Articles by Hance Haney

Hance Haney is Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute. Haney spent ten years as an aide to former Senator Bob Packwood (R-OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a BA in history from Willamette University and a JD from Lewis and Clark Law School in Portland, Oregon.


In her new book, Captive Audience, Susan Crawford makes the same argument that the lawyers for AT&T made in Judge Harold H. Greene’s courtroom in response to the government’s antitrust complaint beginning in 1981, i.e., that telephone service was a “natural monopoly.”  In those days, AT&T wanted regulation and hated competition, which is the same as Crawford’s perspective with respect to broadband now.  Here is what she said today on the Diane Rehm Show:

Diane Rehm: “Is regulation the next step?”

Susan Crawford: “It always has been for these industries, because it really doesn’t make sense to have more than one wire into our homes.  It is a very expensive thing to install; once it’s there, it has to be kept up to the highest level of maintenance, it has to allow for lots of competition at the retail level—across this wholesale facility—and it has to be available to consumers at reasonable cost.  That kind of result isn’t produced by the marketplace; it doesn’t happen by magic, because … when you can divide markets, and cooperate, you’re not going to come up with the best solution for consumers.

In her book, Crawford candidly says that “America needs to move to a utility model” for broadband … and “stop treating this commodity as if it were a first-run art film…”

It’s time for a stroll down memory lane.

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On Wednesday, the Subcommittee on Communications and Technology will conduct an oversight hearing of the implementation of spectrum auctions by the Federal Communications Commission.

The subcommittee members ought to consider the fact that although the mobile wireless industry faces an acute shortage of spectrum (“broadband spectrum deficit is likely to approach 300 MHz by 2014”), the FCC risks getting distracted and mired in a pointless effort to leverage its spectrum auctioning authority to manipulate the structure of the mobile wireless industry.

In mid-2011, former Commissioner Michael J. Copps warned of “darkening clouds over the state of mobile competition … we find ongoing trends of industry consolidation.”  As Copps saw it, increasing concentration will lead to higher prices for consumers.  His solution was for the market to have more competitors that look and perform like AT&T and Verizon Wireless.

Since Congress failed to prevent the FCC from engaging in what the late Alfred Kahn once called “oxymoronic efforts to promote competition by regulation” when it adopted the Middle Class Tax Relief and Job Creation (JOBS) Act in February, the path was clear for the FCC to act on Mr. Copps’ pessimism.  The commission issued a Notice of Proposed Rulemaking in late September for establishing caps on mobile spectrum holdings.  The NPRM is designed to eliminate AT&T’s and Verizon Wireless’ access to additional spectrum they need in the short-term to meet growing demand for mobile broadband services. Continue reading →

No doubt you are aware that the Communications Act of 1934 eastablished the Federal Communications Commission, which has profoundly affected the broadcast, cable, telecommunications and satellite industries.  You will recall that the legislation was signed into law by President Franklin D. Roosevelt.  What you may not realize is that President Roosevelt made two subsequent attempts to abolish the Federal Communications Commission.

On Jan. 23, 1939, Roosevelt wrote similar letters to Senator Burton K. Wheeler and Congressman Clarence F. Lea urging dramatic FCC reform.

I am thoroughly dissatisfied  with the present legal framework and administrative machinery of the [Federal Communications] Commission.  I have come to the definite conclusion that new legislation is necessary to effectuate a satisfactory reorganization of the Commission.

New legislation is also needed to lay down clear Congressional policies on the substantive side – so clear that the new administrative body will have no difficulty in interpreting or administering them.

I very much hope that your committee will consider the advisability of such new legislation.

Although proposals for FCC reorginization were introduced at the time, Congress did not act.  Then World War II intervened.  It wasn’t until 1996 that Congress “comprehensively” updated the 1934 Act.  But the 104th Congress left the “present legal framework and administrative machinery of the Commission” intact, and it failed to to “lay down clear Congressional policies on the substantive side.”

Roosevelt wanted to transfer the functions of all independent agencies like the FCC to cabinet departments.  A 1937 initiative for this purpose failed.  Two years later, Roosevelt took aim at the FCC directly.

Roosevelt’s specific issues with the FCC of the 1930s are a subject for a subsequent essay (they were primarily on the radio side, although also relevant to the telephone side).  In any event, his 1939 letter reinforces a libertarian critique of the 1934 act.  The law was overly broad and created too much room for the FCC to establish its own  policy preferences instead of serving to enforce the policies of elected congressional representatives and the president.

