Tech Policy Threat Matrix

by on September 24, 2015 · 1 comment

On the whiteboard that hangs in my office, I have a giant matrix of technology policy issues and the various policy “threat vectors” that might end up driving regulation of particular technologies or sectors. Along with my colleagues at the Mercatus Center’s Technology Policy Program, we constantly revise this list of policy priorities and simultaneously make an (obviously quite subjective) attempt to put some weights on the potential policy severity associated with each threat of intervention. The matrix looks like this: [Sorry about the small fonts. You can click on the image to make it easier to see.]


Tech Policy Issue Matrix 2015

I use 5 general policy concerns when considering the likelihood of regulatory intervention in any given area. Those policy concerns are:

  1. privacy (reputation issues, fear of “profiling” & “discrimination,” amorphous psychological / cognitive harms);
  2. safety (health & physical safety or, alternatively, child safety and speech / cultural concerns);
  3. security (hacking, cybersecurity, law enforcement issues);
  4. economic disruption (automation, job dislocation, sectoral disruptions); and,
  5. intellectual property (copyright and patent issues).

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The FCC is being dragged–reluctantly, it appears–into disputes that resemble the infamous beauty contests of bygone years, where the agency takes on the impossible task of deciding which wireless services deliver more benefits to the public. Two novel technologies used for wireless broadband–TLPS and LTE-U–reveal the growing tensions in unlicensed spectrum. The two technologies are different and pose slightly different regulatory issues but each is an attempt to bring wireless Internet to consumers. Their advocates believe these technologies will provide better service than existing wifi technology and will also improve wifi performance. Their major similarity is that others, namely wifi advocates, object that the unlicensed bands are already too crowded and these new technologies will cause interference to existing users.

The LTE-U issue is new and developing. The TLPS proceeding, on the other hand, has been pending for a few years and there are warning signs the FCC may enter into beauty contests–choosing which technologies are entitled to free spectrum–once again.

What are FCC beauty contests and why does the FCC want to avoid them? Continue reading →

Ten or fifteen years ago, when I sat around and thought about what I would do with my life, I never considered directing the technology policy program at Mercatus. It’s not exactly a career track you can get on — not like being a lawyer, a doctor, a professor.

One of the things I loved about Peter Thiel’s book Zero to One is that it is self-consciously anti-track. The book is a distillation of Thiel’s 2012 Stanford course on startups. In the preface, he writes,

“My primary goal in teaching the class was to help my students see beyond the tracks laid down by academic specialties to the broader future that is theirs to create.”

I think he is right. The modern economy provides unprecedented opportunity for people with talent and grit and passion to do unique and interesting things with their lives, not just follow an expected path. Continue reading →

Chairman Thomas E. Wheeler of the Federal Communications Commission unveiled his proposal this week for regulating broadband Internet access under a 1934 law. Since there are three Democrats and two Republicans on the FCC, Wheeler’s proposal is likely to pass on a party-line vote and is almost certain to be appealed.

Free market advocates have pointed out that FCC regulation is not only unnecessary for continued Internet openness, but it could lead to years of disruptive litigation and jeopardize investment and innovation in the network.

Writing in WIRED magazine, Wheeler argues that the Internet wouldn’t even exist if the FCC hadn’t mandated open access for telephone network equipment in the 1960s, and that his mid-1980s startup either failed or was doomed because the phone network was open whereas the cable networks (on which his startup depended) were closed. He also predicts that regulation can be accomplished while encouraging investment in broadband networks, because there will be “no rate regulation, no tariffs, no last-mile unbundling.”  There are a number of problems with Chairman Wheeler’s analysis. First, let’s examine the historical assumptions that underlie the Wheeler proposal.

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My employer, the Mercatus Center, provides ridiculously generous funding (up to $40,000/year) for graduate students. There are several opportunities depending on your goals, but I encourage people interested in technology policy to particularly consider the MA Fellowship, as that can come with an opportunity to work with the tech policy team here at Mercatus. Mind the deadlines!

The PhD Fellowship is a three-year, competitive, full-time fellowship program for students who are pursuing a doctoral degree in economics at George Mason University. Our PhD Fellows take courses in market process economics, public choice, and institutional analysis and work on projects that use these lenses to understand global prosperity and the dynamics of social change. Successful PhD Fellows have secured tenure track positions at colleges and universities throughout the US and Europe.

It includes full tuition support, a stipend, and experience as a research assistant working closely with Mercatus-affiliated Mason faculty. It is a total award of up to $120,000 over three years. Acceptance into the fellowship program is dependent on acceptance into the PhD program in economics at George Mason University. The deadline for applications is February 1, 2015.

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Supporters of Title II reclassification for broadband Internet access services point to the fact that some wireless services have been governed by a subset of Title II provisions since 1993.  No one is complaining about that.  So what, then, is the basis for opposition to similar regulatory treatment for broadband?

