December 2010

At the last possible moment before the Christmas holiday, the FCC published its Report and Order on “Preserving the Open Internet,” capping off years of largely content-free “debate” on the subject of whether or not the agency needed to step in to save the Internet.

In the end, only FCC Chairman Julius Genachowski fully supported the final solution.  His two Democratic colleagues concurred in the vote (one approved in part and concurred in part), and issued separate opinions indicating their belief that stronger measures and a sounder legal foundation were required to withstand likely court challenges.  The two Republican Commissioners vigorously dissented, which is not the norm in this kind of regulatory action.  Independent regulatory agencies, like the U.S. Courts of Appeal, strive for and generally achieve consensus in their decisions. Continue reading →

Taking Down Techno-Panics

by on December 28, 2010 · 1 comment

In case you missed it, Saturday Night Live recently mocked the news media’s habit of inciting techno-panics (and any other panic they can).

Enjoy. After the fear-inspiring ad

I was very sad to learn this morning of the death of Alfred Kahn, the brilliant economist known as “the father of airline deregulation.”  He was 93.  He was a brilliant, gracious and gregarious man who never failed to have a smile on his face and make those around him smile even more.  He will be missed.

Kahn has been an inspiration to an entire generation of regulatory analysts and economists. His 2-volume masterwork, The Economics of Regulation, has served as our bible and provided us with a framework to critically analyze the efficacy of government regulation. I have cited it in more of my papers and essays than any other book or article. The book was that big of a game-changer, as was Kahn’s time in government.  A self-described “good liberal Democrat,” Kahn was appointed by President Jimmy Carter to serve as Chairman of the Civil Aeronautics Board in the mid-1970s and promptly set to work with other liberals, such as Sen. Ted Kennedy, Stephen Breyer, and Ralph Nader, to dismantle anti-consumer cartels that had been sustained by government regulation. These men understood that consumer welfare was better served by innovative, competitive markets than by captured regulators, who talked a big game about serving “the public interest” but were typically busy stifling innovation and market entry.

His academic and policy achievements were significant, but what I will most remember about him is that, in a field not known for lively personalities or exciting discussions, Kahn was a consistent source of great wit and entertainment. He always managed to make even the most dreadfully boring of regulatory topics interesting and entertaining. Everyone would go away happy from a Fred Kahn talk.  Moreover, in a policy arena characterized by bitter intellectual bickering and endless bad-mouthing, Kahn always rose above the fray and held himself out to be a model of maturity and respectfulness. I have never heard a single person say a bad word about Alfred Kahn. Not one. That’s saying something in the field of regulatory policy! Continue reading →

I highly recommend this analysis of the Federal Trade Commission’s (FTC) new “Do Not Track” proposal by Ben Kunz over at Bloomberg Businessweek.  In his essay, Kunz, the director of strategic planning at Mediassociates, a media planning and Internet strategy firm, hits many of the major themes we have developed here at the TLF when critiquing the FTC’s plan and privacy regulation more generally. Namely, we live in a world of trade-offs and regulation can have unintended consequences.  Kunz argues that, “while the [FTC] may have consumers’ best interests at heart… the idea has two huge problems”:

1. It won’t stop online ads. While Do Not Call lists kept telemarketers at bay, you’ll still see tons of banners and videos everywhere online. They’ll simply be less relevant.

2. Do Not Track will send billions of dollars to the big online publishers, hurting the little sites you might find most interesting.

The second point is painful. It could really harm you, too, dear consumer, if you read things online other than The New York Times, Bloomberg, or iVillage.com. Why? The “Long Tail” of niche content is going to get crushed. Let’s follow the money. More than $25 billion was spent on U.S. online ads in 2010, according to eMarketer. About $1 billion of this went to behaviorally targeted ads tied closely to user data; nearly $8 billion overall is in some way related to online tracking.

