This week at CTIA 2013, FCC Commissioner Jessica Rosenworcel presented ten ideas for spectrum policy. Though I don’t agree with all of them, she articulated a reasonable vision for spectrum policy that prioritizes consumer demand, incorporates market-oriented solutions, and establishes transparent goals and timelines. Commissioner Rosenworcel’s principled approach stands in stark contrast to the intellectually bankrupt incentive auction recommendation offered by the Department of Justice last month.

Commissioner Rosenworcel clearly defines three simple goals for a successful incentive auction:

• Raising enough revenue to support the nation’s first interoperable, wireless broadband public safety network;
• Making more broadband spectrum available through policies that are attractive to broadcasters; and
• Providing fair treatment to those broadcasters who do not wish to participate in the auction.

All three goals are consistent with consumer demand for wireless broadband services, the market-oriented reassignment of broadcast spectrum envisioned by the National Broadband Plan, and the will of Congress.

In comparison, the DOJ’s recommendation focuses on only one goal: Subsidizing two particular companies – Sprint Nextel and T-Mobile – to ensure they obtain spectrum in the auction. The DOJ claims these subsidies are necessary to promote competition. But, there is a substantial difference between fair government policies that promote competition generally and a policy of favoring foreign-owned companies over their domestic competitors.

Unfortunately, the DOJ is not alone in its belief that bestowing government benefits on favored companies is a legitimate goal in a free society. Some members of the House Commerce Committee believe the DOJ’s past merger reviews provide “a solid factual and analytical basis” for its current recommendation to the FCC.

The fatal flaw in this theory is that the DOJ’s recommendation to the FCC is inconsistent with the factual findings and analysis of the DOJ in its past merger reviews. As I’ve noted previously, in its complaint against the AT&T/T-Mobile merger, the DOJ found that, “due to the advantages arising from their scope and scale of coverage,” Sprint Nextel and T-Mobile are “especially well-positioned to drive competition” in the wireless industry. That finding doesn’t provide any factual or analytical basis whatsoever to conclude that Sprint Nextel and T-Mobile require special government treatment in the incentive auction in order to compete with Verizon and AT&T.

That’s why the DOJ recommendation relies on an irrational and discriminatory presumption that Verizon and AT&T are using spectrum less efficiently than Sprint Nextel and T-Mobile. A speculative presumption doesn’t require the DOJ to admit its own deceit. It merely requires audacity.

In an era when government officials routinely revise the facts to suit their preferred outcomes and disclaim responsibility for the actions of the agencies they’re charged with leading, Commissioner Rosenworcel’s speech required intellectual bravery and political courage. Her ideas deserve a fair hearing.

My colleague Eli Dourado brought to my attention this XKCD comic and when tweeting it out yesterday he made the comment that “Half of tech policy is dealing with these people”:

The comic and Eli’s comment may bit a bit snarky, but something about it rang true to me because while conducting research on the impact of new information technologies on society I often come across books, columns, blog posts, editorials, and tweets that can basically be summed up with the line from that comic: “we should stop to consider the consequences of [this new technology] before we …”  Or, equally common is the line: “we need to have a conversation about [this new technology] before we…”

But what does that really mean? Certainly “having a conversation” about the impact of a new technology on society is important. But what is the nature of that “conversation”? How is it conducted? How do we know when it is going on or when it is over?

Generally speaking, it is best to avoid guessing as to motive when addressing public policy arguments. It is better to just address the assertions or proposals set forth in someone’s work and not try to determine what motivates it or what other ulterior motives may be driving their reasoning.

Nonetheless, I can’t help but think that sometimes what the “we-need-to-have-a-conversation” crowd is really suggesting is that we need to have a conversation about how to slow or stop the technology in question, not merely talk about its ramifications.

I see this at work all the time in the field of privacy policy. Many policy wonks craft gloom-and-doom scenarios that suggest our privacy is all but dead. I’ve notice a lot more of this lately in essays about the “Internet of Things” and Google Glass in particular. (See these recent essays by Paul Bernal and Bruce Schneier for good examples). Dystopian dread drips from almost every line of these essays.

But, after conjuring up a long parade of horribles and suggesting “we need to have a conversation” about new technologies, authors of such essays almost never finish their thought. There’s no conclusion or clear alternative offered. I suppose that in some cases it is because there aren’t any easy answers. Other times, however, I get the feeling that they have an answer in mind — comprehensive regulation of new technologies in question — but that they don’t want to come out and say it because they think they’ll sound like Luddites. Hell, I don’t know and, again, I don’t want to guess as to motive. I just find it interesting that so much of the writing being done in this arena these days follows that exact model.

But here’s the other point I want to make: I don’t think we’ll ever be able to “have a conversation” about a new technology that yields satisfactory answers because real wisdom is born of experience. This is one of the many important lessons I learned from my intellectual hero Aaron Wildavsky and his pioneering work on risk and safety. In his seminal 1988 book Searching for Safety, Wildavsky warned of the dangers of the “trial without error” mentality — otherwise known as the precautionary principle approach — and he contrasted it with the trial-and-error method of evaluating risk and seeking wise solutions to it. Wildavsky argued that:

The direct implication of trial without error is obvious: If you can do nothing without knowing first how it will turn out, you cannot do anything at all. An indirect implication of trial without error is that if trying new things is made more costly, there will be fewer departures from past practice; this very lack of change may itself be dangerous in forgoing chances to reduce existing hazards … Existing hazards will continue to cause harm if we fail to reduce them by taking advantage of the opportunity to benefit from repeated trials.

This is a lesson too often overlooked not just in the field of health and safety regulation, but also in the world of information policy and this insight is the foundation of a filing I will be submitting to the FTC next week in its new proceeding on the “Privacy and Security Implications of the Internet of Things.” In that filing, I will note that, as was the case with many other new information and communications technologies, the initial impulse may be to curb or control the development of certain Internet of Things technologies to guard against theoretical future misuses or harms that might develop.

Again, when such fears take the form of public policy prescriptions, it is referred to as a “precautionary principle” and it generally holds that, because a given new technology could pose some theoretical danger or risk in the future, public policies should control or limit the development of such innovations until their creators can prove that they won’t cause any harms.

The problem with letting such precautionary thinking guide policy is that it poses a serious threat to technological progress, economic entrepreneurialism, and human prosperity. Under an information policy regime guided at every turn by a precautionary principle, technological innovation would be impossible because of fear of the unknown; hypothetical worst-case scenarios would trump all other considerations. Social learning and economic opportunities become far less likely, perhaps even impossible, under such a regime. In practical terms, it means fewer services, lower quality goods, higher prices, diminished economic growth, and a decline in the overall standard of living.

For these reasons, to the maximum extent possible, the default position toward new forms of technological innovation should be innovation allowed. This policy norm is better captured in the well-known Internet ideal of “permissionless innovation,” or the general freedom to experiment and learn through trial-and-error experimentation.

Stated differently, when it comes to new information technologies such as the Internet of Things, the default policy position should be an “anti-Precautionary Principle.” Paul Ohm, who recently joined the FTC as a Senior Policy Advisor, outlined the concept in his 2008 article, “The Myth of the Superuser: Fear, Risk, and Harm Online.” “Fear of the powerful computer user, the ‘Superuser,’ dominates debates about online conflict,” Ohm argued, but this superuser is generally “a mythical figure” concocted by those who are typically quick to set forth worst-case scenarios about the impact of digital technology on society. Fear of such superusers and the hypothetical worst-case dystopian scenarios they might bring about prompts policy action, since “Policymakers, fearful of his power, too often overreact by passing overbroad, ambiguous laws intended to ensnare the Superuser but which are instead used against inculpable, ordinary users.” “This response is unwarranted,” Ohm says “because the Superuser is often a marginal figure whose power has been greatly exaggerated.”

Ohm gets it exactly right and he could have cited Wildavsky on the matter, who noted that, “’Worst case’ assumptions can convert otherwise quite ordinary conditions… into disasters, provided only that the right juxtaposition of unlikely factors occur.” In other words, creative minds can string together some random anecdotes or stories and concoct horrific-sounding scenarios for the future that leave us searching for preemptive to solutions to problems that haven’t even developed yet.

Unfortunately, fear of “superusers” and worst-case boogeyman scenarios are already driving much of the debate over the Internet of Things. Most of the fear and loathing involves privacy-related dystopian scenarios that envision a miserable panoptic future from which there is no escape. And that’s about the time the authors suggest “we need to have a conversation” about these new technologies — by which they really mean to suggest we need to find ways to put the genie back in the bottle or smash the bottle before the genie even gets out.

But how are we to know what the future holds? And even to the extent some critics believe they possess a techno-crystal ball that can forecast the future, why is it seemingly always the case that none of those possible futures involves humans gradually adapting and assimilating these new technologies into their lives the way they have countless times before? In my FTC filing next week, I will document examples of that process of initial resistance, gradual adaptation, and then eventual assimilation of various new information technologies into society. But I have already developed a model explaining this process and offering plenty of examples in my recent law review article, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle,” as well as in this lengthy blog post, “Who Really Believes in ‘Permissionless Innovation’?”

In sum, the most important “conversations” we have about new technologies are the ones we have every day as we interact with those new technologies and with each other. Wisdom is born of experience, including experiences involving risk and the possibility of mistakes and accidents. Patience and an openness to permissionless innovation represent the wise disposition toward new technologies not only because it provides breathing space for future entrepreneurialism, but also because it provides an opportunity to observe both the evolution of societal attitudes toward new technologies and how citizens adapt to them.

Just FYI… The American Enterprise Institute (AEI) is looking for a full-time Program Manager for its new project focused on Internet, communications, and technology policy. The job description can be found online here and is pasted down below:

# # #

The American Enterprise Institute seeks a full-time Program Manager for its new project focused on Internet, communications, and technology policy.

This project will advance policies to encourage innovation, competition, liberty, and growth, creating a positive agenda centered on the political economy of creative destruction. The Program Manager will work closely with the Program Director in the development and day-to-day management of the project; conducting research; developing a new blog website; commissioning monographs and reports; and coordinating events.

Additionally, the Research Program Manager is expected to:

• Be a strong writer, capable of drafting and editing funding proposals, research and opinion articles, marketing materials, and correspondence
• Provide research and administrative support for the program director on various technology policy initiatives, as required
• Be capable of managing numerous projects, initiatives, conferences, and deadlines simultaneously, without oversight
• Contribute original writing and research to AEI research programs
• Be well-versed in Internet and communications policy and capable of proposing new ideas for conferences, initiatives, and projects

The ideal candidate for this position will combine an outstanding academic record with experience working in a technology and communications policy environment with extensive project-management responsibilities, and excellent writing, research and communications skills. BA in economics, or related degree required. The candidate should have a demonstrated interest in a wide range of policy topics and should have a strong grasp of Washington institutions and current events. Applicants should be flexible, creative, and have proven time-management and writing skills.

If interested, please submit an online application to www.aei.org/jobs, complete with a cover letter, resume, transcripts, and 500-word writing sample.

It’s not the culmination–that will come soon–but a major step in work I direct at the Cato Institute to improve government transparency has been achieved. I’ll be announcing and extolling it Wednesday at the House Administration Committee’s Legislative Data and Transparency conference. Here’s a quick survey of what we’ve been doing and the results we see on the near horizon.

