckoning Still to Come.")

But the stage is set again in Cablevision v. FCC for the Court to acknowledge those developments. Hopefully, the Court will agree to take the case and make clear that the First Amendment's free speech protections consistently and evenly extend to electronic media.

Chairman Genachowski Needs a Sister Souljah Moment

As I pointed out in piece published last week on CBS.com called "Reject the Internet 'Public Option," groups like Public Knowledge and Free Press have mounted a vigorous campaign to have the FCC classify broadband Internet access services as "telecommunications" rather than "information" services. The import of such a decision would be that Internet access services provided by cable, wireline, wireless, and satellite firms would be regulated under Title II of the Communications Act as common carriage under the same public utility-type regime that applied to Ma Bell in the last century.

In my CBS piece I stated: "I don't think most consumers wish to retrogress to public utility-type regulation for broadband providers. They know, instinctively, that the same kind of regulation imposed on railroads in the 19th century and on Ma Bell last century is not suitable for 21st century high-speed Internet networks." I suggested the most strident net neutrality proponents are "seriously overreaching."

In his keynote address at the Free State Foundation's Annual Winter Telecom Policy Conference, FCC Commissioner Robert McDowell explained in a clear and detailed fashion why the notion of classifying Internet providers as common carriers under Title II has no merit. Why, in fact, common carrier classification would be counterproductive. In his address, which bears reading, and re-reading, Commissioner McDowell demonstrated the extent to which Title II regulation would require government micromanagement of the Internet service providers' businesses.

And now a group of wireline, cable, and wireless industry leaders have sent a 14-page letter to FCC Chairman Julius Genachowski vigorously opposing the proposal to regulate Internet providers under Title II. The industry leaders say to Chairman Genachowski that, "[i]t is difficult to imagine a proposal more at odds with the Commission’s historical commitment to keeping the Internet unregulated, to our national prospects for economic recovery, and to your own commitment to 'common sense' solutions and to 'private enterprise, the indispensable engine of economic growth.'"

I agree it is difficult to imagine a proposal more at odds with the FCC's historical commitment to keeping the Internet unregulated and with hopes for economic recovery and job creation. After all, the Internet access providers have invested over $200 billion of their own (read: non-government bailout) capital in just the last several years in continuing to build out high speed broadband networks. The FCC's broadband plan staff estimates it could cost up to another $350 billion to build out a high-speed network to every American. With the Internet providers apparently prepared to keep investing billions of dollars their own capital, given a reasonable regulatory environment, it's easy to understand the positive impact of their efforts on economic recovery and job creation.

What no one really knows at this point in his tenure is the extent to which Chairman Genachowski, when he says he is committed to private enterprise as the indispensable engine of economic growth, is prepared to act consistently with his words. Reversing the FCC's policy of not regulating Internet access providers as common carriers – after a long period of non-regulation during which broadband Internet availability and adoption have progressed nicely – would not be consistent with a commitment to such a private enterprise approach and would not be seen as such.

It is perfectly clear that the Title II'ers are not committed to a regime in which private sector firms respond to the demands of marketplace competition. Instead, they are committed to a regime in which Internet providers respond to the demands of government regulatory micromanagers. Indeed, as I pointed out several months ago here and as the industry letter reiterates, Robert McChesney, a founder and board member of the Free Press organization, which is the staunchest net neutrality proponent, said the following in an interview with "The Bullet," a publication of the Socialist Project: "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."

As we say in the law: Res Ipsa Loquitur – "the thing speaks for itself."

Professor McChesney, Free Press, and Public Knowledge are certainly entitled to their views, however radical they may seem to me or others. In fairness, in some technical legal sense, a public utility's property may still be considered private property subject to the strictures of the Constitution's Takings Clause. But, the import of Professor McChesney's and his cohorts' vision for the Internet is clear: At a minimum, Internet networks would be highly regulated by the government, including the rates, terms and conditions of service. This is the essence of the authority conveyed to the FCC by Title II.