That $8 billion has posed horrible problems for publishers of major websites, such as Bloomberg (this column’s host, for which we don’t work, so we’ll be equally critical of it) or The New York Times. Before tracking came along, such publishers were the only means of reaching a known type of audience. Business people read Businessweek.com while moms read O magazine online and iVillage.com. Like the publications of the past century, a given website has always been a proxy for an audience target. Alas for the big publishers, good data on audiences has meant that smart marketers could leave big, expensive sites behind. So in perhaps the biggest revolution of Internet marketing, the more data you can collect about today’s customers, the cheaper online advertising gets.

Continue reading →

[Here's an oped of mine that recently ran on Reuters.  Readers will recognize many of these themes and arguments since I have developed them here on the TLF many times before.]

Privacy Regulation and the “Free” Internet

by Adam Thierer, Mercatus Center at George Mason University

Would you like to pay $20 a month for Facebook, or a dime every time you did a search on Google or Bing?  That’s potentially what is at stake if the Obama administration and advocates of stepped-up regulation of online advertising get their way.

The Internet feels like the ultimate free lunch.  Once we pay for basic access, a cornucopia of seemingly free services and content is at our fingertips.  But those services don’t just fall to Earth like manna from heaven.  What powers the “free” Internet are data collection and advertising. In essence, the relationship between consumers and online content and service providers isn’t governed by any formal contract, but rather by an unwritten quid pro quo: tolerate some ads or we’ll be forced to charge you for service.  Most consumers gladly take that deal—even if many of them gripe about annoying or intrusive ads, at times. Continue reading →

Is Watching “Spying”?

by on December 23, 2010 · 4 comments

I was struck by the absurd title of a New York Post story from yesterday: Is Your Restaurant Spying on You? Some restaurants are—shocker—making note of your preferences and your qualities as a customer, for good or bad. That’s “spying”?

Of course, headlines are meant to catch attention. The story illustrates a phenomenon that will continue to proliferate, and that will probably continue to raise hackles, classed as “spying”, “privacy invasion”, “dossier building”, and such. People and businesses are more able to capture information about each other than they were before. (It is a two-way street. We consumers know more about businesses, and businesses know more about us.)

That’s a big change from the recent past. Over the past century or so, people got more mobile and thus less amenable to consistent observation—which means less amenable to being affixed with a reputation. Now information systems are catching up. What kind of person you are—a good tipper, a brusque faux gastronome—that information might precede you to a restaurant. Object to it. Call it what you want. But you might also consider getting used to it, tipping better, and being polite.

None of this is a comment on what our public policies should be. They should neither favor this cultural change nor fight it. People need to understand what happens with information about them, and they should be able to withhold information if they want, though that may be hard for privacy outliers to do.

As a student of information, I find it hard to accept that a restaurant noting the information you’ve made available to it is “spying.”

I’m always entertained by the talk among the Twitterati — especially those who seem to permanently reside in the #NetNeutrality and #FCC hashtags — about how the Internet’s “openness” is at risk, and that steps must be taken to preserve it.  Regulatory regimes are often birthed by myths, and this one is no different.  Contrary to what the regulation-happy worry-warts suggest, the Internet has never been more “open” than it is today. After all, as Geert Lovink reminded us in his 2008 critique of Jonathan Zittrain’s thinking about the decline of online openness:

[In] [t]he first decades[,] the Internet was a closed world, only accessible to (Western) academics and the U.S. military. In order to access the Internet one had to be an academic computer scientist or a physicist. Until the early nineties it was not possible for ordinary citizens, artists, business[es] or activists, in the USA or elsewhere, to obtain an email address and make use of the rudimentary UNIX-based applications. … It was a network of networks—but still a closed one.

And even though it will probably make the folks at Free Press and Public Knowledge have an aneurysm, it’s abundantly clear what shook-up this sleepy, closed model: commercialization.  That’s right, those evil folks who had the audacity to want to make a dollar online were the ones who brought us the “open” Internet we know and love today!  Continue reading →

The FCC’s order still isn’t out (just a news release in .DOC form), but the Commissioner’s accompanying statements are. Anyone interested in net neutrality regulation or the coming political, legal and constitutional fights over it must read the scathing dissents by Commissioners Rob McDowell and Meredith Baker.