Austin Schlick, the former FCC general counsel, outlined the so-called “Third Way” legal framework for broadband in a 2010 memo that proposed Title II reclassification along with forbearance of all but six of Title II’s 48 provisions.  He noted that “this third way is a proven success for wireless communications.”  This is the model that President Obama is backing.  Title II reclassification “doesn’t have to be a big deal,” Harold Feld reminds us, since the wireless industry seems to be doing okay despite the fact mobile phone service was classified as a Title II service in 1993.

To be clear, only mobile voice services are subject to Title II, since the FCC classified broadband access to the Internet over wireless networks as an “information” service (and thus completely exempt from Title II) in March of 2007.

Sec. 6002(c) of the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66) modified Sec. 332 of the Communications Act so commercial mobile services would be treated “as a common carrier … except for such provisions of title II as the Commission may specify by regulation as inapplicable…”

The FCC commendably did forbear.  Former Chairman Reed E. Hundt would later boast in his memoir that the commission “totally deregulated the wireless industry.” He added that this was possible thanks to a Democratic Congress and former Vice President Al Gore’s tie-breaking Senate vote. Continue reading →

How Much Tax?

by on October 30, 2014 · 0 comments

As I and others have recently noted, if the Federal Communications Commission reclassifies broadband Internet access as a “telecommunications” service, broadband would automatically become subject to the federal Universal Service tax—currently 16.1%, or more than twice the highest state sales tax (California–7.5%), according to the Tax Foundation.

Erik Telford, writing in The Detroit News, has reached a similar conclusion.

U.S. wireline broadband revenue rose to $43 billion in 2012 from $41 billion in 2011, according to one estimate. “Total U.S. mobile data revenue hit $90 billion in 2013 and is expected to rise above $100 billion this year,” according to another estimate.  Assuming that the wireline and wireless broadband industries as a whole earn approximately $150 billion this year, the current 16.1% Universal Service Contribution Factor would generate over $24 billion in new revenue for government programs administered by the FCC if broadband were defined as a telecommunications service.

The Census Bureau reports that there were approximately 90 million households with Internet use at home in 2012. Wireline broadband providers would have to collect approximately $89 from each one of those households in order to satisfy a 16.1% tax liability on earnings of $50 billion. There were over 117 million smartphone users over the age of 15 in 2011, according to the Census Bureau. Smartphones would account for the bulk of mobile data revenue. Mobile broadband providers would have to collect approximately $137 from each of those smartphone users to shoulder a tax liability of 16.1% on earnings of $100 billion. Continue reading →

Would the Federal Communications Commission expose broadband Internet access services to tax rates of at least 16.6% of every dollar spent on international and interstate data transfers—and averaging 11.23% on transfers within a particular state and locality—if it reclassifies broadband as a telecommunications service pursuant to Title II of the Communications Act of 1934?

As former FCC Commissioner Harold Furchtgott-Roth notes in a recent Forbes column, the Internet Tax Freedom Act only prohibits state and local taxes on Internet access.  It says nothing about federal user fees.  The House Energy & Commerce Committee report accompanying the “Permanent Internet Tax Freedom Act” (H.R. 3086) makes this distinction clear.

The law specifies that it does not prohibit the collection of the 911 access or Universal Service Fund (USF) fees. The USF is imposed on telephone service rather than Internet access anyway, although the FCC periodically contemplates broadening the base to include data services.

The USF fee applies to all interstate and international telecommunications revenues.  If the FCC reclassifies broadband Internet access as a telecommunications service in the Open Internet Proceeding, the USF fee would automatically apply unless and until the commission concluded a separate rulemaking proceeding to exempt Internet access.  The Universal Service Contribution Factor is not insignificant. Last month, the commission increased it to 16.1%.  According to Furchtgott-Roth,

At the current 16.1% fee structure, it would be perhaps the largest, one-time tax increase on the Internet.  The FCC would have many billions of dollars of expanded revenue base to fund new programs without, according to the FCC, any need for congressional authorization.

Continue reading →

There are several “flavors” of net neutrality–Eli Noam at Columbia University estimates there are seven distinct meanings of the term–but most net neutrality proponents agree that reinterpreting the 1934 Communications Act and “classifying” Internet service providers as Title II “telecommunications” companies is the best way forward. Proponents argue that ISPs are common carriers and therefore should be regulated much like common carrier telephone companies. Last week I filed a public interest comment about net neutrality and pointed out why the Title II option is unwise and possibly illegal. Continue reading →

Adam Thierer, senior research fellow with the Technology Policy Program at the Mercatus Center at George Mason University, discusses his latest book Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom. Thierer discusses which types of policies promote technological discoveries as well as those that stifle the freedom to innovate. He also takes a look at new technologies — such as driverless cars, drones, big data, smartphone apps, and Google Glass — and how the American public will adapt to them.


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