Chairman Genachowski's launch of the Commission's net neutrality proceeding – right in the midst of the development of the national broadband plan – was in my view ill-advised and unnecessary. There is no reason at this point, however, to conclude that he agrees with the Title II'ers notion that Internet providers should be subject to common carrier regulation, much less that he subscribes to Robert McChesney's radical idea that Internet networks should not be private property.

Mr. Genachowski is undoubtedly a smart and capable person. He came to his job armed with a lot of knowledge about the communications, information services, and high tech marketplace, and also about communications policymaking. As chairman, he thus far has worked hard and deserves credit for taking actions to foster a sense of collegiality among the commissioners. My sense – perhaps it will turn out to be a misplaced hope – is that he must recognize that his entire policymaking agenda will be put at risk unless he puts an early stop to this talk about Title II Internet regulation or, indeed, any form of heavy-handed regulation..

In my view, what Mr. Genachowski needs right now is something roughly akin to a Sister Souljah moment, a forceful repudiation of the more extreme ideas urged by those who are seen by some as his natural allies and the allies of the president who installed him at the FCC. He ought to avail himself of such a Sister Souljah-like moment to make clear he understands that, in today's dynamic digital environment, debate about the need, or not, for regulatory intervention regarding the Internet should be circumscribed within certain essentially moderate parameters which necessarily exclude Title II common carrier regulation.

The Dark Side of Maryland's Fiscal Picture

Len Lazarick has an excellent piece today on the MarylandReporter.com site concerning what he calls the "darker underside" of Maryland's credit rating. The darker underside refers to the "continuing budget deficits in coming years and the mounting deficit in state pensions and retiree health benefits." According to Lazarick, Maryland's unfunded pension and health benefit liabilities for retired state employees now exceed $32 billion – and they have been growing fast. Absent action, these unfunded liabilities will continue to drive the state's structural deficit for many years to come.

In a Perspectives paper that Len wrote last April when he was a Visiting Senior Fellow at the Free State Foundation, he discussed the impact of the state employee pension and health benefits on the state's budget deficit. The paper, "Curing Maryland's Structural Deficits: A Call for Mandate Reform," is here. Read the paper to get a more complete picture of the pension and health benefits situation. Along with other mandates contributing to the state's structural budget deficit. In the meantime here are a few excerpts:

"Teacher and public employee unions argue that defined-benefit pensions attract teachers and state workers to their jobs and help retain some of them, but they have become increasingly rare in the private sector. Maryland pensions are available to anyone with 30 years' service, regardless of age."

"A DLS study for the OPEB [Other Post-Employment Benefits] commission compared Maryland’s health insurance benefits with those of nine other states that also hold AAA bond ratings. 'Maryland offers among the most generous package of health benefits to its retirees compared to the benefits offered' by the other states, DLS found. 'Maryland offers the shortest vesting period, the lowest prescription drug copayments, the second most plan options, and the second highest premium subsidy. As a result, Maryland has the highest retiree health liability per covered retiree and spouse among these 10 states.' The commission also heard from a consultant comparing retirement benefits in large private sector companies. Only about a third now offer health benefits, compared to 90% of state governments, and half of the private sector employers cap their share of the cost of these benefits. Clearly, the liabilities of health insurance benefits for Maryland retirees is another unfunded entitlement that helps drive the state’s structural deficit in the general fund – especially if they were being advanced funded, as GASB [Governmental Accounting Standards Board] requires."

Both Democrats and Republicans share the blame for not addressing the situation while the unfunded retiree pension and health benefits liabilities continue to grow, even as the deficit grows. Both have found it easier to curry favor with the state employees than to discuss ways of curtailing future liabilities.

Conventional wisdom has long dictated that turning a blind eye was the politically safe course. Perhaps such "blind-eye" governing has worked for Maryland's politicians for a long time. But if Maryland's governor and legislators continue on what in the past was considered the politically safe, even if fiscally irresponsible, course, they may be surprised to find out that Maryland's voters – like those in Massachusetts -- are not immune from the concern about deficits and government overspending that is sweeping the country.