Althouth well-intentioned, the FCC (even to its most famous creator) was a disapointment and a mistake.  The 113th Congress should carefully consider the 32nd president’s advice.

An ad campaign urged residents of Butler, GA to “Stop AT&T From Raising Your Rates” by planning to attend a public hearing earlier this month at the Taylor County Courthouse to provide testimony in Docket #35068, Rate Cases on the Track 2 Companies.

The Georgia Public Service Commission sets the phone rates in Butler, but politics are politics, and AT&T is a better scapegoat for an ad campaign. AT&T doesn’t even provide the town’s phone service, although the telecom giant does help finance it. That’s because Georgia consumers pay a hidden tax on their phone bills that subsidizes the phone service provided by Public Service Telephone Co. in Butler. You guessed it, PST paid for the ads. Continue reading →

One of the most egregious examples of special interest pleading before the Federal Communications Commission and now possibly before Congress involves the pricing of “special access,” a private line service that high-volume customers purchase from telecommunications providers such as AT&T and Verizon.  Sprint, for example, purchases these services to connect its cell towers.

Sprint has been seeking government-mandated discounts in the prices charged by AT&T, Verizon and other incumbent local exchange carriers for years.  Although Sprint has failed to
make a remotely plausible case for re-regulation, fuzzy-headed policymakers are considering using taxpayer’s money in an attempt to gather potentially useless data on Sprint’s behalf.

Sprint is trying to undo a regulatory policy adopted by the FCC during the Clinton era.  The commission ordered pricing flexibility for special access in 1999 as a result of massive investment in fiber optic networks.  Price caps, the commission explained, were designed to act as a “transitional regulatory scheme until actual competition makes price cap regulation
unnecessary.”  The commission rejected proposals to grant pricing flexibility in geographic areas smaller than Metropolitan Statistical Areas, noting that

because regulation is not an exact science, we cannot time the grant of regulatory relief to coincide precisely with the advent of competitive alternatives for access to each individual end  user. We conclude that the costs of delaying regulatory relief outweigh the potential costs of granting it before [interexchange carriers] have a competitive alternative for each and every  end user. The Commission has determined on several occasions that retaining regulations longer than necessary is contrary to the public interest. Almost 20 years ago, the Commission determined that regulation imposes costs on common carriers and the public, and that a regulation should be eliminated when its costs outweigh its benefits. (footnotes omitted.)

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More this week on the efforts of Reed Hastings of Netflix to reignite the perennial debate over network access regulation, courtesy of the New York Times.  Hastings is seeking a free ride on Comcast’s multi-billion-dollar investment in broadband Internet access.

Times columnist Eduardo Porter apparently believes that he has seen the future and thinks it works: The French government forced France Télécom to lease capacity on its wires to rivals for a regulated price, he reports, and now competitor Iliad offers packages that include free international calls to 70 countries and a download speed of 100 megabits per second for less than $40.

It should be noted at the outset that the percentage of French households with broadband in 2009 (57%) was less than the percentage of U.S. households (63%)   according to statistics cited by the Federal Communications Commission.

There is a much stronger argument for unbundling in France – which lacks a fully-developed cable TV industry – than in the U.S.  As the Berkman Center paper to which Porter’s column links notes on pages 266-68, DSL subscriptions – most of which ride France Télécom’s network – make up 95% of all broadband connections in France.  Cable constitutes approximately only 5% of the overall broadband market.  Competition among DSL providers has produced lower prices for consumers, but at the expense of private investment in fiber networks.

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The airline would not let coach passenger Susan Crawford stow her viola in first class on a crowded flight from DC to Boston, she writes at Wired (Be Very Afraid: The Cable-ization of Online Life Is Upon Us).

Just imagine trying to run a business that is utterly dependent on a single delivery network — a gatekeeper — that can make up the rules on the fly and knows you have nowhere else to go. To get the predictability you need to stay solvent, you’ll be told to pay a “first class” premium to reach your customers. From your perspective, the whole situation will feel like you’re being shaken down: It’s arbitrary, unfair, and coercive.

