April 2011

Every year since 1995, the Federal Communications Commission has released a report on the state of competition in the wireless market, and it will soon release the fifteenth. Last year’s report was [the first not to find the market "effectively competitive."](http://techliberation.com/2010/05/21/the-underlying-desperation-at-the-fcc/) As a result, expectations are high for the new annual report. How it determines the state of competition in the wireless market could affect regulatory policy and how the Commission looks at proposed mergers

Join the Mercatus Center at George Mason University’s [Technology Policy Program](http://mercatus.org/technology-policy-program) for a discussion of these issues, including:

- What does a proper analysis of wireless competition look like?
- What should we expect from the FCC’s report this year?
- How should the FCC address competition in the future?

Our panel will feature [**Thomas W. Hazlett**](http://mason.gmu.edu/~thazlett/), Professor of Law & Economics, George Mason University School of Law; [**Joshua D. Wright**](http://mason.gmu.edu/~jwrightg/), Assistant Professor of Law, George Mason University School of Law; [**Robert M. Frieden**](http://comm.psu.edu/people/rmf5), Professor of Telecommunications & Law, Penn State University; and [**Harold Feld**](http://www.publicknowledge.org/user/1540), Legal Director, Public Knowledge

**When:** Wednesday, May 18, 2011, 4 – 5:30 p.m. (with a reception to follow)

**Where:** George Mason University’s Arlington Campus, just ten minutes from downtown Washington. (Founders Hall, Room 111, 3351 N. Fairfax Drive, Arlington, VA)

To RSVP for yourself and your guests, please contact Megan Gandee at 703-993-4967 or [mmahan@gmu.edu](mailto:mmahan@gmu.edu) no later than May 16, 2011. If you can’t make it to the Mercatus Center, you can watch this discussion live online at mercatus.org.

On this week’s John Stossel show on Fox Business Network, I debated Internet privacy, advertising, and data collection issues with Michael Fertik of Reputation.com. In the few minutes we had for the segment, I tried to reiterate a couple of keep points that we’ve hammered repeatedly here in the past:

  • There’s no free lunch. All the free sites and service we enjoy online today are powered by advertising and data collection. [see this op-ed]
  • There is no clear harm in most cases, or what some argue is harm also can have many benefits that are rarely discussed. [see this paper.]
  • There’s little acknowledgement of the trade-offs involved in having government create an information control regime for the Internet. [see this filing and these three essays: 1, 2, 3.]
  • The ultimate code of “fair information practices” is the First Amendment, which favors free speech, openness, and transparency over secrecy and information control. [see this piece.]
  • “Hands Off the Net” is a policy that has served us well. There are dangerous ramifications for our economy and long-term Internet freedoms if we continue down the road of “European-izing” privacy law here in the States. [see this essay and this filing.]
  • At some point, personal responsibility needs to come into the equation. With so many privacy enhancing empowerment tools already on the market, it begs the question: If consumers don’t take steps to use those tools, why should government intervene and take action for them?

Anyway, here’s the 7-min video of the debate between Fertik and me:

Believe it or not, this argument is being trotted out as part of the pressure from consumer activist groups against AT&T’s proposed acquisition of T-Mobile. The subject of a Senate Judiciary Hearing on the merger, scheduled for May 11, even asks, “Is Humpty Dumpty Being Put Back Together Again?”

It seems because the deal would leave AT&T and Verizon as the country’s two leading wireless service providers, the blogosphere is aflutter with worries that we are returning to the bad old days when AT&T pretty much owned all of the country’s telecom infrastructure.

It is true that AT&T and Verizon trace their history back to the six-year antitrust case brought by the Nixon Justice Department, which ended in the 1984 divestiture of then-AT&T’s 22 local telephone operating companies, which were regrouped into seven regional holding companies.

Over the last 28 years, there has been gradual consolidation, each time accompanied by an uproar that the Bell monopoly days were returning. But those claims miss the essential goal of the Bell break-up, and why, even though those seven “Baby Bell” companies have been integrated into three, there’s no going back to the pre-divestiture AT&T.

Continue reading →

“Global Internet Governance: Research and Public Policy Challenges for the Next Decade” is the title for a conference event held May 5 and 6 at the American University School of International Service in Washington. See the full program here.

Featured will be a keynote by the NTIA head, Assistant Secretary for Commerce Lawrence Strickling. TLF-ers may be especially interested in the panel on the market for IP version 4 addresses that is emerging as the Regional Internet Registries and ICANN have depleted their free pool of IP addresses. The panel “Scarcity in IPv4 addresses” will feature representatives of the American Registry for Internet Numbers (ARIN) and Addrex/Depository, Inc., the new company that brokered the deal between Nortel and Microsoft. There will also be debates about Wikileaks and the future of the Internet Governance Forum. Academic research papers on ICANN’s Affirmation of Commitments, the role of the national governments in ICANN, the role of social media in the Middle East/North Africa revolutions, and other topics will be presented on the second day. The event was put together by the Global Internet Governance Academic Network (GigaNet). Attendance is free of charge but you are asked to register in advance.