After president Obama’s election in 2008, we recognized transparency as a bipartisan and pan-ideological goal at an event entitled: “Just Give Us the Data.” Widespread agreement and cooperation on transparency has held. But by the mid-point of the president’s first term, the deep-running change most people expected was not materializing, and it still has not. So I began working more assiduously on what transparency is and what delivers it.

In “Publication Practices for Transparent Government” (Sept. 2011), I articulated ways the government should deliver information so that it can be absorbed by the public through the intermediary of web sites, apps, information services, and so on. We graded the quality of government data publication in the aptly named November 2012 paper: “Grading the Government’s Data Publication Practices.”

But there’s no sense in sitting around waiting for things to improve. Given the incentives, transparency is something that we will have to force on government. We won’t receive it like a gift.

So with software we acquired and modified for the purpose, we’ve been adding data to the bills in Congress, making it possible to learn automatically more of what they do. The bills published by the Government Printing Office have data about who introduced them and the committees to which they were referred. We are adding data that reflects:

• What agencies and bureaus the bills in Congress affect;

• What laws the bills in Congress effect: by popular name, U.S. Code section, Statutes at Large citation, and more;

• What budget authorities bills include, the amount of this proposed spending, its purpose, and the fiscal year(s).

We are capturing proposed new bureaus and programs, proposed new sections of existing law, and other subtleties in legislation. Our “Deepbills” project is documented at cato.org/resources/data.

This data can tell a more complete story of what is happening in Congress. Given the right Web site, app, or information service, you will be able to tell who proposed to spend your taxpayer dollars and in what amounts. You’ll be able to tell how your member of Congress and senators voted on each one. You might even find out about votes you care about before they happen!

Having introduced ourselves to the community in March, we’re beginning to help disseminate legislative information and data on Wikipedia.

The uses of the data are limited only by the imagination of the people building things with it. The data will make it easier to draw links between campaign contributions and legislative activity, for example. People will be able to automatically monitor ALL the bills that affect laws or agencies they are interested in. The behavior of legislators will be more clear to more people. Knowing what happens in Washington will be less the province of an exclusive club of lobbyists and congressional staff.

In no sense will this work make the government entirely transparent, but by adding data sets to what’s available about government deliberations, management and results, we’re multiplying the stories that the data can tell and beginning to lift the fog that allows Washington, D.C. to work the way it does–or, more accurately, to fail the way it does.

At this point, data curator Molly Bohmer and Cato interns Michelle Newby and Ryan Mosely have marked up 75% of the bills introduced in Congress so far. As we fine-tune our processes, we expect essentially to stay current with Congress, making timely public oversight of government easier.

This is not the culmination of the work. We now require people to build things with the data–the Web sites, apps, and information services that can deliver transparency to your door. I’ll be promoting our work at Wednesday’s conference and in various forums over the coming weeks and months. Watch for government transparency to improve when coders get a hold of the data and build the tools and toys that deliver this information to the public in accessible ways.

Gina Keating, author of Netflixed: The Epic Battle for America’s Eyeballs, discusses the startup of Netflix and their competition with Blockbuster.

Keating begins with the history of the company and their innovative improvements to the movie rental experience. She discusses their use of new technology and marketing strategies in DVD rental, which inspired Blockbuster to adapt to the changing market.

Keating goes on to describe Netflix’s transition to internet streaming and Blockbuster’s attempts to retain their market share.

Download

Related Links

• Netflixed: The Epic Battle for America’s Eyeballs, Keating
• Gina Keating’s New Book about the Rise of Netflix, Babayan
• ‘Netflixed,’ Book by Gina Keating, Describes CEO Reed Hastings As a Nasty Boss’ Liedtke

Tim Lee is right. The Electronic Frontier Foundation post announcing its decision to accept Bitcoin is strange.

“While we are accepting Bitcoin donations,” the post says, “EFF is not endorsing Bitcoin.” (emphasis in original)

They’ve been using dollars over there without anyone inferring that they endorse dollars. They’ve been using various payment systems with no hint of endorsement. And they use all kinds of protocols without disclaiming endorsement—because they don’t need to.

Someone at EFF really doesn’t like Bitcoin. But, oh, how wealthy EFF would be as an institution if they had held on to the Bitcoin they were originally given. I argued at the time it refused Bitcoin that it was making a mistake, not because of the effect on its bottom line, but because it showed timidity in the face of threats to liberty.

Well, just in time for the Bitcoin 2013 conference in San Jose (CA) this weekend, EFF is getting on board. That’s good news, but it’s not as good as the news would have been if EFF had been a stalwart on Bitcoin the entire time. I have high expectations of EFF because it’s one of the great organizations working in the area of digital liberties.

The International Association of Privacy Professionals (IAPP) has been running some terrific guest essays on its Privacy Perspectives blog lately. (I was honored to be asked to submit an essay to the site a few weeks ago about the ongoing Do Not Track debate.) Today, the IAPP has published one of the most interesting essays on the so-called “right to be forgotten” that I have ever read. (Disclosure: We’ve written a lot here about this issue here in the past and have been highly skeptical regarding both the sensibility and practicality of the notion. See my Forbes column, “Erasing Our Past on the Internet,” for a concise critique.)

In her fascinating and important IAPP guest essay, archivist Cherri-Ann Beckles asks, ”Will the Right To Be Forgotten Lead to a Society That Was Forgotten?” Beckles, who is Assistant Archivist at the University of the West Indies, powerfully explains the importance of archiving history and warns about the pitfalls of trying to censor history through a “right to be forgotten” regulatory scheme. She notes that archives “protect individuals and society as a whole by ensuring there is evidence of accountability in individual and/or collective actions on a long-term basis. The erasure of such data may have a crippling effect on the advancement of a society as it relates to the knowledge required to move forward.”

She concludes by arguing that:

From the preservation of writings on the great pharaohs to the world’s greatest thinkers and inventors as well as the ordinary man and woman, archivists recognise that without the actions and ideas of people, both individually and collectively, life would be meaningless. Society only benefits from the actions and ideas of people when they are recorded, preserved for posterity and made available. Consequently, the “right to be forgotten” if not properly executed, may lead to “the society that was forgotten.”

Importantly, Beckles also stresses the importance of individual responsibility and taking steps to be cautious about the digital footprints they leave online. “More attention should instead be paid to educating individuals to ensure that the record they create on themselves is one they wish to be left behind,” she notes. “Control of data at the point of creation is far more manageable than trying to control data after records capture.”

Anyway, read the whole essay. It is very much worth your time.

Frontline relied on the DOJ foreclosure theory to predict that the lack of eligibility restrictions in the 700 MHz auction would “inevitably” increase prices, stifle innovation, and reduce the diversity of service offerings as Verizon and AT&T warehoused the spectrum. In reality, the exact opposite occurred.

The DOJ recently recommended that the FCC rig the upcoming incentive auction to ensure Sprint Nextel and T-Mobile are winners and Verizon and AT&T are losers. I previously noted that the DOJ spectrum plan (1) inconsistent with its own findings in recent merger proceedings and the intent of Congress, (2) inherently discriminatory, and (3) irrational as applied. Additional analysis indicates that it isn’t supported by economic theory or FCC factual findings either.

Economic Theory

The Phoenix Center published a paper with an economic simulation that exposes the fundamental economic defect in the foreclosure theory underlying the DOJ recommendation. The DOJ implicitly recognizes that the “private value” of spectrum (the amount a firm is willing to pay) equals its “use value” (derived from using spectrum to meet consumer demand) plus its “foreclosure value” (derived from excluding its use by rivals). In its application of this theory, however, the DOJ erroneously presumes that Verizon and AT&T would derive zero use value from the acquisition of additional spectrum – a presumption that is inconsistent with the FCC findings that prompted the auction.

The Phoenix Center notes that all firms – including Sprint Nextel and T-Mobile – derive a foreclosure value from the acquisition of spectrum due to its scarcity. When considering the benefits to consumers, it is the comparative use value of the spectrum for each provider that is relevant. If the use value of the spectrum to Verizon and AT&T exceeds that of Sprint Nextel and T-Mobile, economic theory says Verizon and AT&T would maximize the potential consumer benefits of that spectrum irrespective of its foreclosure value.

Of course, determining the differing use values of spectrum to particular firms is what spectrum auctions are for, which brings the DOJ’s argument full circle: If government bureaucrats at the DOJ and the FCC could accurately assess the use values of spectrum, we wouldn’t need to hold spectrum auctions in the first place.

The circularity of the DOJ theory explains its reliance on an unsubstantiated presumption that Sprint Nextel and T-Mobile have the highest use value for the spectrum. If the DOJ had instead (1) conducted a thorough factual investigation, (2) analyzed the resulting data to assign bureaucratic use values for the spectrum to each of the four nationwide mobile providers, and (3) compared the results to determine that Verizon and AT&T had lower use values, the DOJ would have engaged in the same failed “comparative hearing” analysis that Congress intended to avoid when it authorized spectrum auctions. Given the Congressional mandate to auction spectrum yielded by the broadcasters, the FCC cannot engage in a comparative process to pick winners and losers, and it certainly cannot substitute an unsubstantiated presumption for an actual comparative process in order to avoid the legal prohibition.

FCC Factual Findings

The foreclosure theory and DOJ presumption are also inconsistent with the auction experience and current factual findings of the FCC. The DOJ foreclosure theory has been presented to the FCC before and has proved invalid by the market.

When the FCC was developing rules for the 700 MHz auction in 2007, Frontline Wireless sought preferential treatment using the same foreclosure theory as the DOJ. Frontline submitted a paper (prepared by Stanford professors of economics and management) that relied on the same types of information and reached the same conclusion as the DOJ – that Verizon and AT&T were dominant “low-frequency” wireless incumbents with “strong incentives” to acquire and warehouse 700 MHz spectrum, and that their participation in the 700 MHz auction must be limited in order to “promote competition” and prevent “foreclosure.” Frontline predicted that, if Verizon and AT&T were not prevented from bidding in the 700 MHz auction, it would “inevitably lead to higher prices, stifled innovation, and reduced diversity of service offerings.”

The FCC rejected Frontline’s foreclosure theory. The FCC concluded that, “given the number of actual wireless providers and potential broadband competitors, it [was] unlikely that [incumbents] would be able to behave in an anticompetitive manner as a result of any potential acquisition of 700 MHz spectrum.”

The last five years have proven that the FCC was correct. Though Verizon and AT&T acquired significant amounts of unfettered 700 MHz spectrum, the auction results have not led to the “higher prices, stifled innovation, and reduced diversity of service offerings” predicted by Frontline. In its most recent mobile competition report, the FCC reported that:

• Verizon used its 700 MHz spectrum to deploy a 4G LTE network to more than 250 million Americans less than four years after Verizon’s 700 MHz licenses were approved (i.e., it didn’t warehouse the spectrum).

• Mobile wireless prices declined overall in 2010 and 2011, and the price per megabyte of data declined 89% from the 3^rd quarter of 2008 – a few months before Verizon received its 700 MHz licenses – to the 4^th quarter of 2010 (i.e., industry prices decreased).

• The number of subscribers to mobile Internet access services more than doubled from year-end 2009 to year-end 2011 (i.e., industry output increased).

• Prepaid services are growing at the fastest rate, and new wholesale and connected device services are growing significantly (i.e., providers continued to provide new and diverse service offerings).