Commissioner McDowell’s jeremiad about “one of the darkest days in recent FCC history” makes clear the utter impossibility of reaching a “compromise,” as Chairman Genachowski insists he wanted. Commissioner McDowell summarizes his dissent beautifully:

  1. Nothing is broken in the Internet access market that needs fixing;
  2. The FCC does not have the legal authority to issue these rules;
  3. The proposed rules are likely to cause irreparable harm; and
  4. Existing law and Internet governance structures provide  ample consumer protection in the event a systemic market failure occurs.

The dissent runs just over 9 pages, but he includes a long appendix of his legal analysis. Here are Commissioner Baker’s key points:

  1. The importance of regulatory certainty
  2. There is no factual basis to support government intervention
  3. Consumers will not benefit from net neutrality
  4. The order may inhibit the development of tomorrow’s internet
  5. The Commission is miscast as the internet’s referee
  6. The Commission lacks authority to adopt net neutrality rules
  7. The Commission acts improperly as a quasi-legislative body
  8. The Commission has strayed from a pro-jobs consensus agenda.

Also check out statements from Chairman Genachowski, Commissioner Copps and Commissioner Clyburn. In the end, as Adam Thierer and I have warned, the FCC is heading down path towards “mutually assured destruction,” opening the door to endless regulatory battles among the Internet’s many players.

Citing nefarious, and completely imaginative, examples of “Big Mobile” and “Big Cable” shutting down access to the Internet, the FCC voted today to move towards greater regulatory oversight of Broadband Internet through Net Neutrality principles. (indeed, even the HuffPo is saying in the most hyperbolic way that this is “The Most Important Free Speech Issue of Our Time“)

For a primer of Net Neutrality, visit here or here.

The public is still waiting for the specific language of the regulatory order (FCC Commissioners only recevied it themselves just before midnight last night), so I cannot comment on the language that lawyers are sure to argue over for years to come. However, based on the comments of the FCC Commissioners, both pro and con, on the order I have come to some preliminary conclusions:

1) Those who think this regulatory framework “preserves” the openness of the Internet are wrong. This fundamentally changes many aspects of the infrastructure of the Internet, even if it is below the radar. My foremost concern is that paid prioritized access will be barred. So, count Level3 among the winners here today. How is paid prioritized access a bad thing? If I want a quality experience with Netflix or Amazon or Hulu, I need access to a network that prioritizes video over someone’s email, who won’t be harmed if their message is delayed by less than a second. If my video is delayed less than a second, guess what, jitter occurs. And if too much jitter occurs then I’m turning off my video. How is that good?

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FCC Chairman Julius Genachowski can now strike “Get Net Neutrality Done” from his 2010 to-do list.

The rules enacted today represent something of a compromise with the industry and are better than the sweeping regulation the FCC proposed last year—if you consider a club to the knee better than a sharp stick in the eye.

The FCC gave the most ground on the so-called “fifth principle,” which, in original form, would have placed strict rules on the way service providers could manage their networks, even if the aim was to make certain applications, particularly video, work for users the way they were intended. The new rules appear to allow wireline ISPs to takes steps that are not “unreasonable.” Wireless networks are pretty much exempt from this rule – good thing, too – as the engineering wireless carriers did to support smartphones such as the iPhone and those using the Droid operating system would likely be immediate neutrality violations under such rules.

And, as the owner of any of these devices can tell you, it’s pretty easy to see that wireless is where broadband access is going. This will present a quandary for the commission a few years down the line as they try to do backflips to rationalize separate sets of rules for data that travels by wires and data that travels by radio. For myself, I was following Cecilia Kang’s tweets from the FCC all morning, and have her Washington Post story open on my phone as I write this. So much for the paucity of access that the FCC seems to think requires neutrality regulations.

Continue reading →