Like Milton, I’m very worried about the political vulnerabilities that might arise if the wireless sector grows more concentrated. Still, I think it’s a big mistake to legitimize one repressive incarnation of coercive state power (antitrust intervention) to reduce the likelihood that another incarnation (information control) will intensify. This approach is not only defeatist, as Hance argues, but it also requires a tactical assessment that rests on several dubious assumptions.

First, Milton overestimates the marginal risk that the AT&T – T-Mobile deal will pave the way for an information control regime. The wireless market isn’t static; the disappearance of T-Mobile as an independent entity (which may well occur regardless of whether this deal goes through) hardly means we’re forever “doomed” to live with 3 nationwide wireless players. With major spectrum auctions likely on the horizon, and the possibility of existing spectrum holdings being combined in creative ways, the eventual emergence of one or more nationwide wireless competitors is quite possible — especially if, as skeptics of the AT&T – T-Mobile deal often argue, the wireless market underperforms in the years following the acquisition.

More importantly, network operators, like almost all Internet gatekeepers, face mounting pressure from their users not to facilitate censorship, surveillance, and repression. Case in point: AT&T is a leading member of the Digital Due Process coalition (to which I also belong) that’s urging Congress to substantially strengthen the 1986 federal statute that governs law enforcement access to private electronic communications. Consider that AT&T’s position on this major issue is officially at odds with the official position of the same Justice Department that’s currently reviewing the AT&T – T-Mobile deal. Would a docile, subservient network operator challenge its state overseers so publicly?

Continue reading →

I’m gratified that my recent writing on the Bitcoin virtual currency project has stirred much conversation and I thought I’d take a moment to continue that conversation.

Tim Lee has written two posts critiquing the viability of Bitcoin from the supply and demand side. Dan Rothschild has responded in part. Tyler Cower also weighed in.

To address Tim I’ll simply say this: Do I think Bitcoin will replace the dollar? No. Might Bitcoin have certain systemic design flaws that might impede its success? Quite possibly. Will Bitcoin become the de facto, manipulation-proof currency of the internet? Who knows. Tim’s posts are a somewhat technical critique of Bitcoin’s long-term feasibility. It’s a great contribution, but since I’m neither a gold bug nor a Bitcoin booster per se, I don’t find it especially interesting.

That all said, what I do think is revolutionary about Bitcoin is that its developers have solved, without the use of a middleman, the double-spending problem faced by virtual currencies. That gives us license to realistically imagine a world without regulable financial intermediaries online.

While Tim overlooks what makes Bitcoin radical, Tom Sydnor groks it viscerally. Writing in a lengthy comment on my post, Tom expresses dismay at what Bitcoin represents and offers what I would, with apologies, characterize as the cyber-conservative response. Continue reading →

In my latest “Technologies of Freedom” column for Forbes, I take a closer look at the idea of an “Internet eraser button” as one method of protecting privacy or safeguarding reputation online. The child safety group Common Sense Media has suggested it is needed to help kids and others wipe out embarrassing facts we’ve place online but later come to regret. The Eraser Button idea is similar to “the right to be forgotten” proposal currently being hotly debated in Europe.

In my column, I argue that “it is unlikely that such a mechanism could be implemented, and even if it could, it would have troubling ramifications for freedom of speech, digital commerce, and Internet governance more generally.” I dwell a bit on the free speech issues and note that “What we are talking about here is the destruction of history, otherwise known as censorship. Few would have suggested that burning books was a smart way to protect privacy in the past. Is burning binary bits of information any wiser?” But the point seems moot in light of the significant enforcement challenges the notion faces, including the question: Who actually owns the data collected by online sites and services?

Anyway, read the rest of the essay over at Forbes. And here are a few other pieces we’ve run here at the TLF on the issue: 1, 2, 3.

Is it “insane” for free market oriented thinkers to support the AT&T/T-Mobile merger?  Although AT&T says there are five choices of wireless providers to choose from in 18 of 20 major markets, Milton Mueller argues that 93 percent of wireless subscribers prefer a seamless, nationwide provider.  If the merger is approved, there would only be three such providers.

A market dominated by three major providers is neither competitive nor noncompetitive as a definitional matter.  Factual analysis is necessary to determine competitiveness.

And it may be premature to conclude that there is no competitive significance either to the fact there are over a hundred providers currently delivering nationwide service on the basis of voluntary roaming agreements that are common in the industry, or to assume that the possibility the FCC will double the amount of spectrum available for wireless services will not impact the structure of the industry.

The trouble with antitrust generally is the possibility that government will choose to protect weak or inefficient competitors, thus preventing meaningful competition that attracts private investment which leads to innovation, better services and lower prices.  Antitrust is supposed to protect consumers, not politically influential producers.  Although this sounds simple in theory, it can get confusing in practice.  As free market oriented thinkers, we do not want government picking winners and losers.