• Market concentration has remained essentially unchanged since 2008 (the population weighted average of HHIs increased from 2,842 in 2008 to 2,873 in 2011 – a change of only 1 percent).

Remember: Frontline relied on the DOJ foreclosure theory to predict that the lack of eligibility restrictions in the 700 MHz auction would “inevitably” increase prices, stifle innovation, and reduce the diversity of service offerings as Verizon and AT&T warehoused the spectrum. In reality, the exact opposite occurred. Verizon and AT&T did not warehouse the spectrum, industry prices decreased while output increased, diverse new service offerings exhibited the strongest growth, and market concentration remained essentially unchanged. And, while competition thrived, consumers reaped the benefits.

So, why would the DOJ make the same failed argument for the 600 MHz auction (other than crony capitalism)? Some might say, “Even the boy who cried wolf was right once.” But, even if one were inclined to give the DOJ the benefit of the doubt, the theoretical possibility that the foreclosure theory could adversely impact the 600 MHz auction must be weighed against the potential harm of limiting participation in the auction.

The harm is well documented and could prove particularly problematic in this auction. A paper coauthored by Leslie Marx, who led the design team for the 700 MHz auction when she was the FCC’s Chief Economist, demonstrates that excluding Verizon and AT&T would have even more severe consequences in the incentive auction than in previous auctions.

A paper published by economists at Georgetown University’s Center for Business and Public Policy attempts to quantify the severity of these consequences. It estimates that excluding Verizon and AT&T from the auction could reduce revenues by as much as 40 percent ($12 billion) – a result that would jeopardize funding for the nationwide public safety network, reduce the amount of spectrum made available for wireless Internet services, and adversely affect more than 118,000 U.S. jobs. That is a steep price to pay for the privilege of seeing whether the boy is crying wolf again.

Timothy Ravich, a board certified aviation lawyer in private practice and an adjunct professor of law at the Florida International University School of Law and the University of Miami School of Law, discusses the future of unmanned aerial system (UAS), also known as drones.

Ravich defines what UAVs are, what they do, and what their potential non-military uses are. He explains that UAV operations have outpaced the law in that they are not sufficiently supported by a dedicated and enforceable regime of rules, regulations, and standards respecting their integration into the national airspace.

Ravich goes on to explain that Congress has mandated the FAA to integrate UAS into the national airspace by 2015, and explains the challenges the agency faces. Among the novel issues domestic drone use raises are questions about trespass, liability, and privacy.

Download

Related Links

• The Integration of Unmanned Aerial Vehicles into the National Airspace, Ravich
• Domestic Drones are Coming your Way, Brito
• Making airspace available for ‘permissionless innovation,’ Technology Liberation Front

As the “real-world” continues its inexorable march toward our all-IP future, the FCC remains stuck in the mud fighting the regulatory wars of yesteryear, wielding its traditional weapon of bureaucratic delay to mask its own agenda.

Late last Friday the Technology Transitions Policy Task Force at the Federal Communications Commission (FCC) issued a Public Notice proposing to trial three narrow issues related to the IP transition (the transition of 20^th Century telephone systems to the native Internet networks of the 21^stCentury). Outgoing FCC Chairman Julius Genachowski says these “real-world trials [would] help accelerate the ongoing technology transitions moving us to modern broadband networks.” Though the proposed trials could prove useful, in the “real-world”, the Public Notice is more likely to discourage future investment in Internet infrastructure than to accelerate it.

First, the proposed trials wouldn’t address the full range of issues raised by the IP transition. As proposed, the trials would address three limited issues: VoIP interconnection, next-generation 911, and wireless substitution. Though these issues are important, the FCC proposals omit the most important issue of all – the transition of the wireline network infrastructure itself. As a result, they would yield little, if any, data about the challenges of shutting down the technologies used by the legacy telephone network.

Second, the proposed trials are unlikely to yield significant new information. As Commissioner Pai noted in his statement last week, all three issues are already being trialed in the “real-world” by the industry, consumers, and state regulators.

Finally, and perhaps most importantly, all three issues are already the subject of ongoing FCC proceedings and don’t raise any new issues (e.g., issues that would implicate FCC regulatory forbearance).

If the FCC truly wanted to accelerate the transition to all-IP infrastructure, why would it propose studies of three limited issues that it is already addressing? I expect the FCC was unwilling to propose a comprehensive trial that could jeopardize its assertion of regulatory jurisdiction over the Internet, especially its potential authority to impose Title II regulations if it loses the net neutrality case pending in the DC Circuit. The language in the Public Notice indicates it is no coincidence that the narrow issues the FCC intends to study do not implicate its forbearance authority or (at least directly) the scope of its jurisdiction. For example, the Public Notice states that VoIP interconnection involves, among other things, “pricing” and “quality of service” issues, and that the FCC wants to structure any trial to provide it with “data to evaluate which policies may be appropriate” for VoIP interconnection. This language clearly indicates that the FCC is contemplating Title II pricing regulation of VoIP interconnection.

The Public Notice also seeks additional comment on the more comprehensive approach to the IP transition originally proposed by Commissioner Ajit Pai in July 2012, but in a way that sends all the wrong signals to investors.

When Commissioner Pai proposed the establishment of a Task Force for the IP transition nine months ago, his intent was the removal of regulatory barriers to infrastructure investment, including unpredictability at the FCC. He suggested that the FCC send a clear signal that new IP networks built in competitive markets will not be subject to “broken, burdensome economic regulations” designed for monopoly telephone networks.

Last Friday’s Public Notice does just the opposite. It signals that even the worst excesses of legacy telephone regulation are still an option for the Internet. Specifically, the Public Notice “invites” telephone companies that are interested in comprehensive trials to submit a comprehensive plan listing, at a minimum:

(1) all of the services currently provided by the carrier in a designated wire center that the carrier would propose to phase out; (2) estimates of current demand for those services; and (3) what the replacement for those services would be, including current prices and terms and conditions under which the replacement services are offered.

It is telling that none of these enumerated questions are aimed at the potential technical issues posed by the IP transition (which is a forgone conclusion economically). They are aimed at economic issues relevant to the FCC’s traditional Title II price regulation of communications services.

In the nine months since Commissioner Pai began leading the IP transition, the FCC has signaled nothing more than its intent to continue bureaucratic business as usual. As the “real-world” continues its inexorable march toward our all-IP future, the FCC remains stuck in the mud fighting the regulatory wars of yesteryear, wielding its traditional weapon of bureaucratic delay to mask its own agenda. There it will remain until the FCC has a Chairman with a vision for the future, not the past.

DISH Network gets another opportunity on Tuesday to plead with Congress for another Satellite Home Viewer Act reauthorization—ostensibly to protect consumers from unwarranted rate increases and program blackouts, but actually to preserve and expand DISH Network’s and DirecTV’s access to broadcast programming at regulated, below-market rates.

A couple minor provisions in the Act that have nearly outlived their original purpose are due to expire, but DISH Network is taking advantage of this opportunity to argue that  “there is much more that Congress can do to expand consumers’ access to local programming…”  DISH’s plea is an example of the narcotic effect of supposedly benign regulation intended to promote competition by giving nascent competitors a leg up.  DISH Network, in particular, has become addicted to artificially low prices for broadcast programming, and will seize any opportunity to reduce its programming costs some more through regulation.One of the problems with betting your shareowners’ company on regulation is that in politics, nothing lasts forever.  Another is that there are certain laws of economics, and they still apply.  Shareowners really ought to be on high alert for the appearance of a Beltway, State Capitol or City Hall strategy—firms that can compete and win in the marketplace have no need for regulatory advantages.

When the Act was passed, broad-beam satellite technology meant that carriers had to transmit the same programming across North America.  The carriers were given the right to retransmit distant broadcast signals from “superstations” (without first having to obtain the broadcaster’s consent) to households that could not receive an adequate over-the-air signal from any local station affiliated with a particular major network.

Spot-beam technology now allows the carriers to deliver local broadcast signals to each of the 210 corresponding local viewing areas.  And as a result of significant investment by the satellite carriers, very few households are without access to major networks or local stations.

In that sense, the Act and its progeny can be viewed as a success.  On the other hand, SNL Kagan estimates that, in 2013, programming fees received by broadcasters will represent a total of only $2.7 billion, compared to $31.5 billion for basic cable networks.  This data suggests the possibility that broadcasters are not recovering the fair market value of their programming.  If that’s the case, their ability to continue producing popular programming is in jeopardy.

DISH Network Chairman Charlie Ergen complains that broadcasters “cling to the status quo instead of meeting consumer demand and embracing new technologies and business models.”

But clearly, broadcasters are adapting to the fact that advertisers who used to underwrite the entire cost of broadcasting now have many more options that include cable networks.  It’s unrealistic to pretend we were still living in the 1970’s, when broadcasters had market power.

The facts are: (1) broadcasters are competing for their lives, and (2) broadcasters are a potent source of competition in content and delivery.  The last thing policymakers should be contemplating is forcing broadcasters to subsidize their competitors.

Under current law, satellite carriers will no longer be able to retransmit distant network signals to unserved households without first obtaining the consent of the broadcaster after Dec. 31, 2014.  Nor will broadcasters be prohibited from engaging in exclusive contracts for carriage of their signals.

As content producers, broadcasters generally have an incentive to reach as many viewers as possible by any means. But there are exceptions.  If both a professional ball club or a movie studio and a cable network or broadcaster, for example, believe it is in their mutual best interest to strike an exclusive deal, what’s wrong with allowing them to recover the full economic value of their collaborative enterprise?

If you are DISH Network and if reason prevails and your lobbyists cannot persuade Congress to prohibit exclusivity, there is a solution.  You can become the exclusive supplier of must-see content.

Consumers are best served in the long run by an efficient economy that expands prosperity, not by unholy alliances between struggling firms and policymakers.  Consumers benefit when a producer of something is permitted to obtain the full economic value of his or her product, because then they will produce more of it and look for ways to improve it.

So far, no one has demonstrated that consumers will be harmed if these expiring provisions—which are quite narrow in scope—are allowed to sunset.  The reality is that satellite carriers pay market-based rates for cable networks but don’t want to pay market-based rates for broadcast programming.  The simple fact is DISH Network is receiving a subsidy, and if Congress preserves it that is corporate welfare.

Check out how tribal villagers in parts of India are establishing a basic right that we take for granted. Using GPS and satellite imagery, they’re marking out the plots of land that they have lived on, unrecognized, for decades, and they’re making it their property.

The project is described here, and you can noodle around and find plots that they’ve mapped out here.

Earlier this year, Ryan Radia and I spilled a lot of ink on these pages critiquing the various “cell phone unlocking” bills that were introduced in reaction to a successful White House petition. Our assessment of these bills was that they ranged from timid to unhelpful. Their biggest vice was that they were generally band-aids and temporary fixes aimed solely at cell phones and not the underlying problem of the DMCA’s anti-circumvention provision.

Today, I’m happy to see Rep. Zoe Lofgren introduced a bill that would not only fix cell phone unlocking, but also goes a long way in addressing the DMCA Section 1201’s fundamental problems. Quite simply, the Unlocking Technology Act of 2013 makes the DMCA’s anti-circumvention provisions applicable only in cases where the person circumvents a digital lock in order to infringe copyright. So, ripping a DVD in order to distribute a film without permission on BitTorrent would still be illegal, but ripping the same DVD in order to watch the film on your iPad would be OK. This is good sense and good policy.

