Shareholders Approve Disney to Buy Fox Assets

Last week, Walt Disney Co. and 21^st Century Fox Inc. shareholders approved the $71.3 billion deal for Disney to acquire Fox's entertainment assets. This approval comes after Comcast dropped its $65 billion bid to focus its efforts on acquiring the European pay-TV company Sky. The two companies were in an aggressive bidding war, but both were in good standing to receive antitrust clearance. Disney has already received antitrust clearance, subject to certain divestiture conditions, and if Comcast had stayed in the running, it likely would not have faced any significant antitrust concerns either.

House Passed the ACCESS BROADBAND Act

Yesterday, the House of Representatives passed the Advancing Critical Connectivity Expands Service, Small Business Resources, Opportunities, Access, and Data Based on Assessed Need and Demand Act (H.R. 3994), also known as the ACCESS BROADBAND Act.

This bill would establish the Office of Internet Connectivity within the National Telecommunications and Information Administration to coordinate and track federal funding for broadband across all agencies. The bill would require to the office to:

• connect with communities that need access to high-speed internet and improved digital inclusion efforts,

• hold regional workshops to share best practices and effective strategies for promoting broadband access and adoption,

• develop targeted broadband training and presentations for various demographic communities through media,

• develop and distribute publications providing guidance to communities for expanding broadband access and adoption, and

• track construction and use of any broadband infrastructure built using federal support.

The ACCESS BROADBAND Act would streamline application and administration processes for all federal broadband projects and would advance next-generation broadband access throughout the United States.

FCC Transparency Act Would Mandate Releasing Draft Items Before Vote

Last week, Representative Adam Kinzinger (R-IL) reintroduced the FCC Transparency Act, H.R. 6422, which would mandate that the Commission publish the draft items to be considered at public meetings 21 days in advance of the vote. The FCC adopted this practice under Chairman Ajit Pai but this legislation would require the practice for all Commissions moving forward.

FCC Commissioner Michael O’Reilly made the following statement about the legislation:

I applaud Representative Kinzinger on reintroducing the Federal Communications Commission Transparency Act. This legislation codifies the current and critical Commission practice of publicly posting items three weeks in advance of their consideration at monthly Commission meetings. As a result of this practice, unnecessary discussions of non-existent issues have been eliminated, conversations are more productive, Commissioners are still speaking their minds and negotiating internally on items, and work product has greatly improved. I have also seen comments from all Commissioner offices — Republican and Democrats — in favor of the practice. Despite the broad support for this program, as well as Chairman Pai’s effort to initiate this reform for added agency transparency, I believe codifying this practice is important to ensuring its longevity.

FSF scholars have advocated for draft items to be released before the Commission votes on them, because the additional transparency promotes rule of law and due process norms, enhances public confidence in the integrity of the agency’s decision-making, and increases the FCC’s efficiency. See this January 2017 blog by FSF President Randolph May.

Telehealth, Lifeline, and Resellers

At its upcoming August meeting, the FCC will vote on issuing a Notice of Inquiry seeking, as Commissioner Brendan Carr put it in a July 11 news release, “to establish a new $100 million ‘Connected Care Pilot Program’ to support telehealth for low-income Americans, especially those living in rural areas and veterans.” While I am not an expert on telehealth, the initiative seems like a worthwhile effort. 

And an important part of what makes it worthwhile, in my view, is the emphasis on supporting low-income Americans. As I have stated frequently in this space, while I am a strong supporter of free market-oriented communications policies, I have always recognized – and long acknowledged – the role “safety net” programs play in aiding low-income persons. That’s why I have long been a supporter of a properly-run Lifeline program. And by properly-run, I mean one that takes seriously the need to police waste, fraud, and abuse.

In the FCC’s current “Bridging the Digital Divide for Low-Income Consumers” proceeding, I filed comments opposing the proposal to limit participation in the Lifeline program only to facilities-based providers. Here is part of what I said:

So, while promoting increased facilities investment is, in general, a worthwhile objective, the primary purpose of the Lifeline program is to promote the affordability of communications services for low-income persons…. The reality is that, today, almost 70% of Lifeline subscribers are served by resellers. As the Commission has recognized, many of these are minorities who rely primarily or exclusively on wireless services, including wireless broadband services, for access to communications. There is no dispute that wireless resellers, like TracFone, have focused their marketing on reaching Lifeline-eligible low-income consumers, and, this, in turn, has increased awareness of the program. In any event, the reality today is that facilities-based providers currently are serving only a minority of Lifeline subscribers, so that discontinuing support for resellers would be very disruptive to the program.

The Commission apparently intends to propose, as it did in the Lifeline “Bridging the Digital Divide for Low-Income Consumers” rulemaking notice, to limit participation in the Telehealth program to facilities-based providers. While I generally applaud initiatives designed to promote facilities-based investment, as I said in my Lifeline comments, “sometimes there are reasons justifying ‘exceptions to the general rule,’”

As the Commission moves forward to consider the issuance of the Telehealth Notice of Inquiry, in light of the Telehealth pilot program’s focus on aiding low-income persons, the agency should consider whether it really makes sense to limit participation to receive support funds only to facilities-based providers.