Maybe, to rework a thought form James Carville, Marylanders will come to understand: "It's about our children and grandchildren, stupid!

Pass the "Read the Bills" Bills

In addition to other transparency and open government measures being promoted in Maryland's General Assembly (see my pieces here and here), there are "Read the Bills" bills. These are proposed measures that in one form or another require that bills be posted on the Internet – along with the "Fiscal Note" – a certain number of days before they are voted on in committee are on the floor of the legislative chamber.

The somewhat innocuous-sounding Fiscal Notes are the all-important statements that are intended to inform legislators of the budgetary impact of the law to which they are attached. While always of importance, of course, in today's environment of projected $1.5 billion budget deficits, they are more important must-reading than ever.

The "Read the Bills" bills are so-called because the required Internet posting and time interval before legislative action are designed to provide time for legislators to…….read the bills. For summary information on three of them, see this post on the Blue Ridge Forum site. Like the bills designed to open up other facets of Maryland's legislative process, passage of the "Read the Bills" measures would be a step in the right directions towards empowering citizens to hold their elected officials more accountable for their actions. Indeed, in her detailed December 2008 study entitled "Structural Solutions for Maryland's Structural Deficit: Pathways to Reform," the Free State Foundation's Cecilia Januszkiewicz recommended posting of fiscal notes on the Internet at least two days before the first hearing on a proposed bill. (This was one of Cecilia's nine recommendations. Anyone seriously interested in budgetary and fiscal reform in Maryland, should read this FSF study.)

It is worth pointing out that one of the proposed bills highlighted in the Blue Ridge Forum post, House Bill 437, has a rather large built-in exception – one big enough to drive the proverbial truck through. The Internet posting requirement does not apply to bills for which a vote for final passage will be taken within four days of the end of a legislative session. Oops! That's when a proverbial truckload of the important bills are usually passed – at the very end of the session.

There is no reason why that loophole should not be closed. If necessary, legislators can delay their exit for a few extra days before shutting down. Or better yet – get their business done earlier in an orderly fashion that avoids the last-minute rush which is prone to hurried back-room deals.

So, while there appears to be a movement afoot to adopt some meaningful open government reforms, there is still important work to be done.

 

Watching Scott Cleland Watch Google

Scott Cleland's latest blog, titled How much should Google be subsidized?, is a very good exposé demonstrating the extent to which Google has successfully manipulated the public policy process to its own competitive advantage. It is not surprising that a company that has amassed the power that Google has amassed would try to use its influence to benefit itself – that happens all the time in Washington and around the country. What is surprising, and disappointing, is the extent to which, thus far, Google has been able to pull the wool over the eyes of public policymakers and elected officials in promoting self-serving regulatory policies and outright subsidies.

Let's hope that changes soon. If it does, it will be due in no small part to Scott Cleland's good work reported on the Precursor Blog.

 

More on the Maryland Open Government Act

I am not much in the business of recommending petition signing, but I note that an online petition website has been set up to collect signatures in support of Del. Helen Mizeur's Maryland Open Government Act.

I previously called attention to Del. Mizeur's bill in the blog, "Steps Toward a More Open Maryland Government" and said "if steps are taken to increase the transparency of legislature's activities and ease citizen access to information, Maryland's taxpayers will be in a better position to know whom to blame – or praise."

The Open Government Act would require the following:

1. Allowing the public free and total access to services provided on the General Assembly's website, including elimination of the $800 access fee charged for "up-to-the-minute" legislative tracking.

2. Webcasting General Assembly committee hearings and Board of Public Works meetings over the Internet.

3. Posting General Assembly committee hearing agendas at least one day in advance.

4. Allowing online sign-up for those wishing to testify before a General Assembly committee.

5. Publishing the votes of standing committees on the General Assembly's website.

6. Posting the Board of Public Works's proposed budget actions at least two weeks in advance.

7. Allowing for a public comment period in advance of Board of Public Works budget actions.

You may or may not want to sign the online petition. But, if you are interested in making government in Maryland more transparent and accountable, you should welcome passage of the Open Government Act and similar measures to increase transparency.