The bill also would allow the manufacture, sale, and import of anti-circumvention tools now prohibited under DMCA 1201. Sounds nefarious, but in reality what this means is that, for example, Linux users may for the first time get a legal way to play DVDs on their computers. And making tools that help the blind read ebooks won’t get you in trouble with the FBI.

Finally, the bill requires NTIA to conduct a study and publish a report looking at whether the economic impact of the DMCA’s anti-circumvention provisions, and to look at whether Section 1201 should be further amended or even repealed. Yes folks, this bill uses the word “repeal” in its text.

Congrats to Rep. Lofgren and her bi-partisan co-sponsors, Reps. Massie, Eshoo, and Polis, for showing that common sense still has a shot on the Hill.

There’s a powerful irony lurking underneath the executive order and OMB memorandum on open data that the White House released in tandem today: We don’t have data that tells us what agencies will carry out these policies.

It’s nice that the federal government will work more assiduously to make available the data it collects and creates. And what President Obama’s executive order says is true: “making information resources easy to find, accessible, and usable can fuel entrepreneurship, innovation, and scientific discovery that improves Americans’ lives and contributes significantly to job creation.” GPS and weather data are the premier examples.

But government transparency was the crux of the president’s 2008 campaign promises, and it is still the rightful expectation of the public. Government transparency is not produced by making interesting data sets available. It’s produced by publishing data about the government’s deliberations, management, and results.

Today’s releases make few, if any, nods to that priority. They don’t go to the heart of transparency, but threaten to draw attention away from the fact that basic data about our government, including things as fundamental as the organization of the executive branch of government, are not available as open data.

Yes, there is still no machine-readable government organization chart. This was one of the glaring faults we found when we graded the publication practices of Congress and the executive branch last year, and this fault remains. The coders who may sift through data published by various agencies, bureaus, programs, and projects can’t sift through data reflecting what those organizational units of government are.

Compare today’s policy announcements to events coming up on Capitol Hill in the next two weeks.

On Thursday next week (May 16), the House Committee on Oversight and Government Reform will host a “DATA Demonstration Day” to illustrate to Congress and the media how technology may cut waste and improve oversight if federal spending data is structured and transparent. (That would include my hobby-horse, the machine-readable federal government organization chart.) We’ll be there demo-ing how we at Cato are adding data to the bills Congress publishes.

On May 22nd, the House Administration Committee is hosting its 2013 Legislative Data and Transparency Conference. This is an event at which various service providers to the House will announce not just policies, but recent, new, and upcoming improvements in publication of data about the House and its deliberations. (We’ll be there, too.)

The administration’s open data announcements are entirely welcome. Some good may come from these policies, and they certainly do no harm (barring procurement boondoggles–which, alas, is a major caveat). But I hope this won’t distract from the effort to produce government transparency, which I view as quite different from the subject of the new executive order and memorandum. The House of Representatives still seems to be moving forward on government transparency with more alacrity.

Over at Freedom to Tinker, Steve Schultze has a response to my Reason article about Craigslist suing its competitors. Steve expresses some surprise that I would suggest that we might want to recognize a new property right since I have been so critical of the excesses of our current IP regime. Let me take a stab at reconciling that seeming paradox.

First, I should say I’m sympathetic to Steve’s position, which he shares with many others, and which may well be right. I wrote the Reason article more than anything to provide some balance to what I saw as a knee-jerk reaction in the blogosphere to the Craigslist ruling. I really didn’t see anyone giving Craigslist’s claims a fair shake (probably because the company is acting hypocritically given the public profile they have cultivated). That’s why in the article I’m ambivalent about whether Craigslist should have any remedy, and why I don’t make the case that trespass to chattels is the right approach. The point is that neither am I convinced that it’s clearly the wrong approach, or that Craigslist should clearly not be waging this suit.

That said, let me suggest that my thinking on this is not at odds with my thinking on copyright. Steve chides me for saying that maybe there’s something to Craigslist’s claims because what its competitors are doing doesn’t “sit well.” He says that “the notion that something doesn’t ‘sit well’ is not necessarily a good indicator that one can or should prevail in legal action,” and he’s right, which is why I don’t make that claim in the article. He goes on to admit that “to be sure, tort law (and common law more generally) develops in part out of our collective notion of what does or doesn’t seem right.” And that was my point. The fact that what Craigslist’s competitors are doing doesn’t sit well, I suggest, should give us a hint that this isn’t as open-and-shut a case as some have made it out to be, and that perhaps we should take a closer look.

I’m glad Steve brings up the common law. One of the central critiques I have made about copyright as a property right is that it did not develop at common law, and is instead a creature of statute. The fact that copyright is created by politicians guessing about the future (and influenced by special interests), rather than courts deciding actual cases and controversies, is what in large part leads to its excesses. I am much less skeptical of property rights that emerge at common law over time after an evolutionary process of trial and error, and as Steve points out, this process usually begins when a court is presented with a novel question that doesn’t “sit well.”

On to nitpicks about copyright. Steve says that “there is a bit of confusion around the copyright claims” that he wants to clear up and notes that, “The court held that Craigslist unambiguously does not hold copyright in user-created postings, except for those three ill-fated weeks last summer when they instituted that horrible terms of service.” That is a confusing statement in itself because at face value it implies that Craigslist does indeed have copyright over the postings created during the couple of weeks it required users to click through what Craigslist claims is a notice that assigns to it an exclusive license. Of course, as Steve knows, the court’s ruling was on a pretrial motion and whether Craigslist has copyright in that small set of listings has not yet been determined. And if I had to bet, I’d bet the click-thru won’t qualify as an assignment of an exclusive license.

He goes on to say that “Jerry’s claim … that no copyright exists in these posts whatsoever, seems weak.” Well, again, I made no such claim. The only thing I said on this was that “a site like PadMapper only copies facts about a listing (i.e. 3 bedrooms, 800 sq. ft., $2,000 a month, etc.), and mere facts are not subject to copyright.” I wasn’t suggesting that the listings in questions were Feist-style facts that could not be copyrighted, but that PadMapper is not copying the listings wholesale, but only taking mere facts, which would be unprotected given the merger doctrine. Steve seems to miss that distinction.

Even if I had said that the listings were not subject to copyright, Steve’s evidence that such a claim is weak is, well, weak. He points to the court’s ruling, which finds that the listings probably are copyrightable. Yet as Steve notes, the facts in the case are read in the light most favorable to the non-moving party, which is Craigslist since this is a motion to dismiss. So I’m not sure how a court looking at the issue in a light favorable to Craigslist and finding that Craigslist has adequately alleged sufficient facts to proceed is much evidence against the legal claim that the listings aren’t copyrightable.

Anyhow, after clarifying “confusions around the copyright claims” that I did not introduce, Steve takes me to task for “argu[ing] that maybe this is the right case to test out some novel approaches to applying physical-world torts to online things that feel kinda like property.” In this he’s probably right; this is likely the wrong case. It is “a messy fact pattern,” as Steve says. I think that’s true in part because Craigslist has not been adding new features to its site and has seemingly been resting on its laurels since the late 90s. A better case would be one that involved, say, a service that took Match.com and OKCupid listings without permission. It would be a much more clear-cut question if we had a plaintiff that was working hard to attract users’ listings only to see them taken without permission, as 3taps says in its white papers should be allowed. Alas, though, this is the case we have.

Steve then goes on to the heart of the matter: my suggestion that it’s not clear that there shouldn’t be a property right here. Steve first says that “moving law in this direction is bad policy,” without providing any support for that assertion except to say that “Jerry has written extensively about the problems with propertization creep, so I don’t know why he would think that this makes sense.” I’ve already explained the difference between property rights that emerge at common law, and the creep we see from statutory property schemes, so I won’t repeat myself. The bottom line is that sometimes property makes sense, and sometimes it doesn’t. The question is, in a particular case, how do we increase human welfare? With a property right, or with a commons? As I said before, Steve and other commentators may be right that a commons is the way to go in this case, but it’s not as obvious to me as it seemingly is to them. I’d love to see the case made explicitly.

Steve goes on:

Jerry also turns to the economics of network effects to support his “it doesn’t feel right” hypothesis. As his argument goes, Craigslist built the network effects that it now enjoys, so competitors should have to do the same. I suppose that this satisfies a visceral sense of fairness, but it doesn’t say much about what is optimal for the market and for innovation.

I’d argue it says far more than Steve has said. As I explain in chapter one of Copyright Unbalanced (the subtitle of which Steve oh so cleverly zings in his concluding line) we do want to see new property rights emerge when it’s worthwhile to internalize (at least some of) an existing externality. In this case the externality is the network effect that listing platforms like Craigslist provide. What I’m suggesting is that it’s not obvious that we won’t get better platforms and more innovation by having competing closed platforms (Match.com vs. OKCupid) rather than one open one. Commentators like Steve, however, seem happy to forgo the analysis, dismissing such thinking as “Paleo-Schumpeterian,” and jumping right to the conclusion that any new propertization is bad. I’ve explained my limiting principle; I’d love to hear theirs.

Finally, so much of the reaction to Craigslist this past week was predicated on the company’s lack of innovation. As Steve points out,

Once you have a network effect in a market, your incentives to innovate decrease because of lock-in. Others, however, are strongly motivated to try to break into that market. Padmapper and others innovated—in a way that is no less “true” than Craigslist’s original innovation. Craigslist saw the value of that innovation and even tried to imitate it by creating its own mapping tool (arguably innovation in and of itself).

I don’t get it. If Craiglist is asleep at the switch and as un-innovative as Steve says it is, and if competitors are innovating, then why should we worry if it does have a property right? Won’t Craigslist eventually get disrupted and have the network effect wrested away from it by a competitor that entices aways its users? It’s how Facebook beat MySpace, and how MySpace beat Friendster. Lock-in didn’t stop them. And isn’t at least some of the incentive that draws those potential disruptors the chance of one day wearing the crown?

I’m not saying this is the right answer, but I don’t see anyone making a good case why a property model is obviously wrong, and a commons is obviously better.

I plan to write more about broadband competition and the impact of Google Fiber but in the meantime, there is a New York Times article on the subject that I’ll briefly address.

The author, Eduardo Porter, misdiagnoses why tiered pricing in broadband exists, giving readers the impression that only monopolies price discriminate:

That means that in most American neighborhoods, consumers are stuck with a broadband monopoly. And monopolies don’t strive to offer the best, cheapest service. Rather, they use speed as a tool to discriminate by price — coaxing consumers who are willing to pay for high-speed broadband into more costly and profitable tiers.

Consumer advocacy groups regularly–and wrongly–equate price discrimination with monopoly. Price discrimination–where firms price different customers different prices because of their willingness to pay–tells us nothing about the existence of monopoly (and little about market power). Firms lacking monopoly–in industries like airlines, clothing retail, movie theaters, and restaurants–use price discrimination. No one alleges monopoly in these industries, so I don’t know why the author makes this connection between monopoly and price discrimination. Had Porter thought about it, this paragraph makes little sense since even in the urban areas that have 2 or 3 high-speed broadband providers you still see tiered pricing. This should be a tip-off that tiered pricing does not arise from monopoly.

Porter makes another error, which I think just signals the sloppy reporting in this piece:

The preferred strategy seems to involve more cooperation than competition. In 2011, Verizon tried to cobble together agreements with the nation’s major cable firms to jointly market each others’ services — offering itself as the wireless complement to cable’s wireline plans. It was foiled only because the Justice Department slapped the deals down as anticompetitive.