As with Lifeline, this may be another situation where there is good reason for an “exception to the general rule” favoring facilities investment. 

Comcast Drops Bid for Fox Assets

Today, Comcast announced that it is dropping its $65 billion bid for Twenty-First Century Fox assets. Instead, Comcast will focus on its $34 billion bid for the British company Sky. 

As discussed in a blog last week by FSF Senior Fellow Ted Bolema, Comcast and Disney have been aggressively bidding on Fox assets, including Twenty-First Century Fox movie and TV studios, FX channels, controlling interests in National Geographic Partners, as well as non-controlling interests in Hulu. This announcement leaves Disney as the favorite to acquire these Fox assets, a decision that will be made by Fox shareholders on July 27, 2018.

Charter's New Wireless Service "Spectrum Mobile" Increases Competition

Last month, Charter Communications launched a new mobile wireless broadband service, Spectrum Mobile. Spectrum Mobile’s unlimited data plan starts at just $45 a month. Consumers will enjoy the benefits of over $27 billion in technology and infrastructure invested by Charter since 2014. Spectrum Mobile consumers who also use Charter’s fixed broadband service will enjoy high-speed connections at home and on the go.

This new wireless offering solidifies Charter as one of the leaders in both wireline and wireless broadband, and it spurs further competition in the broadband market. Charter joins Comcast as the other major cable provider to enter into the mobile wireless market. This benefits consumers by putting downward pressure on wireless prices and by encouraging additional network investment from wireless competitors.

Congress Should Disregard Internet Bill for Regulation Overkill

Rep. Mike Coffman has just introduced the "21st Century Internet Act" – a bill that would put the Internet under harmful heavy regulation. The new bill is a bureaucrat’s dream, as it would empower the FCC to enforce restrictive controls over how broadband Internet networks operate. Congress should disregard this bill and its call for Internet regulation overkill. 

Rep. Coffman’s bill seeks to revive the FCC’s short-lived experiment in imposing public utility regulation on Internet access services. It would even re-impose the vague and legally dubious “general conduct” or “catch all” standard that gave the FCC seemingly unfettered power over broadband ISP network management practices. There is solid evidence that public utility regulation harmed investment in broadband Internet networks, including mobile wireless networks. In late 2017, FCC wisely repealed its unjustifiable and harmful public utility regulation. 

Importantly, the Internet remains open without public utility regulation. There is no evidence that consumers are being harmed by broadband ISP network management practices. And consistent with the FCC’s Restoring Internet Freedom Order, the Federal Trade Commission is available to take enforcement actions against any broadband ISP management practices that are unfair or deceptive. 

Unfortunately, there is plenty of evidence that major online content companies known as “edge providers” are lobbying hard and waging PR campaigns for legislation to benefit their bottom line by regulating broadband ISPs. This might explain the introduction of Rep. Coffman’s regrettable Internet regulation bill. But members of Congress should resist the temptation to assert economy-harming controls over our most advanced technologies, particularly where there is no consumer protection case for doing so. 

It is almost certain that this new Internet regulation bill will live a short and isolated existence in 115th Congress. Members of Congress should instead focus their efforts on legislation to promote economy-enhancing deployment of next-generation fiber-optic, satellite, and 5G networks to all Americans.

New FCC Rules Do Not Force Consumers to Pay $225 to File a Formal Complaint

Today, the FCC voted to streamline rules for its formal complaint process. Specifically, the rules create a uniform deadline of 30 days for a defendant to file an answer to a formal complaint and they set a 270-day shot clock for resolution of formal complaints.

Earlier this week, some false reports circulated through the media suggesting the new rules “would essentially force” consumers to pay $225 to file a formal complaint. But the new rules do not eliminate or change the informal complaint process, which is available to all consumers at the very low price of $0. The new rules simply set guidelines for the formal complaint process. Jimmy Kimmel spread this false information with a less than hilarious joke on his late night talk show. Realizing he was incorrect, Jimmy Kimmel deleted the segment from his Twitter account.

The Bidding for the Fox Assets: Where Things Stand

Comcast and Disney for months have been aggressively seeking to buy up certain Fox assets. The Disney bid has been accepted by Fox management, but will be decided when Fox shareholders vote on the Disney bid on July 27^th. Meanwhile, Comcast is making its own offer for both the Fox assets, and this week it increased its offer for the shares that Fox does not currently own in Sky, the largest pay TV service in Europe.

The decision is ultimately up to shareholders, and it appears that antitrust considerations should not be a determining factor. In my view, the Comcast bid should not face any significant antitrust obstacles, and if anything should raise less antitrust concerns than the Disney bid that has already received antitrust clearance, subject to certain divestiture conditions.

The Fox assets in play are most of the company, excluding Fox News and other key assets. Specifically, Comcast and Disney are bidding for the Twentieth Century Fox movie and tv studios, the FX channels, the regional Fox sports channels, Fox’s controlling interest in Sky and National Geographic Partners, and its non-controlling interest in Hulu, among other assets. Not included in the transaction are Fox News, Fox Business Network, the sports channels FS1 and FS2, the Fox Broadcasting Company, and the Fox television stations. Nearly three-fourths of the Fox assets subject to the acquisition, including the Sky and Star India businesses, are overseas and thus do not raise any domestic antitrust concerns.