Most people don’t own a viola, nor do they want to subsidize viola travel. They want to pay the lowest fare. Differential pricing (prices set according to the differing costs of supplying products and services) has democratized air travel since Congress deregulated the airlines in 1978. First class helps make it possible for airlines to offer both lower economy ticket prices and more frequent service. Which is probably why Crawford’s column isn’t about airlines.

For one thing, Crawford seems to be annoyed that the “open Internet protections” adopted by the Federal Communications Commission in 2010 do not curtail specialized services — such as an offering from Comcast that lets Xbox 360 owners get thousands of movies and TV shows from XFINITY On Demand. As the commission explained,

“[S]pecialized services,” such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide end users valued services, supplementing the benefits of the open Internet. (emphasis mine) Continue reading →

Cecilia Kang of the Washington Post reports that

the telecom industry is forcing policymakers to re-examine what has long been a basic guarantee of government – that every American home should have access to a phone, along with other utilities such as water or electricity.

Industry executives and state lawmakers who support this effort want to expand the definition of the phone utility beyond the century-old icon of the American home to include Web-based devices or mobile phones.

The quid pro quo for a monopoly franchise was an obligation to provide timely service upon reasonable request to anyone, subject to regulated rates, terms and conditions.  The Telecommunications Act of 1996 eliminated the monopoly franchise, but the obligation to serve remains in the statute books of most states.  Telecom providers, aka carriers-of-last-resort (COLR), are stuck with the quid without the quo.

This has become a problem as more and more consumers are “cutting the cord” in favor of wireless or VoIP services.  AT&T, for example, has lost nearly half of its consumer switched access lines since the end of 2006.  However, most of the loops, switches, cables and other infrastructure which comprise the telephone network must be maintained if telecom providers have to furnish telephone service to anyone who wants it within days. Continue reading →

When the federal government torpedoed the AT&T/T-Mobile USA merger in December pursuant to the current administration’s commitment to “reinvigorate antitrust enforcement,” it created a new client in search of official protection and favors.

It was clear there is no way T-Mobile – which lost 802,000 contract customers in the fourth quarter – is capable of becoming a significant competitor in the near future.  T-Mobile doesn’t have the capital or rights to the necessary electromagnetic spectrum to build an advanced fourth-generation wireless broadband network of its own.

T-Mobile’s parent, Deutsche Telekom AG, has been losing money in Europe and expected its American affiliate to become self-reliant.  In 2008, T-Mobile sat out the last major auction for spectrum the company needs.

The company received cash and spectrum worth $4 billion from AT&T when the merger fell apart, from which T-Mobile plans to spend only $1.4 billion this year and next on the construction of a limited 4G network in the U.S.  But it must acquire additional capital and spectrum to become a viable competitor.

Unfortunately, every wireless service provider requires additional spectrum. “[P]rojected growth in data traffic can be achieved only by making more spectrum available for wireless use,” according to the President’s Council of Economic Advisers.  Congress recently gave the FCC new authority to auction more spectrum, but it failed – in the words of FCC Chairman Julius Genachowski – to “eliminate traditional FCC tools for setting terms for participation in auctions.”

Everyone fears it will take the FCC years to successfully conduct the next round of auctions while it fiddles “in the public interest.”  That’s why Verizon Wireless is seeking to acquire airwaves from a consortium of cable companies, and why T-Mobile will do anything to stop it.

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Congress freed up much-needed electromagnetic spectrum for mobile communications services Friday (H.R. 3630), but it set the stage for years of wasteful lobbying and litigating over whether regulators should be allowed to pick winners and losers among mobile service providers.

The wireless industry has thrived in the near absence of any regulation since 1993.  But lately the Federal Communications Commission has been hard at work attempting to change that.

A leaked staff report in December helped sink AT&T’s attempted acquisition of T-Mobile.  And the commission has taken the extraordinary step of requesting public comments on an agreement between Comcast and Verizon Wireless to jointly market their respective cable TV, voice and Internet services, beginning in Portland and Seattle.  Nothing in the Communications Act prohibits cable operators and mobile phone service providers from jointly marketing their products.

FCC Chairman Julius Genachowski objected to a previous version of the spectrum bill which, among other things, would have prohibited the commission from manipulating spectrum auctions for the benefit of preferred entities.  The limitation was removed, and Sec. 6404 provides that nothing in the legislation “affects any authority the Commission has to adopt and enforce rules of general applicability, including rules concerning spectrum aggregation that promote competition.

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