As Gigi Sohn (who generally agrees with the author) points out on Twitter, this is not right either.

Great @nytimes piece on why US #broadband is mediocre: nytimes.com/2013/05/08/bus…Correction: DoJ did *not* block Verizon-cable spectrum deal

— Gigi Sohn (@gigibsohn) May 8, 2013

The agreements to jointly market others’ products were not in any meaningful sense “foiled.” Those agreements were approved with conditions, namely, that Verizon couldn’t market a cable company’s service where FiOS is available.

I don’t think these are minor nitpicks. The fact is, journalists and advocates regularly employ loose definitions of “monopoly,” often intentionally in order to increase the urgency to further some political end. And the portion about the Verizon deal gives readers the distinct impression that Verizon was doing something colluding and nefarious that was stopped by the DOJ, and that’s just not true.

Over at Reason I take a look at the recent controversy around Craigslist suing some smaller competitors who have been using its listings data without permission. While I agree with most commentators that neither copyright nor CFAA claims make sense in this case, I depart from what seems to be the conventional thinking in arguing that it’s not so clear that Craigslist should have no remedy:

[I]t’s pretty easy to see why Craigslist should care that others are building on top of and extending its service. What makes the company so valuable is its strong network effect. People go to Craigslist because that’s where the people are. If it loses that, it loses its business.

PadMapper aggregates and presents listings not just from Craigslist, but from other apartment listing sites as well, including Apartments.com and Rent.com. This is great for users because they only need go to one site to browse all the listings across multiple databases. It’s bad for Craigslist, however, because it makes it less of a focal site. Such aggregators make it less important that an apartment be listed at Craigslist specifically as long as it is in the aggregated list.

PadMapper also offers listings of its own listings through its PadLister service. This means that PadMapper relies on the network effects that Craigslist has developed in order to draw in an audience, and then promotes and sells its own listing service to that audience. While that business model is certainly innovative, and may not violate copyright, it doesn’t sit well, either.

Craigslist disrupted the newspaper industry by decimating traditional classifieds. It did this by offering a better alternative to its competitors that attracted consumers away from newspapers. Craigslist didn’t copy newspaper ads to jumpstart its operation, just as Facebook didn’t jumpstart its network by copying over MySpace accounts. That’s true innovation: taking command of the network effect by offering a superior product. So shouldn’t we expect the same from new entrants in the classifieds space?

Check out the whole thing here.

W. Patrick McCray, author of The Visioneers: How a Group of Elite Scientists Pursued Space Colonies, Nanotechnologies, and a Limitless Future, tells the story of these modern utopians who predicted that their technologies could transform society as humans mastered the ability to create new worlds.

Believing that the term “futurist” was too broad, McCray coined the term visioneers to describe those who not only had ambitious visions for future technology, but who carried out detailed and extensive scientific and engineering work to bring those visions into fruition, and who actively worked to promote their  ideas to a wider public.

McCray focuses on the works of Gerard O’Neil and Eric Drexler, detailing their early contributions as visioneers and their continuing impact particularly in the fields of space colonization and nanotechnology. He also identifies modern-day visioneers and their work.

Download

Related Links

• The Visioneers: How a Group of Elite Scientists Pursued Space Colonies, Nanotechnologies, and a Limitless Future, McCray
• Keep Watching the Skies!: The Story of Operation Moonwatch and the Dawn of the Space Age, McCray
• Giant Telescopes: Astronomical Ambition and the Promise of Technology, McCray
• We May Not Have Flying Cars Yet, But Visioneers Are Inventing a New Future, McCray

Next week, I’ll be in Geneva for the 2013 World Telecommunication/ICT Policy Forum, better known by the acronym WTPF-13. This is the first major ITU conference since the WCIT in December, and the first real test of whether what some are calling the “post-WCIT era” really exists, and if so, what it means. For those just now tuning in, the WCIT was a treaty conference in Dubai in which some ITU member states pushed hard to make elements of the Internet subject to intergovernmental agreement, resulting in the refusal of 55 countries to sign the treaty. I published a retrospective account of my experience at the WCIT at Ars Technica.

The WTPF will be different than the WCIT in several important ways:

• It’s not a treaty conference. The output of the meeting is instead a report and several opinions. Draft text of these have been negotiated over three preparatory meetings of an “Informal Experts Group” (IEG). The WTPF will finalize the text, which is non-binding, but is likely to be selectively quoted at future treaty conferences in order to pursue the agenda of each member state.
• Sector members can participate. The ITU is an intergovernmental organization, and member states are its primary constituency. However, the ITU also allows for “sector members,” which are mostly corporations that are involved in international telecommunications. Sector members will have microphones and be able to address the chair during the WTPF, something they could not do during the WCIT. It has not yet been made conclusively clear to me whether sector members will be able to formally vote, if a formal vote is held. (Secretary-General Hamadoun Touré said there would be no voting at the WCIT, but both informal and formal votes were held.)
• The Internet is explicitly on the table. The Secretariat promised that Internet governance would not be considered at the WCIT, but it ultimately was, which is one reason that the conference failed to produce a treaty that all countries could feel comfortable signing. But the official theme of the WTPF is “international Internet-related public policy matters,” so there is widespread agreement that the Internet is a suitable topic of discussion at the WTPF, even if there is little agreement on conclusions.
• Anybody can download and read the official WTPF documents. Before and during the WCIT, working drafts and member state contributions were kept secret. Jerry Brito and I started WCITLeaks in order to give the general public access to these documents. For whatever reason—whether exposure of the lack of transparency in the WCIT process embarrassed the ITU Secretariat, or they were planning to make the WTPF more open anyway—all WTPF documents are available for your perusal, several in all six official ITU languages. Either way, I’m happy to applaud the decision to make the documents available.
• The WTPF is only three days long. The WCIT was almost two weeks. This imposes significant limitations on the amount of deliberation that can occur. There is also a WTPF every 4 years, whereas a WCIT happens only on an as-demanded basis.

Since the conference is going to be short, I expect that most of the debate will focus on the six draft opinions that have been attached to the Secretary-General’s report. The report itself is probably too long to receive substantial revision in only three days. Consequently, the opinions are likely to be where the action is. The draft opinions are:

1. Promoting Internet Exchange Points (IXPs) as a long term solution to advance connectivity
2. Fostering an enabling environment for the greater growth and development of broadband connectivity
3. Supporting Capacity Building for the deployment of IPv6
4. In Support of IPv6 Adoption and transition from IPv4
5. Supporting Multi-stakeholderism in Internet Governance
6. On supporting operationalizing the Enhanced Cooperation Process

Opinions 1 and 2 will be consider in Working Group 1, 3 and 4 will be considered in Working Group 2, and 5 and 6 will be considered in Working Group 3.

The United States has expressed qualified support for the current draft text of all six opinions in its contribution to the WTPF:

The United States is prepared to endorse the consensus achieved by the IEG and adopt the six non-binding opinions as presented in the annex to the Secretary General’s report. We take this approach based on our desire for a successful forum, despite some concerns with respect to the opinions on multi-stakeholderism and enhanced cooperation. But we recognize, as we hope all participants do, that to attempt to renegotiate the text or introduce new topics or opinions during this meeting would cause significant difficulties and upset the consensus already achieved.

Nevertheless, other countries have proposed substantial changes to the draft IEG text. Perhaps the most controversial opinion is number 5 on multi-stakeholderism. Multi-stakeholderism is a tricky element of international Internet politics. Most participants have agreed at one point or another that the “multi-stakeholder” institutions that currently govern the Internet are an important part of the Internet’s success. However, this has led the more authoritarian countries to insist that governments are stakeholders too, and it has led those who support greater ITU involvement in international Internet policy to insist that the ITU is a multi-stakeholder organization.

For example, in a speech two weeks ago in Brussels, Secretary-General Touré said:

This opinion reiterates what I have been saying for some time—that the ITU has been multi-stakeholder from its inception, and that it was the success of the multi-stakeholder approach within ITU that inspired the multi-stakeholder principles agreed at the ITU-led World Summit on the Information Society, WSIS.

Now, Opinion 5 does not say that the ITU is a multi-stakeholder organization (read it yourself), and the ITU is certainly not and has never been a multi-stakeholder institution, unless “multi-stakeholder” is defined as simply having multiple stakeholders. Among those who originally advocated multi-stakeholderism, the term connotes a certain bottom-up, voluntary, inclusive, and even informal process, which is incompatible with intergovernmentalism. This…loose talk…by the Secretary-General appears to be intended to position the ITU to take a more active role in Internet governance. Some member states share Dr. Touré’s apparent agenda. For example, Brazil’s proposed replacement for Opinion 5 explicitly says, “ITU is a multistakeholder organization.”

Russia’s proposed edits to Opinion 5 focus much less on the ITU itself and more on the role of government. For instance, it invites member states:

to exercise their rights on Internet Governance to control distribution, appropriation and development of Internet numbering, naming, addressing and identification resources and support the operation and development of the basic information and communication infrastructure, include the Internet, at the national level.

In other words, Russia wants to supplant existing Internet governance structures with national laws.

Aside from Opinion 5, the other major issue I am keeping my eye on is Working Group 2 on IP addresses and the IPv6 transition. Late last week, there was an unexpected shuffling of Working Group chairs. The chairwoman of WG3 was removed, the chairman of WG2 was moved to WG3, and Musab Abdullah from Bahrain was announced as the new chairman of WG2.

Those of us who were at the WCIT remember Mr. Abdullah as a forceful advocate for measures, like calling party identification and government-managed naming and numbering resources, that would have enabled greater government control of telecommunication services. And Bahrain is one of the most repressive regimes with respect to the Internet in the world. Reporters Without Borders considers Bahrain one of only five “state enemies of the Internet” in 2013.

So why did this shakeup of Working Group chairs happen, and why is one of the world’s top censors now chairing the Working Group on IP addressing? Could there be a strong push in favor of an expansive role for governments in assigning IP addresses, one that would allow governments to more easily link IP addresses to individuals in order to support censorship? We’ll find out next Wednesday morning when WG2 convenes.

For updates during the WTPF, follow me on Twitter. As always, any views expressed in this post or in future posts and tweets are my own, and should not be attributed to any government or delegation.

Today over at the International Association of Privacy Professionals (IAPP) Daily Dashboard blog, I have a guest post entitled, “Let’s Not Place All Our Eggs in the Do Not Track Basket.” The essay builds on my Senate Commerce Committee testimony last week by arguing that:

If there’s one lesson I’ve learned in twenty-one years of covering information technology policy, it’s that there are no simple silver-bullet solutions to complex issues like online safety, hate speech, spam, cybersecurity, data breaches or digital privacy. Problems such as these demand a layered, multifaceted approach that incorporates many solutions, the first among these being education and awareness-based efforts.

I continue on to explain why that means we should be cautious about placing too much faith in privacy techno-fixes like Do Not Track, which won’t likely be any more successful than past silver bullet efforts. (Note: Justin Brookman of CDT will be offering a counterpoint to my essay next week on the IAPP blog. I look forward to seeing what he has to say. He also testified alongside me in the Senate last week.)