This analysis is based on the developments in the bidding for the Fox assets and Sky as of July 12, 2018. Of course, anything can change at any moment, especially with the July 27^th vote quickly approaching. 

The Disney Bid

The Disney bid received clearance from the Department of Justice in late June under the DOJ’s “FastPass approval” process. To obtain this expedited approval, Disney promised to divest the 22 Fox regional sports networks in response to DOJ concerns about the horizontal overlap with ESPN and other sports programming assets currently owned by Disney. Disney had previously carved out of the deal two national Fox sports channels, FS1 and FS2.

Notably, the Disney bid is structured so that it does not require any license transfers that would trigger a Federal Communications Commission review, so Disney only needs regulatory consent from DOJ for the transaction. Avoiding the FCC review means that the transaction is not subject to review under the FCC’s vague “public interest” standard, which is important for regulatory clearance because the DOJ review is limited to the economic impact of the transaction. 

The DOJ approval for the Disney bid is somewhat surprising because the approval conditions were limited to sports channels, but not to the horizontal overlap between the Disney and Fox production studios. Disney’s studio is the market leader in terms of movie box office revenues, and Fox studio is one of its leading competitors.

Moreover, the DOJ does not appear to be concerned about the impact of the proposed merger on Hulu. Combining the Disney and Fox shares in Hulu would give Disney majority control over Hulu, the video streaming company that is jointly owned by Fox, Disney, Comcast and Time Warner. Hulu is an important distribution outlet for movies, so giving Disney control over Hulu has a post-merger vertical implication of a Disney transaction. It may be overly optimistic to conclude that the DOJ learned from its recent failed challenge to the AT&T/Time Warner merger to not try to challenge the vertical aspects of another merger so quickly. It should be noted, however, that Hulu is not profitable and may not be financially viable as currently structured, and Disney is arguing that giving it majority control would give Disney the incentive to invest heavily in Hulu so that it will survive.

The Comcast Bid

Comcast evidently is seeking a similar FastPass approval from DOJ for its bid for the Fox assets. The Fox board has suggested that the Comcast bid raises more antitrust concerns than the Disney bid. That may be true in the sense that Disney has received FastPass approval and Comcast so far has not. But looking strictly at the economic implications of the Comcast bid, the antitrust concerns if anything are less for Comcast.

Comcast’s horizontal overlaps with the Fox assets are similar to those that Disney has. Comcast arguably may have a more direct overlap in sports programming, but Comcast, like Disney, has indicated that it is willing to eliminate the overlap by divesting any regional sports channels that raise concerns with the DOJ. Comcast also has a studio overlap with Fox because it owns Universal Studios. But Universal is much smaller than Disney’s studio, so if DOJ didn’t object to combining the Disney and Fox studios, it is difficult to see how it could object to the Comcast studio overlap. And the Hulu issue is largely the same for Comcast as for Disney—either one would come away with majority control over Hulu.

Comcast, with its cable system, may raise more vertical antitrust concerns than Disney if it acquired the Fox assets. But these are largely similar vertical concerns to the ones raised by DOJ in its recent failed challenge to the AT&T/Time Warner challenge. To the extent that Comcast’s proposed acquisition of Fox’s assets, akin to the AT&T/Time Warner merger, is largely a vertical merger combining programming distribution facilities with programming content, there is no reason to think a court would view the competitive analysis much differently. Moreover, as Judge Leon pointed out in his ruling in the AT&T/Time Warner case, any vertical antitrust concerns have to be weighed against the economic benefits of the transaction. In the rapidly changing communications and media environment, the proposed transaction will strengthen Comcast's ability to compete with the growing market power of web giants like Google and Facebook and online powerhouses like Netflix.

Sky and a Possible Division of Assets

Another possibility is that Comcast and Disney decide to divide up the Fox assets. Comcast is aggressively pursuing Sky, the largest pay TV service in Europe. Fox currently owns 39% of Sky, which is enough to give it managerial control over it, and is attempting to buy the rest of Sky. If the Fox bid for Sky succeeds and then Disney buys the Fox assets, Disney would come away with both control and a large majority of the shares in Sky. But separately from Comcast’s bid for the Fox assets, Comcast is also bidding against Fox for the shares of Sky that Fox doesn’t own. The Sky bidding has little direct impact on antitrust review in the U.S.

A possible resolution of the Disney/Comcast bidding could be that Disney and Fox let Comcast acquire the non-Fox shares of Sky and then Disney sells the Fox shares in Sky to Comcast. That way Disney would acquire most of the U.S. assets in Fox being sold, while Comcast would come away with Sky. Some analysts believe this is the best outcome for both companies, because they would each come away with significant assets while taking on less debt. One problem with this scenario is that Disney’s bid for the Fox assets prohibits it from talking directly to Comcast.