Continue reading →

On the podcast this week, Gavin Andresen, project lead of the open source, decentralized, and anonymous virtual currency project Bitcoin, talks about the project. Andresen explains how the peer-to-peer currency functions and talks about what allows Bitcoin to operate without a central bank, why it doesn’t have to rely on intermediaries, and how it overcomes the double-spending problem. He also discusses the project’s implications for government regulation, what attracted him to the project, and Bitcoin inventor Satoshi Nakomoto’s motivation for creating the currency.

Related Links

To keep the conversation around this episode in one place, we’d like to ask you to comment at the web page for this episode on Surprisingly Free. Also, why not subscribe to the podcast on iTunes?

I was surprised to read a defense of the AT&T-T-Mobile merger here.

Let’s begin at the beginning and ask why this merger is happening. It’s not as if AT&T is gaining dominance the way Google gained it in search and advertising, or the way Intel did in chips: i.e., through low prices, superior products and customer loyalty. No, last time I looked AT&T was the carrier with the lowest customer satisfaction ratings, some of the highest prices and one of the weakest network performance metrics. In my opinion there is no reason for this merger to take place other than to make life easier for AT&T by reducing competitive pressures on it. AT&T seems to be driven by the following calculus. It can either grow its services and its network under the harsh constraints of market pricing and competition, or it can attempt to reduce the field to an oligopoly with tacit price controls by using its size and financial bulk to eliminate a pest who keeps downward pressure on pricing and service requirements. I think it is rational for AT&T to try to get away with the latter. I think it’s insane for free market oriented thinkers to support it.

Larry Downes can’t argue with the extremely high level of market concentration and the scary HHI measurements that the merger would produce. So he plays the game that clever antitrust advocates always play: shift the market definition. Downes argues that “both Justice and the FCC have consistently concluded that wireless markets are essentially local.” I see no citation to any specific document in Downe’s claim, but if FTC and FCC have concluded that “local” means “my metropolitan area” they are wrong.

Let’s reacquaint everyone with a very basic but pertinent fact: 93% of the wireless users in the U.S. are served by the national carriers. This number (the proportion served by national as opposed to regional providers) has generally increased over the past decade, driven by both demand-side requirements, mergers, and supply-side efficiencies. The choices of consumers have rendered a decisive verdict negating Downes’s claim. Whether it’s voice or data, people expect and want seamless national service; a small but significant segment wants transnational compatibility as well.

Increases in the scope of service will intensify as we move from a primarily voice-driven market to a data-driven market. Carriers who have to impose roaming charges and interconnection fees on their users will not be competitive. Nor will they be able to attract the interest of the cutting-edge handset manufacturers and service developers. Can you imagine Apple signing an iPhone exclusivity deal with Cricket?

It is no accident that the dominant mobile network operators have national brands and national footprints. Most Americans travel outside their metro areas at least once a month, and go places further away than that at least once or twice a year. The 93% who choose a national carrier are rationally calculating that it pays to not have to guess the service area limits of their provider. Of course, a highly budget-constrained segment of the market will accept limited local service for a lower price. To say that those smaller providers are in the same market as a T-Mobile or AT&T is not plausible. They occupy a niche. And if one allows a major merger like this on the grounds that these tiny players constitute a competitive alternative to the likes of AT&T, what are you going to say as the last of these local providers is gobbled up?

How about that “spectrum efficiency” argument? Downes, like the AT&T Corp., makes the same claim that the old AT&T made when it said there should be no microwave-based competition in long distance. As a matter of pure engineering efficiency, it is of course true that a single, optimizing planner can make better use of limited spectrum bands than multiple, competitive providers. But then, that argument applies to any and all carriers (an AT&T-Verizon merger, for example) and to any resource – that’s why it was used by the socialists of the 19th century to claim that capitalism was inherently wasteful and inefficient. Dynamic efficiencies of competition typically benefit the public more than a few allocative efficiencies. And there are plenty of ways for AT&T to expand network capacity without merging.

But there is an interesting twist to this line of reasoning. Notice how the “market is local” claim suddenly disappears. AT&T needs to take over a smaller national rival, according to Downes, so it can “accelerate deployment of nationwide mobile broadband using LTE technology, including expansion into rural areas.” Voila! Once we start talking about spectrum efficiencies and the promotion of universal service we take a nationwide perspective, not a local one. Doesn’t this obvious contradiction make anyone suspicious?

Notice also the ominous historical overtones of AT&T’s claim that it will be able to promote universal broadband service in rural areas if it has a stronger monopoly er, if it gains consolidation efficiencies. Hey, rural areas don’t have congested spectrum, do they? What’s stopping them from doing that now? If they need help to do it, where are the subsidies going to come from? Would more market power make that possible? One cannot help but ask: Is AT&T doing this to get more spectrum or is it trying to pull a neo-Theodore Vail, and promise the government that it will subsidize rural access if it has more market power?

Bottom line: this is one step too far back to the days of a single telephone company. If you support a competitive industry where one can reasonably expect the public and legislators to rely on market forces as the primary industry regulator, this merger has to be stopped. On the other hand, if you welcome the growing pressures for regulating carriers and making them the policemen and chokepoints for network control, a bigger AT&T is just what the doctor ordered.