By the way, for those of you not familiar with the IAPP, it is “the largest and most comprehensive global information privacy community and resource, helping practitioners develop and advance their careers and organizations manage and protect their data. More than just a professional association, the IAPP provides a home for privacy professionals around the world to gather, share experiences and enrich their knowledge.” In my opinion, the IAPP is doing amazing work and deserves the attention of anyone who cares about the future of privacy and privacy policy. I strongly recommend you check out their excellent site and explore all the important resources they provide and other things they do.

Anyway, if you are interested in the issues discussed in my IAPP guest post, you might also want to check out some of the related essays down below the fold:

Additional Reading:

• Senate testimony of Adam Thierer on Do Not Track standard – Apr. 24, 2013
• A Better, Simpler Narrative for U.S. Privacy Policy – March 19, 2013
• On the Pursuit of Happiness… and Privacy – March 31, 2013 (condensed from Harvard Journal of Law & Public Policy article, “The Pursuit of Privacy in a World Where Information Control is Failing”)
• Isn’t “Do Not Track” Just a “Broadcast Flag” Mandate for Privacy? – Feb. 20, 2011
• Two Paradoxes of Privacy Regulation – Aug. 25, 2010
• Privacy as an Information Control Regime: The Challenges Ahead – Nov. 13, 2010
• When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will Be Disappointed – Apr. 29, 2011

If broadband Internet infrastructure had been built to the same extent as public water-supply systems, more than twice as many Americans would lack fixed broadband Internet access.

After abandoning the “information superhighway” analogy for the Internet, net neutrality advocates began analogizing the Internet to waterworks. I’ve previously discussed the fundamental difference between infrastructure that distributes commodities (e.g., water) and the Internet, which distributes speech protected by the First Amendment – a difference that is alone sufficient to reject any notion that governments should own and control the infrastructure of the Internet. For those who remain unconvinced that the means of disseminating mass communications (e.g., Internet infrastructure) is protected by the First Amendment, however, there is another flaw in the waterworks analogy: If broadband Internet infrastructure had been built to the same extent as public water-supply systems, more than twice as many Americans would lack fixed broadband Internet access.

Advocates who would prefer that the government (whether local, state, or federal) own and operate the Internet often use the lack of broadband access in rural America as a justification. They point to an FCC report finding that 19 million Americans (6% of the population) lack access to a fixed broadband network and that less than 1% of Americans lack access to a mobile broadband network. Government broadband advocates fail to acknowledge, however, that more than twice as many Americans lack access to public water-supply systems. According to the most recent report from the US Geological Survey,* 43 million Americans (14% of the population) lack access to public water-supply systems and instead must self-supply their own water (e.g., they have to drill a well on their property).

Self-supplied water systems are common in rural areas and neighborhoods that lie outside the jurisdictional boundaries of a municipality. The Virginia Department of Health notes that the “majority of households in 60 of Virginia’s 95 counties rely on private water supply systems” and that in “52 counties, the number of households using private wells is increasing faster than the number of households connecting to public water supply systems.” For example, my neighborhood in northern Virginia, which is served by two fixed broadband providers and several mobile broadband providers, has no access to a public water-supply system. In my neighborhood, every homeowner must drill their own well (at a cost ranging from $3,500 to over $50,000 depending on geological conditions and local regulations).

The jurisdictional limitations of municipal water-supply systems can be overcome by self-supply in most areas of the United States because the value of a water system to a particular household is not directly increased by interconnecting it with another water system. In contrast, the Internet is a network of networks (the term “Internet” was shortened from internetwork) that exhibits both positive and negative direct network effects – i.e., its value for all users is affected by the addition of new users or content to the internetwork. By definition, an individual homeowner cannot self-supply Internet access without interconnecting with at least one other network.

This fundamental difference between waterworks and the Internet is critical to understanding why state legislatures often treat municipal waterworks differently than municipal broadband networks. In addition to the First Amendment issues that are involved when local governments own and control the primary means of mass communications, many states have recognized the potential for municipal broadband networks to result in a form of “cherry picking.” If every municipality built its own broadband network, substantial portions of most states would still lack access to broadband, but the ability of private broadband network operators to profitably serve those areas would likely be reduced. As noted above, public water-supply systems cover significantly less population than private broadband networks.

Of course, advocates who would prefer that the government own and operate the Internet typically don’t mention the jurisdictional limitations of municipalities or the potential impact of municipal broadband networks on citizens who don’t live in a municipality. Some of these advocates actually imply that cronyism must be the primary motivation for state legislation governing municipal broadband networks. Fortunately, state legislators representing citizens who lack access to municipal services have a better understanding of the needs of their citizens than some urban lobbyists and bureaucrats living in Washington.

*                      *                      *

*Note that the broadband data in the FCC report is current through mid-2011, and the public water-supply data in the US Geological Survey report is current only through 2005. The US Geological Survey releases its water use reports every five years, but does not intend to release its 2010 water use report until fiscal year 2014. Based on previous trends, however, it is unlikely that the percentage of Americans who have access to public water-supply systems has increased significantly in the last six years, if at all. The percentage of Americans that self-supplied their water dropped only three percentage points in the twenty-year period from 1985 (17%) to 2005 (14%).

Alex Tabarrok, author of the ebook Launching The Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast discusses America’s declining growth rate in total factor productivity, what this means for the future of innovation, and what can be done to improve the situation.

Accroding to Tabarrok, patents, which were designed to promote the progress of science and the useful arts, have instead become weapons in a war for competitive advantage with innovation as collateral damage. College, once a foundation for innovation, has been oversold. And regulations, passed with the best of intentions, have spread like kudzu and now impede progress to everyone’s detriment. Tabarrok outs forth simple reforms in each of these areas and also explains the role immigration plays in innovation and national productivity.

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Related Links

• Launching The Innovation Renaissance: A New Path to Bring Smart Ideas to Market Fast, Tabarrok
• VIDEO: Innovations in Most Fields Are Not Patented, Tabarrok
• VIDEO: End Software Patents, Tabarrok
• Patent Policy on the Back of a Napkin, Tabarrok

Today I’ll be testifying at a Senate Commerce Committee hearing on online privacy and commercial data collection issues. In my remarks, I make three primary points:

1. First, no matter how well-intentioned, restrictions on data collection could negatively impact the competitiveness of America’s digital economy, as well as consumer choice.
2. Second, it is unwise to place too much faith in any single, silver-bullet solution to privacy, including “Do Not Track,” because such schemes are easily evaded or defeated and often fail to live up to their billing.
3. Finally, with those two points in mind, we should look to alternative and less costly approaches to protecting privacy that rely on education, empowerment, and targeted enforcement of existing laws. Serious and lasting long-term privacy protection requires a layered, multifaceted approach incorporating many solutions.

The testimony also contains 4 appendices elaborating on some of these themes.

Down below, I’ve embedded my testimony, a list of 10 recent essays I’ve penned on these topics, and a video in which I explain “How I Think about Privacy” (which was taped last summer at an event up at the University of Maine’s Center for Law and Innovation). Finally, the best summary of my work on these issues can be found in this recent Harvard Journal of Law & Public Policy article, “The Pursuit of Privacy in a World Where Information Control is Failing.” (This is the first of two complimentary law review articles I will be releasing this year dealing with privacy policy. The second, which will be published early this summer by the George Mason University Law Review, is entitled, “A Framework for Benefit-Cost Analysis in Digital Privacy Debates.”)

Testimony of Adam D. Thierer before the Senate Committee on Commerce, Science & Transportation hearing…

Some of My Recent Essays on Privacy & Data Collection

1. A Better, Simpler Narrative for U.S. Privacy Policy – March 19, 2013
2. On the Pursuit of Happiness… and Privacy – March 31, 2013 (condensed from Harvard Journal of Law & Public Policy article, “The Pursuit of Privacy in a World Where Information Control is Failing”)
3. Isn’t “Do Not Track” Just a “Broadcast Flag” Mandate for Privacy? – Feb. 20, 2011
4. Two Paradoxes of Privacy Regulation – Aug. 25, 2010
5. Privacy as an Information Control Regime: The Challenges Ahead – Nov. 13, 2010
6. When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will Be Disappointed – Apr. 29, 2011
7. Lessons from the Gmail Privacy Scare of 2004 – March 25, 2011
8. Who Really Believes in “Permissionless Innovation”? – March 4, 2013 (condensed from Minnesota Journal of Law, Science & Technology law review article, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle”)
9. The Problem of Proportionality in Debates about Online Privacy and Child Safety – Nov. 28, 2009
10. Obama Admin’s “Let’s-Be-Europe” Approach to Privacy Will Undermine U.S. Competitiveness– Jan. 5, 2011

The Cato Institute is seeking a “researcher to support a campaign to educate the public and policymakers on the implications of biometric identification systems related to immigration policy reforms.

The better applicants will know how many different governmental systems work—legislation, appropriation, regulation, procurement, grant-making, and so on—and have zeal to chase down all the ways the national ID builders are using them to advance their cause.

Immigration reform legislation in the Senate that features a vast expansion of E-Verify is yet another reason to join the fight against having a national ID in the United States.

Remember all the businesses, internet techies and NGOs who were screaming about an “ITU takeover of the Internet” a year ago? Where are they now? Because this time, we actually need them.

May 14 – 21 is Internet governance week in Geneva. We have declared it so because there will be three events in that week for the global community concerned with global internet governance. From 14-16 May the International Telecommunication Union (ITU) holds its World Telecommunication Policy Forum (WTPF). This year it is devoted to internet policy issues. With the polarizing results of the Dubai World Conference on International Telecommunications (WCIT) still reverberating, the meeting will revisit debates about the role of states in Internet governance. Next, on May 17 and 18, the Graduate Institute of International and Development Studies and the Global Internet Governance Academic Network (GigaNet) will hold an international workshop on The Global Governance of the Internet: Intergovernmentalism, Multi-stakeholderism and Networks. Here, academics and practitioners will engage in what should be a more intellectually substantive debate on modes and principles of global Internet governance.

Last but not least, the UN Internet Governance Forum will hold its semi-annual consultations to prepare the program and agenda for its next meeting in Bali, Indonesia. The IGF consultations are relevant because, to put it bluntly, it is the failure of the IGF to bring governments, the private sector and civil society together in a commonly agreed platform for policy development that is partly responsible for the continued tension between multistakeholder and intergovernmental institutions. Whether the IGF can get its act together and become more relevant is one of the key issues going forward.

Internet Governance Principles

The Dubai WCIT meeting last year grafted an Internet governance principles debate onto negotiations over an old telecommunications treaty that had little to do with the internet. That muddled the debate considerably. This time, we are actually having a debate about Internet governance principles, specifically the role of states and intergovernmental institutions.

In preparation for the WTPF, The ITU’s Secretary-General has released a 38-page report and five “Draft Opinions” on policy. The stated aim of the WTPF report is “to provide a basis for discussion at the Policy Forum…focusing on key issues on which it would be desirable to reach conclusions.” This is what the IGF ought to be doing but was prevented from doing by key stakeholders in the Internet technical and business communities, because they wanted to make sure the IGF could not be used to challenge the status quo.

The ITU SG’s report contains a fairly balanced survey of many internet-related policy controversies. After digesting it, however, it becomes clear that its main purpose is to re-assert and strengthen the role of governments in Internet governance. In particular, it proposes a definition of multi-stakeholderism that reserves to states a ‘sovereign right’ to make ‘public policy for the Internet;’ a definition that relegates the private sector and civil society to secondary, subordinate roles rather than empowering them as equal-status participants in new institutions for Internet governance. In keeping with this philosophy, the discussions at WTPF will be confined to ITU member states and sector members. Ordinary citizens cannot speak, they can only watch.