Conclusion

Transactions the size of the Disney or Comcast acquisitions of the Fox assets bear careful scrutiny, and I am not rendering any final judgments here. But if the Disney proposal can obtain antitrust clearance with only relatively minor divestitures, there is no reason to believe that a Comcast bid should face any greater regulatory obstacles. Thus, the resolution of these bids will likely come down to what the Fox shareholders choose to do, which should not be affected by U.S. antitrust considerations.

STREAMLINE 5G Processes to Match the Speed of Business

STREAMLINE 5G Processes to Match the Speed of Business

by Gregory J. Vogt

Global preparations are underway to ensure that 5G wireless deployment occurs at the speed of business. Consumers are hungry for wireless solutions to age-old problems. The significant 5G advances in broadband speed, capacity, and latency promise to produce a new leap forward in modern communications technology.

The innovations 5G technology permits – indeed, creates – could produce disruptive revolutions in a number of industries, including automotive, medicine, and education, just to name a few. But the current 5G conceptualizations cannot become a reality without determining a path forward. Government processes can interfere with such a path, absent streamlining when it is in order.

Senators John S. Thune (R-SD) and Brian Schatz (D-HI) recently introduced the Streamlining the Rapid Evolution and Modernization of Leading-edge Infrastructure Necessary to Enhance (STREAMLINE) Small Cell Deployment Act (S. 3157) which focuses on a big piece of the path forward. STREAMLINE, a bipartisan ray of sunshine, would:

·     Establish a 90-day deadline for localities to act on an infrastructure siting application (60 days for existing towers, with longer periods for small communities);

·     Ensure that fees for applications are fair and reflect only the publicly disclosed actual costs incurred; and

·     Ensure that all siting applications are reviewed on a technology neutral basis and are not based on overly broad and unfair restrictions that impede broadband deployment. 

Why is STEAMLINE so important?  An April 2018 report conducted by Analysys Mason, “Global Race to 5G- Spectrum and Infrastructure Plans and Priorities,” identified infrastructure as one of the two issues (the other is spectrum availability) that places United States behind China in terms of overall leadership in 5G technology. Recon Analytics has already reported the significant consumer welfare advantages to the United States in being the leader in 4G technology. Therefore, “winning the race” for 5G leadership is more than macho bravado. It has significant potential to bolster future national wealth that can redound to the benefit of millions of Americans in terms of jobs, economic growth, and technological innovation.  Accenture estimates that the wireless industry could invest up to $275 billion in 5G networks over seven years, growing GDP by $500 billion and adding 3 million new jobs.

Some zoning authorities and other municipal offices have been uncooperative with wireless siting applications, including imposing unreasonably high costs as well as creating lengthy delays. 5G will require rapid deployment of a large number of small cells. Deployment will be undermined by those jurisdictions that are not friendly to technological innovation.

A number of states have passed legislation that impose duties on cities and other government zoning authorities to reasonably process wireless siting applications, including those for the small cells necessary for 5G deployment. Although these state laws are highly beneficial, they remain both a patchwork and an incomplete effort in providing infrastructure access throughout the nation, including in rural America. National legislation such as STREAMLINE would impose a uniform minimum standard in terms of application costs and time of processing, essential to 5G, which will be a national, not state or local, business.

For its part, the Federal Communications Commission issued a wireless infrastructure rulemaking that potentially seeks to preempt local zoning authority restrictions on small cell deployment. But complete resolution of that portion of the infrastructure rulemaking has been pending for over a year, and there continues to be controversy concerning the rules that might be adopted. The rules adopted are likely to be challenged in court, particularly by organizations of cities and/or states, which almost always appeal the exercise of FCC preemptive authority. Although the FCC in the past has been fairly successful in using judicious preemption of state and local laws to ensure reasonable and nondiscriminatory permitting processes, federal legislation would provide a more uniform and certain path to establish prompt and reasonably priced siting application processes.

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I am particularly encouraged that STEAMLINE is a bipartisan bill introduced, apparently, after some negotiations with both industry and governmental organizations. Senators Thune and Schatz are to be congratulated for introducing STREAMLINE. I hope that the bill, or one substantially similar, can be rapidly passed by the Senate and taken up in the House. Legislation like the STREAMLINE bill, coupled with the spectrum allocation provisions of MOBILE NOW (included in RAY BAUM’s Act), would materially advance the ability of the United States to be the global leader in the 5G revolution and benefit America’s consumers. 

Commissioner O’Rielly’s Speech on FCC Process Reform at FSF’s Seminar

In a speech before the Free State Foundation’s June 28, 2018 Policy Seminar, FCC Commissioner Michael O’Rielly spoke about the FCC’s recent process reforms and next steps. He noted that process reform has been a mission of his since soon after he joined the Commission in 2013 and that he spoke about FCC process reform three years ago at another Free State Foundation conference.

The most groundbreaking reform recently adopted by the FCC, according to Commissioner O’Rielly, has been the online posting of items three weeks before their consideration at monthly Commission meetings:

When I first proposed the idea, I knew that providing information to all, instead of to the few with pricey D.C. representation, would enhance the transparency and legitimacy of the agency. But, the response from many was that it would bring the FCC’s work to a halt, Commissioners would be hesitant to negotiate, and some sort of regulatory chaos would ensue. None of this has come to pass. Instead, the Commission’s process has become far more efficient. Meetings are targeted to specific issues, unnecessary discussions of non-existent issues have been eliminated, conversations are more productive, Commissioners are still speaking their minds, and work product has greatly improved.

Commissioner O’Rielly also discussed the progress being made in establishing the FCC’s Office of Economics and Analytics “to ensure that the new office has the ability and power to institute drastic and long-lasting change to how we consider the economic impact of the rules we adopt.” As a result, future cost-benefit analyses performed by the FCC will require “a rigorous, economically-grounded analysis for any rulemaking that will have an annual cost to the economy of $100 million or more.”

As for next steps, Commission O’Rielly noted, “At last count, I have approximately 50 ideas – both old and new – that I plan to discuss with the Chairman. No need for anyone here to run for the doors; I am only going to highlight some of these ideas today.” He then described five of these ideas. 

1. Codify Commission Procedures. According to the commissioner: “Most of you would probably be shocked to learn that few of our internal workings are written down anywhere. They are merely passed down through the years under the guise of ‘how we’ve always done it.’ How does one disagree with a current practice when the practice doesn’t technically exist?” His solution is to direct FCC staff to start putting the Commission’s working practices down in written word and publishing them in the Code of Federal Regulations for the entire world to see.

2. Formalize Timeframes and Timelines. After noting that too often FCC proceedings “can get stuck in regulatory quicksand,” Commissioner O’Rielly said: “The Commission should take the necessary steps to ensure that all work is concluded expeditiously, and that the public has an opportunity to challenge a decision promptly. Appropriate timeframes should be placed on all FCC proceedings, the 180-day merger shot clock should not be aspirational, and clear deadlines need to be placed on Team Telecom’s review of the foreign ownership implications of certain applications before the FCC.” 

3. Eliminate the Administrative Law Judge Process. Commission O’Rielly said “We should not continue the practice of prolonged proceedings to determine that a hearing is needed, to then transfer the issue to an ALJ for a drawn-out hearing, just for the matter to come back to be fully considered yet again and voted on by the Commission. What a waste of time and resources.” He noted that despite the thousands of proceedings and applications that come before the FCC, only six active cases designated for hearing.

4. Deregulatory Presumption. For this recommendation, Commissioner O’Rielly endorsed a proposal made by Free State Foundation President Randy May in 2011 that the FCC start with “a presumption that regulation is not necessary due to the presence of meaningful competition,” which “could only be overcome by clear and convincing evidence to the contrary.” He added: “there is no reason why the Commission, on its own accord, could not use such an approach when considering forbearance petitions or reviewing rules. And, if for some reason regulation is found to be necessary, the Commission should impose sunset provisions or require periodic reviews for any new or retained rules.” 

5. Fixing Enforcement. His last recommendation focused on the forfeiture collection process, noting that the FCC’s policies in this area are too inconsistent in terms of how penalties are calculated, transparency, how well the collection process is enforced, and when the statute of limitation expires. He added: “Enforcement proceedings should never be used to set policy or precedent that will apply to multiple parties without the opportunity for basic notice and comment.” 

As Commissioner O’Rielly acknowledged, FCC process reform is not always splashy and does not necessarily generate headlines. But it is nonetheless very important for the Commission to succeed in its substantive goals: “For the agency to accomplish the big-ticket items, it must have a process that is efficient and one that is respected internally and externally. Otherwise, the Commission leaves itself open for both process complaints and substantive objections.” He concluded that at least some of these proposals could be implemented first on a trial basis to see how they work in practice. He added that trialing may not be necessary, but it could be used to advance the reform agenda. In any event, Commissioner O’Rielly explained, such trialing “must be a good idea because Randy May wrote a blog on this very idea back in January 2017.”

Portland, Oregon Considering Municipal Broadband, Despite Existing Competition

Earlier this month, Multnomah County, Oregon, where Portland is located, announced that it will adopt a feasibility study to evaluate the prospect of building a county- and city-wide fiber network. The study is projected to cost $300,000 and early estimations project that the network could cost $500 million to build.  If the network is adopted, it would be the biggest municipal network in the country.

This week, the Free State Foundation published a Perspectives from FSF Scholars titled “Big City Municipal Broadband: Repackaging Net Neutrality Arguments Won’t Fly,” which discusses how big cities throughout the country are adopting municipal broadband projects in the name of net neutrality. While it’s unclear why Multnomah County is proposing this municipal network, it is the latest example of a big city considering a municipal broadband project, along with Baltimore, San Francisco, and Seattle, which we discuss in-depth in the paper.

Of course, before a city begins building a network, adopting a feasibility study is a necessary and responsible step for the municipality to weigh the costs and benefits of a potential network. However, as Ted Bolema and I state in our paper, municipal networks have a history of financial instability and that likely would continue in Portland and its surrounding county, where competition already exists.