A flawed debate

What’s troubling about this looming debate is the intellectual weakness of so many of the supposed defenders of internet freedom. The Internet Society, ICANN and the U.S. government have increasingly re-branded Internet freedom as “The Multistakeholder Model” (TMM). So the choice we are given is not between a free Internet and a restricted, censored one, or between centralized, hierarchical internet governance and a more distributed, participatory, open and decentralized governance. No, we are given a choice between the ITU and a status quo that is vaguely defined as TMM. This not only implies that there is a single, well-defined “Multistakeholder Model” (in fact, there is not), but it conflates the results of good governance (freedom, openness, innovation, globalized connectivity, widespread access) with a particular model. It also tends to exempt many of the existing Internet governance institutions from deserved criticism and reform.

The lack of intellectual substance underlying the principles debate was played out with stark clarity in the U.S. two weeks ago, when the U.S. Congress proposed a bill “to Affirm the Policy of the United States Regarding Internet Governance.” The bill originally said

“It is the policy of the United States to promote a global Internet free from government control and to preserve and advance the successful multistakeholder model that governs the Internet.”

For reasons that we outlined in an earlier blog, the “government control” language was deemed too controversial and the bill was amended to read:

“It is the policy of the United States to preserve and advance the successful multistakeholder model that governs the Internet.”

So the United States has officially refused to endorse freedom from government control as a policy underlying its approach to Internet governance. It does not, apparently, have any principled objection to censorship, state surveillance to facilitate political manipulation of the population, over-regulation, over-taxation, economic protectionism and other destructive forms of governmental intervention. All those things are fine, apparently, as long as we manage to “preserve and advance” multistakeholder governance. What an uninspiring stance!

Why should anyone support TMM if it is devoid of any substantive meaning regarding the role of states and freedom from governmental control? TMM inspires support only if it is presented as a better alternative to a form of governance that is authoritarian, repressive, ineffective and unrepresentative of Internet users’ interests. In other words, we should support TMM only insofar as it contains and limits the power of nation-states to interfere unduly with the use and operation of the Internet, and empowers individuals worldwide to govern themselves. TMM is not an end in itself. In fact, once it is stripped of substantive policy norms, dogmatic support for TMM seems indistinguishable from unqualified support for existing Internet institutions.

As we enter into this crucial debate about principles of Internet governance, we need to have a better understanding of why global Internet governance institutions need to be shielded from national governments. Below we provide some simple bullet points as a guide to the ongoing debate over principles regarding the role of states in Internet governance.

• The political unit – the polity – for Internet governance should be the transnational community of Internet users and suppliers, not a collection of states.

There is a fundamental, lasting conflict between territorial jurisdiction and the global Internet. There is a fundamental difference between a collection of leaders of national polities and a global polity. Though national governments can provide legitimate and rights-respecting modes of ordering society within their jurisdiction, at the transnational level there is anarchy, a space where the problems of governance are best addressed by new institutions with direct participation and more open channels of communication. National governments are not ‘just another stakeholder’ in a multistakeholder system: they represent a competing, alternative institutional framework.

• A system of Internet governance based on states is inherently biased toward greater restriction and control of the Internet’s capabilities.

States are by nature oriented toward control. More specifically, they are concerned about maintaining their own control qua sovereign entity in a territory. They will, therefore, act to limit forms of choice and access that provide alternatives to their control of communication and information. In the international arena they will bargain with other states to maintain their security and control in relation to other states. They will not be optimal representatives of the interests of Internet users in freedom, access and openness. Ever.

• The threats to Internet freedom posed by states are more serious than those posed by private actors.

Get over the stuff about ‘Googledom’ and ‘Facebookistan.’ It’s a cute metaphor but there is really no comparison between sovereigns and these businesses. States have the power to tax and expropriate, they have a monopoly on the use of force, they generate armed conflicts that result in war; they fund and deploy weapons. You do not choose to use their services. However much you might think you are locked in to Google, there is still a huge qualitative difference between your ability to use or not use its services and the choice you have with respect to states. This doesn’t mean that the private sector is perfect nor that there is no need for states to ever order or regulate what private actors do, but it helps to keep your priorities straight.

• Multi-stakeholderism is not a panacea

Multistakeholderism as an ideology originated as a pragmatic means of opening up intergovernmental organizations (IGOs) to broader representation and participation. As a transitional mechanism for infusing IGOs with more information, expertise and voice, it has worked wonderfully. But it is not a well-defined, ultimate solution to the problem of Internet governance. The organically evolved Internet institutions were not originally conceived as “multistakeholder” but as private sector and contractually based governance. Some forms of Internet governance, such as the IETF, are truly bottom up, based on individualized representation, decentralized and largely voluntary in effect. Others, like ICANN, are highly centralized, largely coercive, and deeply enmeshed with states in a hybrid form of global governance. The virtues (and faults) of one should not be visited upon the other.

Today, Jerry Brito, Adam Thierer and I filed comments on the FAA’s proposed privacy rules for “test sites” for the integration of commercial drones into domestic airspace. I’ve been excited about this development ever since I learned that Congress had ordered the FAA to complete the integration by September 2015. Airspace is a vastly underutilized resource, and new technologies are just now becoming available that will enable us to make the most of it.

In our comments, we argue that airspace, like the Internet, could be a revolutionary platform for innovation:

Vint Cerf, one of the “fathers of the Internet,” credits “permissionless innovation” for the economic benefits that the Internet has generated. As an open platform, the Internet allows entrepreneurs to try new business models and offer new services without seeking the approval of regulators beforehand. Like the Internet, airspace is a platform for commercial and social innovation. We cannot accurately predict to what uses it will be put when restrictions on commercial use of UASs are lifted. Nevertheless, experience shows that it is vital that innovation and entrepreneurship be allowed to proceed without ex ante barriers imposed by regulators.

And in Wired today, I argue that preemptive privacy regulation is unnecessary and unwise:

Regulation at this juncture requires our over-speculating about which types of privacy violations might arise. Since many of these harms may never materialize, pre-emptive regulation is likely to overprotect privacy at the expense of innovation. Frankly, it wouldn’t even work. Imagine if we had tried to comprehensively regulate online privacy before allowing commercial use of the internet. We wouldn’t have even known how to. We wouldn’t have had the benefit of understanding how online commerce works, nor could we have anticipated the rise of social networking and related phenomena.

I expect us all to hear more about commercial drones in the near future. See Jerry’s piece in Reason last month or Larry Downes’s great post at the HBR blog for more.

The DOJ’s recommendation would likely reduce the amount of revenue produced by the incentive auction and risk leaving the public safety network unfunded (as the economist who led the design of the most successful auction in FCC history will explain in this webinar on Thursday). The unsubstantiated, speculative increase in commercial competition the DOJ says could occur if the FCC picks winners and losers in the incentive auction is a poor justification for continuing to deny our nation’s first responders the network they need to protect the safety of every American.

Beyond enforcing the antitrust laws, the Antitrust Division of the Department of Justice (DOJ) advocates for competition policy in regulatory proceedings initiated by Executive Branch and independent agencies, including the Federal Communications Commission (FCC). In this role, the DOJ works with the FCC on mergers involving communications companies and occasionally provides input in other FCC proceedings. The historical reputation of the DOJ in this area has been one of impartial engagement and deliberate analysis based on empirical data. The DOJ’s recent filing (DOJ filing) on mobile spectrum aggregation jeopardizes that reputation, however, by recommending that the FCC “ensure” Sprint Nextel and T-Mobile obtain a nationwide block of mobile spectrum in the upcoming broadcast incentive auction.

The new “findings” in the DOJ filing fail to cite any factual record and are inconsistent with the DOJ’s factual findings in recent merger proceedings that contain extensive factual records. The DOJ filing blithely relies on a discriminatory evidentiary presumption to insinuate that Verizon and AT&T are “warehousing” spectrum, and then uses that presumption to support a proposed remedy that bears no rational relationship to factual findings that the DOJ has actually made. The absence of any empirical evidence supporting the relevant conclusions in the DOJ filing gives it the appearance of a political document rather than a deliberative work product crafted with the traditionally substantive and impartial standards of the Justice Department. The FCC, the independent agency that prides itself on being fact-based and data-driven, should give this screed no weight.

DOJ Flip-Flops on Competition in the Mobile Market

The DOJ filing concludes – without citing any evidence – that Verizon and AT&T have “the ability and, in some cases, the incentive to exercise at least some degree of market power, particularly given that there is already significant nationwide concentration in the wireless industry.” This conclusion directly contradicts the representations of the DOJ in its federal court complaint to block the merger of AT&T and T-Mobile. The companies had argued that the absence of T-Mobile would not have a significant impact on the mobile marketplace because, as a standalone company, T-Mobile faced substantial commercial and spectrum challenges. The DOJ refuted this rationale by finding that, “Due to the advantages arising from their scale and scope of coverage, each of the Big Four nationwide carriers is especially well-positioned to drive competition, at both a national and local level, in this industry.” Now, however, the DOJ asserts that Verizon and AT&T are “dominant firms” in the mobile market and that Sprint Nextel and T-Mobile cannot compete in the upcoming incentive auction unless the FCC adopts laws granting them special privileges. “Each” of the “Big Four” could hardly have been “well-positioned” to “drive competition” if half of them require government subsidies to compete – something I expect the federal court judge would have been interested to hear.

DOJ Recommends a Discriminatory Evidentiary Presumption

After flip-flopping on competition, the DOJ theorizes that Verizon and AT&T could use their “dominant” positions in the mobile market to “foreclose” competition by aggregating excessive mobile spectrum. Rather than rely on actual evidence to support its foreclosure theory, the DOJ presumes that Verizon and AT&T are not using their spectrum “efficiently” while assuming that Sprint Nextel and T-Mobile could “effectively” make use of more spectrum. The filing concludes – again without citing any evidence – that Sprint Nextel and T-Mobile would make the “highest value use” of new spectrum “absent compelling evidence that the largest incumbent carriers are already using their existing spectrum licenses efficiently and their networks are still capacity-constrained.” The DOJ offered no explanation for its outrageous suggestion that the FCC should hold certain companies to a higher evidentiary standard (a presumption that must be rebutted by “compelling evidence”) than others (for which efficiency is assumed) when evaluating whether they are using their spectrum efficiently.

The DOJ also failed to offer any actual evidence supporting the notion, reiterated in testimony before the Senate Judiciary Committee, that the FCC “take a close look at whether some of the spectrum already available to some providers is being warehoused and not being used.” The FCC established “build out” requirements to ensure spectrum is not being “warehoused” and has previously found that a “single objective metric” of spectrum efficiency is “neither possible nor appropriate.” If the FCC now intends to consider the efficiency of current spectrum use as a factor in developing its spectrum aggregation and auction rules, fundamental principles of justice require that it establish an open and transparent process for defining spectrum efficiency and apply the new metric equally to all mobile providers after a full factual investigation of their actual spectrum use. Among all agencies, one would expect the Justice Department to understand that without a reminder.