In Multnomah County, 83.4% of residents have access to two of more fixed broadband providers offering 25 Mbps or greater. Therefore, if this county- and city-wide network is adopted, it will have to compete with incumbent private providers who have a greater incentive to provide pro-consumer offerings because they cannot subject taxpayers to the burden on their inefficiencies, while a public provider can.

See our new paper to learn more about big cities considering municipal broadband projects!

New Wireline Order Will Advance Fiber and 5G Deployment

On June 7, 2018, the FCC adopted a Second Report and Order that will accelerate the transition from legacy networks and services to next-generation networks and services and will eliminate FCC regulations that unnecessarily raise costs and slow broadband deployment. In March 2018, I authored a Perspectives from FSF Scholars titled “Reaching Rural America: Free Market Solutions for Promoting Broadband Deployment.” In the paper, I discussed ways Congress, the FCC, and state and local governments can remove barriers to entry into the broadband market to spur competition and advance deployment in rural and underserved areas. In particular, this wireline Order will reduce regulatory costs for broadband providers and advance the deployment of fiber and 5G networks.

A June 2017 paper by CMA Strategy and Corning found that the adoption of all of the proposed rules in the wireline Notice of Proposed Rulemaking (NPRM) would increase fiber broadband penetration by 26.7 million premises (residential and businesses), which corresponds to over $45 billion in capital investment. The paper also found that adoption of the full NPRM would increase 5G broadband penetration by 14.9 million premises, which corresponds to $24 billion in capital investment. For both fiber and 5G providers, over 95% of the $69 billion would be invested in rural and suburban areas. That means that the FCC’s wireline Order could lead to an additional $42.8 billion in capital investment from fiber providers in rural and suburban areas and an additional $22.8 billion in capital investment from 5G wireless providers in rural and suburban areas.

By expediting application processes and eliminating unnecessary requirements designed for legacy networks, the Second Report and Order in addition to a Report and Order adopted in November 2017 will modernize regulations and could lead to an additional $69 billion in fiber and 5G broadband investment.

Commissioner O’Rielly: Narrow Market Definition No Longer Appropriate for Media Marketplace

In a speech on July 20, Commissioner Michael O’Rielly of the Federal Communications Commission described how the FCC has been using “an extremely narrow definition and scope of the media marketplace” that can no longer be defended, especially after the decision in the AT&T/Time Warner merger:

From the viewpoint of many, both the FCC and Department of Justice have been stuck in administrative molasses, seeking to apply sectoral market analysis, preserve questionable bright line tests, and continue the imposition of rigid restrictions as part of transactional reviews the same way now as in 2008, 1988, or 1958. I would posit that the entire foundation of how the government currently views the “communications” market – be it voice, video, or data – is outdated and misguided.

Free State Foundation President Randy May and I made largely the same argument today in our op-ed posted on Real Clear Markets, where we concluded:

Judge Leon’s decision rejecting the Department of Justice’s case against the AT&T/Time Warner merger should be a spur to further critical thinking regarding the application of antitrust law to today’s technologically dynamic communications and media environment. It’s not acceptable for antitrust authorities to rely on outdated market definitions that bear little resemblance to today’s shifting competitive market realities.

Commissioner O’Rielly went on to explain:

The problem with such an approach, of course, is that when you narrowly define a marketplace and narrowly recognize competition – far devoid from market realities – the result typically leads to the application of additional regulations or limitations beyond what is necessary to protect consumers. Perhaps that’s just the nature of the beast. But, as Judge Leon recognized in his decision, there has been a “veritable explosion” in the media marketplace in just the last five years. In the video space, Netflix, YouTube, Hulu, and so many other over-the-top providers now compete directly for consumer attention and the almighty advertising dollars. In the audio space, there is also satellite radio and a myriad of Internet offerings, including the ability to stream most radio stations from their own websites. This has an impact on the ability of traditional media providers to cover their costs, make capital investments, expand operations to meet consumer needs, and so much more. Broadly, this means that, given the extensive competition from new technologies, the current generation of legacy media will only flourish, and perhaps survive, if the government recognizes this marketplace reality. 

Accordingly, all relevant participants: newspapers, radio stations, broadcast television stations, cable companies, over-the-top providers, Internet sites, social media platforms, streaming music services, and satellite radio must be included in any media market definition. When I talk to existing providers in this space they explain quite clearly to me how their future plans are centered around competing against all of those operating in the market, especially given the development and scale of two large Internet companies: Facebook and Google. In not recognizing this in our rules, we shackle certain competitors, skewing the market in favor of the unregulated industries. 

Having a dynamic understanding of where the marketplace stands at the current time, along with the agility to adapt as the market changes, allows either the FCC or DOJ to conduct a fair but accurate analysis, which should be of top priority. For example, one of the major reasons cited for the AT&T/Time Warner merger was the belief of the companies that the future rested in delivering content in the broadband space, and particularly to mobile devices. 

The FCC will be reviewing several other significant mergers later this year, including the proposed merger of T-Mobile and Sprint. Thus, these comments give an insight into how Commissioner O’Rielly will be evaluating the critical market definition issues for acquisitions before the FCC.

Commissioner O’Rielly’s speech was at an event sponsored by Michigan’s Mackinac Center for Public Policy in Lansing, Michigan. I was a panelist at the event, along with Brent Skorup of the Mercatus Center.

House Subcommittee Approves the Smart IoT Act

This week, the House Digital Commerce and Consumer Protection Subcommittee approved the State of Modern Application, Research, and Trends of Internet of Things Act, or the “Smart IoT Act” (H.R. 6032), which will now proceed to a markup in the full committee. The Smart IoT Act would create a one-stop shop for industry best practices and standards, analyze the federal government’s need for IoT devices and services, and avoid duplicative regulations that could slow innovation.

Subcommittee Chairman Bob Latta (R-OH) made the following statement: “The SMART IoT Act is a critical first step to future IoT policy efforts. As we serve on this subcommittee, we have the opportunity to look 5 years, and farther, into the future to see where technology is headed. We have an obligation to do what we can to promote innovation, American competitiveness and technological advancements that benefit consumers. The SMART IoT Act does just that.”

Randolph May and Theodore Bolema React to Comcast Announcement Regarding Fox Acquisition

This week, Free State Foundation President Randolph May and Senior Fellow Theodore Bolema issued statements in response to Comcast's announcement regarding the acquisition of 21st Century Fox.

See both of their statements here.

Time for NTIA and FCC to Act on Ligado's Application for Advanced IoT Network

NTIA and the FCC have an opportunity to jump-start a new wave of broadband innovation that will boost economic productivity and consumer welfare. On May 31, Ligado Networks filed an amendment to its application to deploy a hybrid terrestrial-satellite network in the L-Band that will provide “Internet of Things” services and boost America’s position in the global race to 5G. The amendment is aimed at providing protection to certified aviation Global Positioning System (GPS) devices from signal interference by reducing power levels for downlinks to Ligado’s base stations. 

In its role as manager of the federal government’s use of spectrum, NTIA is tasked with evaluating Ligado’s application and coordinating the Executive Branch’s response. And the FCC has final approval authority over Ligado’s license application. Each agency should promptly carry out its responsibilities so that a final decision can be made on Ligado’s application.

Since emerging from bankruptcy in 2015, from all indications, Ligado has cooperated with federal agencies in testing technologies and techniques to resolve claimed interference issues. And, it appears that, based on extensive efforts, Ligado has resolved most signal interference issues, or at least reduced their scope. In light of the progress that has been made, NTIA and the FCC should be in a position to make a final decision on Ligado’s application soon. Otherwise, the L-band spectrum will remain unused, resulting in untold billions in lost opportunity costs.   

Ligado’s proposed terrestrial-satellite hybrid network is poised to play an indispensable role in the deployment of advanced IoT networks. By providing enterprises real-time communications with connected devices and sensor-embedded equipment, IoT services can enable precision manufacturing as well as heavy industrial operations that require pinpoint accuracy. The proposed service would operate advanced satellite technology in combination with terrestrial mobile technology using L-band spectrum. Due to its propagation characteristics, which includes reliable in-building penetration and cost-efficient widespread geographic coverage, this mid-band spectrum is considered highly suitable for IoT services. If approved, Ligado’s network would cover North America.

Additionally, Ligado’s proposed terrestrial-satellite hybrid network would accelerate 5G mobile broadband deployment. Ligado’s mid-band spectrum is already licensed for mobile-satellite (MSS) use, but it has long gone unused. Ligado seeks modification of its spectrum licenses that would add a total of 40 MHz of spectrum for terrestrial commercial mobile use. If the Commission permits Ligado’s mid-band spectrum to be used for commercial mobile use, that mid-band spectrum would complement low-band spectrum that was repurposed for commercial mobile use pursuant to the Commission’s 2017 incentive auction. The potential for commercial ventures that make use of both bands will increase the attractiveness of investment in 5G network infrastructure. 

Accenture has projected that global IoT-related real GDP contributions will total $10.6 trillion dollars by 2030. A May 2016 report (PDF page 39 and following) by economist Coleman Bazelon projected that Ligado’s network would generate between $250 and $500 billion in social welfare benefits by relieving growing demand pressure for mobile wireless broadband services. For its part, Ligado has publicly stated its intent to invest $800 million in satellite and terrestrial network infrastructure, thereby creating approximately 8,000 jobs.

Although the FCC has the ultimate authority to act on Ligado’s application, a timely positive evaluation of that application by NTIA, as a practical matter, apparently is a necessary predicate. NTIA is the federal government agency with primary responsibility for spectrum policy. NTIA Administrator David Redl deserves credit for recognizing the need to put L-band spectrum into use in a timely fashion while, at the same time, trying to ensure, to the extent feasible, that government operations in adjacent bands are protected. 

In a written answer to questions connected to his March 2017 confirmation hearing, Mr. Redl explained: “Protection of GPS has been, and should be, a priority for NTIA. However, that does not mean that the remainder of the L-band cannot be maximized for other uses.” He emphasized the need to coordinate between spectrum users “to best ensure no part of the spectrum goes underused.” It is important now for NTIA to do whatever it can so Ligado’s application to deploy a hybrid terrestrial-satellite network can be acted on by the FCC. 