DOJ Recommends an Irrational Remedy

The DOJ’s factual flip-flop on competition in the mobile market and its proposed adoption of a discriminatory evidentiary presumption merely lay the predicate for its ultimate policy recommendation: That the FCC distinguish between “low” and “high” frequencies in its spectrum aggregation rules in order to “ensure” Sprint Nextel and T-Mobile obtain a nationwide block of spectrum in the upcoming broadcast incentive auction. In the past, the FCC could simply decree that only Sprint Nextel and T-Mobile are eligible to bid on certain spectrum blocks or to participate in the auction at all. But, based on the disastrous results of previous spectrum auctions that limited the eligibility of certain types of companies to participate, Congress prohibited the FCC from imposing eligibility restrictions on the broadcast incentive auction.

So how does the DOJ propose that the FCC “ensure” Sprint Nextel and T-Mobile are “winners”? Although it cannot directly limit the participation of Verizon and AT&T, the FCC retains jurisdiction to limit the overall amount of mobile spectrum any one provider can hold. Most economists agree that, if a single provider were able to aggregate a significant amount of the total available mobile spectrum, that provider could use its spectrum holdings to engage in anticompetitive behavior. The potential for excessive aggregation of mobile spectrum would not normally be relevant to a particular spectrum auction because the FCC has traditionally treated all spectrum bands the same in this respect. Now, however, the FCC has proposed to apply different rules to “low” frequency spectrum (i.e., frequencies less than 1 GHz) on a nationwide basis – even though the only new mobile spectrum the FCC has proposed to auction in the last five years happens to be the broadcast spectrum, which, coincidentally of course, is below 1 GHz.

In its recent FCC filing, the DOJ is, also coincidentally, recommending this new approach as well, even though its own factual findings don’t support that outcome. Unlike the FCC, the DOJ has traditionally distinguished among mobile spectrum bands below and above 1 GHz, but only in rural areas. After conducting detailed market-by-market analyses in merger proceedings with voluminous factual records, the DOJ found that mobile providers that lack access to spectrum below 1 GHz “generally have found it less attractive to build out in rural areas.” After expressly considering the question in multiple merger proceedings, the DOJ has never considered the distinction between “lower” and “higher” frequency mobile spectrum competitively relevant in urban areas. As it admits in its filing with the FCC, the DOJ considers spectrum above 1 GHz “just as effective as low-frequency spectrum” when a provider “is attempting to augment the capacity of its network in dense urban areas.”

If mobile providers required spectrum below 1 GHz to compete successfully in non-rural areas, the DOJ could not have truthfully told the federal court that T-Mobile was “well-positioned” to “drive competition” in the mobile market, because T-Mobile has never held substantial “low” frequency spectrum. Despite the fact that T-Mobile has always relied on mobile spectrum above 1 GHz, the DOJ found that T-Mobile managed to build a mobile network covering 90% of the US population and is using that network to compete successfully in the mobile market on a nationwide basis. The DOJ’s factual findings have repeatedly affirmed that, to the extent spectrum below 1 GHz is competitively relevant, its relevance is limited to sparsely populated rural areas where capacity is not a substantial issue. The “spectrum crunch” the incentive auction is intended to ameliorate is a capacity issue caused by the massive growth in data traffic, not a coverage issue, and capacity issues primarily impact areas with high population densities.

The DOJ’s factual findings regarding the competitive relevance of spectrum below 1 GHz would, at best, support a rule limiting the amount of “low” frequency spectrum that a particular mobile provider could hold in low-density rural areas where the distinction between higher and lower frequencies may actually have competitive relevance. Suggesting that the FCC should nevertheless apply such a distinction on a nationwide basis is an irrationally overbroad remedy for potential competition issues that are limited to sparsely populated rural areas when the “spectrum crunch” harms areas with the densest population the most.

It’s also too clever by half in this context. When Congress enacted legislation prohibiting the FCC from imposing eligibility restrictions on the incentive auction, it did so with knowledge that the FCC had not traditionally distinguished among spectrum bands suitable for mobile use. Although the DOJ has recognized a distinction in rural areas during its case-by-case merger reviews, the FCC’s chosen remedy for rural coverage issues has been to mandate by rule that Verizon and AT&T enter into roaming agreements that allow other providers to use their networks, in part because it is often uneconomic for more than one or two providers to build separate networks in areas with low population densities. If the FCC’s findings supporting its roaming orders remain valid, it would presumably be uneconomic for T-Mobile to substantially increase its current rural coverage even if it held spectrum below 1 GHz on a nationwide basis.

DOJ Contradicts Congressional Priorities

Even if “ensuring” Sprint Nextel and T-Mobile “win” spectrum in the incentive auction would prompt those companies to spend the capital necessary to substantially improve their mobile coverage in rural areas (a particularly unlikely outcome for Sprint Nextel, which already holds a nationwide block of spectrum below 1 GHz), picking winners in the incentive auction is inconsistent with Congressional priorities. Among other things, Congress intended that the incentive auction raise $7 billion for the construction of an interoperable public safety network first recommended by the 9/11 Commission Report over a decade ago. The DOJ’s recommendation would likely reduce the amount of revenue produced by the incentive auction and risk leaving the public safety network unfunded (as the economist who led the design of the most successful auction in FCC history will explain in this webinar on Thursday). The unsubstantiated, speculative increase in commercial competition the DOJ says could occur if the FCC picks winners and losers in the incentive auction is a poor justification for continuing to deny our nation’s first responders the network they need to protect the safety of every American. For that reason alone, I expect a thoughtful and independent FCC to reject the politically motivated recommendations of a DOJ that considers itself unaccountable to Congress.

Paul J. Heald, professor of law at the University of Illinois Urbana-Champaign, discusses his new paper “Do Bad Things Happen When Works Enter the Public Domain? Empirical Tests of Copyright Term Extension.”

The international debate over copyright term extension for existing works turns on the validity of three empirical assertions about what happens to works when they fall into the public domain. Heald discusses a study he carried out with Christopher Buccafusco that found that all three assertions are suspect. In the study, they show that audio books made from public domain bestsellers are significantly more available than those made from copyrighted bestsellers. They also demonstrate that recordings of public domain and copyrighted books are of equal quality.

Since copyrighted works will once again begin to fall into the public domain starting in 2018, Heald says, it’s likely that content owners will ask Congress for yet another term extension. He argues that his empirical findings suggest it should not be granted.

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Related Links

• Do Bad Things Happen When Works Enter the Public Domain?: Empirical Tests of Copyright Term Extension, Heald and Buccafusco
• More Music in Movies: What Box Office Data Reveals About the Availability of Public Domain Songs in Movies from 1968-2008, Heald, Shi, Stoiber, and Zheng
• Property Rights and the Efficient Exploitation of Copyrighted Works: An Empirical Analysis of Public Domain and Copyrighted Fiction Best Sellers, Heald

A couple of weeks ago I wrote that bitcoin’s valuation doesn’t really matter for the currency to effectively function as a medium of exchange. Now comes word from none other than the proprietor of the notorious Silk Road encrypted black market that indeed the recent wild volatility has not affected the transactions on his site. As Andy Greenberg reports:

In a rare (and brief) public statement sent to me, the Dread Pirate Roberts (DPR) said that despite Silk Road’s reliance on Bitcoin, commerce on the site hasn’t been seriously hurt by Bitcoin’s wild rise and fall. “Bitcoin’s foundation, its algorithms and network, don’t change with the exchange rate,” the pseudonymous site administrator writes. “It is just as important to the functioning of Silk Road at $1 as it is at $1,000. A rapidly changing price does have some effect, but it’s not as big as you might think.”

Silk Road’s customers, after all, aren’t generally interested in Bitcoin’s worth as an investment vehicle, so much as in how it makes it possible to privately buy heroin, cocaine, pills or marijuana. They use Bitcoin because it’s not issued or stored by banks and doesn’t require any online registrations, and thus offers a certain amount of anonymity. …

Silk Road has built-in protections against Bitcoin’s spikes and crashes. Although purchases on Silk Road can only be made with Bitcoin, sellers on the site have the option to peg their prices to the dollar, automatically adjusting them based on Bitcoin’s current exchange rate as defined by the central Bitcoin exchange Mt. Gox. To insulate those sellers against Bitcoin fluctuations, the eBay-like drug site also offers a hedging service. Sales are held in escrow until buyers receive their orders via mail, and vendors are given the choice to turn on a setting that pegs the escrow’s value to the dollar, with Silk Road itself covering any losses or taking any gains from Bitcoin’s swings in value that occur while the drugs are in transit. So while Bitcoin’s crash last week from $237 to less than $100 means that the Dread Pirate Roberts was likely forced to pay out much of the extra gains Silk Road made from Bitcoin’s rise, most of his sellers were protected from those price changes and continued to trade their drugs for Bitcoins despite the currency’s plummeting value.

What this shows is that Silk Road is separating the “unit of account” function of money from the “medium of exchange” function. Prices are denominated in dollars (as a unit of account) but payments are made in bitcoin (as a medium of exchange). Hedging is used to smooth out volatility.

Some folks still don’t grok the distinction. Here is CBS MoneyWatch getting it wrong in a story yesterday:

Well, if you did want to buy a house using Bitcoins as your medium of exchange, it would have been best to arrange for a closing no later than Wednesday morning. Because later that day, when the value of one Bitcoin reached an all-time high of $266 to a U.S. dollar, the digital money took a swan-dive. By late Wednesday, if you were still committed to the transaction, your house would have cost you twice as much – and even more if you had waited until the following day, because Bitcoins just kept losing value.

No. If you were using bitcoin merely as a medium of exchange your house would not have cost twice as much. What the reporter means is that it would have cost twice as much if you had used bitcoin as your unit of account for the mortgage, which would be a ridiculous thing to do. As Steve Hanke, quoted in the piece, says, “One of the functions of money is a unit of account for future payments, like a mortgage payment, so if you’ve got a lot of instability it’s a big problem.”

By the way, in that same article the reporter says I “backed off from the notion that [bitcoin] can serve as a stable store of value[.]” But I don’t see how I can back off from a view I’ve never held. Yes, there is this idea that bitcoin can be a stable store of value, it is an idea that excites many bitcoin enthusiasts, and it’s an idea I explain when I talk about bitcoin, but it’s not one I’ve ever held or promoted. Quite the opposite, I’ve written about how it’s not what makes Bitcoin interesting.

The Information Economy Project at the George Mason University School of Law is hosting a conference tomorrow, Friday, April 19. The conference title is From Monopoly to Competition or Competition to Monopoly? U.S. Broadband Markets in 2013. There will be two morning panels featuring discussion of competition in the broadband marketplace and the social value of “ultra-fast” broadband speeds.

We have a great lineup, including keynote addresses from Commissioner Joshua Wright, Federal Trade Commission and from Dr. Robert Crandall, Brookings Institution.

The panelists include:

Eli Noam, Columbia Business School

Marius Schwartz, Georgetown University, former FCC Chief Economist

Babette Boliek, Pepperdine University School of Law

Robert Kenny, Communications Chambers (U.K.)

Scott Wallsten, Technology Policy Institute

The panels will be moderated by Kenneth Heyer, Federal Trade Commission and Gus Hurwitz, University of Pennsylvania, respectively. A continental breakfast will be served at 8:00 am and a buffet lunch is provided. We expect to adjourn at 1:30 pm. You can find an agenda here and can RSVP here. Space is limited and we expect a full house, so those interested are encouraged to register as soon as possible.