Ligado has cooperated with federal agencies in testing technologies and addressing potential spectrum signal interference issues with GPS operations. Ligado has also reached agreements with major GPS providers on technical measures to avoid signal interference. For instance, Ligado agreed to establish what is effectively a new 23 MHz guard band for GPS services by relinquishing its terrestrial mobile service authorization for the spectrum band nearest to the GPS allocation. Now, Ligado’s May 31 amendment to its application will further reduce downlink power levels to avoid signal interference with certified aviation GPS devices. With all the progress that has been made to date to resolve interference claims, it is incumbent on NTIA and the FCC to act with dispatch now so that Ligado’s application can finally be resolved.

Given the tremendous value of the L-band spectrum and the potential economic benefits – potentially in the hundreds of billions of dollars – to be realized from putting it to use, further delay in considering Ligado’s hybrid terrestrial-satellite network application is costly. Acting on the application presents an opportunity to further America’s advancement in the global race to 5G and to enable next-generation IoT services. 

Maryland Should Lower Tax Rates to Attract More Businesses

On May 31, 2018, the Tax Foundation published a study by Katherine Loughead titled “State and Local Individual Income Tax Collections Per Capita.” According to the study, Maryland has the third highest state and local individual income tax collection per capita in the country. Moreover, Maryland collects significantly more than its neighboring states. At bottom, Maryland should lower its state and local tax rates in order to attract more businesses and residents, increasing overall tax revenue and improving its long-term fiscal health.

On average, Maryland collected $2,200 from each resident in fiscal year 2015 (the most recent data available), ranking behind only New York ($2,789) and Connecticut ($2,279), placing it significantly above the national average of $1,144. Importantly, Maryland’s state and local individual income tax collection is much higher than the amounts collected by its neighboring states. Delaware is ranked 12^th with a per capita individual income collection of $1,267. Pennsylvania is ranked 11^th with a per capita individual income collection of $1,276. Virginia is ranked 9^th with a per capita individual income collection of $1,420. And West Virginia is ranked 26^th with a per capita individual income collection of $1,048.

Free State Foundation scholars have contended that relatively high state and local tax rates in Maryland can lead to businesses and residents migrating across state lines. By lowering state and local tax rates, Maryland would incentivize existing businesses to stay in state and encourage new entrepreneurs to open up shop in Maryland. Moreover, by some measures, Maryland has suffered from a poor fiscal climate for years.

Notably, Maryland’s $20 billion in unfunded liabilities remain a problem. Attracting additional businesses and residents to Maryland with lower tax rates would expand the state’s tax base and increase overall tax revenue. With a reduction in discretionary spending, or even holding discretionary spending constant overtime, additional tax revenue should help reduce Maryland’s unfunded liabilities in the long-run.

New Jersey is ranked 8^th with a per capita individual income collection of $1,479 but for years state leaders have attempted to increase the state and local income tax burden even more. New Jersey Governor Phil Murphy stated during his campaign that he would raise income tax rates for residents earning over $1 million a year, also known as the “millionaire’s tax.” But now that the proposal is on the table, state leaders are balking. Former New Jersey Governor Chris Christie vetoed an increase in the millionaire’s tax rate and has stated in the past that “if you tax them, they will leave.” Moreover, this week, the CEO of Mimeo John Delbridge announced that the company would be leaving New Jersey because “frankly the tax rates are very expensive.”

Some New Jersey leaders argue that the recently-passed federal tax legislation, which limited the state and local tax (SALT) deduction, punished wealthy taxpayers, therefore making it more difficult to raise state and local income tax rates on wealthy earners. As I stated in a December 2017 blog:

“SALT” is the acronym referring to the deduction for individuals who itemize certain tax payments to state and local governments on their federal tax returns. SALT is essentially a wealth transfer from residents in states with relatively low tax rates to residents in states with relatively high tax rates. Additionally, because residents who live in states with relatively high tax rates benefit disproportionately more from the SALT deduction, they have less incentive than they otherwise would to hold their public officials accountable regarding tax and spending policies.

Now that wealthy New Jersey taxpayers have a limit on the state and local taxes they can deduct from their federal tax return, they have a greater incentive to hold their public officials accountable and to make sure state and local tax rates do not increase. Therefore, it is not wrong to say that the limit on the SALT deduction has made it more difficult for New Jersey and other states to raise tax rates on wealthy residents. However, the limit on the SALT deduction should create greater fiscal responsibility and ultimately benefit taxpayers in the long-run.

Because Maryland has the third highest state and local individual income tax collection per capita, Maryland policymakers at the state and local level should understand how future tax and spending policies will impact residents. Governor Larry Hogan has made it his mission to improve Maryland’s regulatory and tax climate during his first term. His reforms created significant improvements to Maryland’s business climate, according to a 2017 CNBC study. With the 2018 elections fast-approaching, Maryland’s citizens should pay attention to which candidates pledge to reduce Maryland’s state and local tax burden as part of focused efforts to retain Maryland’s current residents and to attract more businesses to the state.