Sprint’s Chairman, Masayoshi Son, is coming to Washington to explain how wireless competition in the US would be improved if only there were less of it.

After buying Sprint last year for $21.6 billion, he has floated plans to buy T-Mobile. When antitrust officials voiced their concerns about the proposed plan’s potential impact on wireless competition, Son decided to respond with an unusual strategy that goes something like this: The US wireless market isn’t competitive enough, so policymakers need to approve the merger of the third and fourth largest wireless companies in order to improve competition, because going from four nationwide wireless companies to three will make things even more competitive. Got it? Me neither. Continue reading →

Yesterday, an administrative judge ruled in Huerta v. Pirker that the FAA’s “rules” banning commercial drones don’t have the force of law because the agency never followed the procedures required to enact them as an official regulation. The ruling means that any aircraft that qualifies as a “model aircraft” plausibly operates under laissez-faire. Entrepreneurs are free for now to develop real-life TacoCopters, and Amazon can launch its Prime Air same-day delivery service.

Laissez-faire might not last. The FAA could appeal the ruling, try to issue an emergency regulation, or simply wait 18 months or so until its current regulatory proceedings culminate in regulations for commercial drones. If they opt for the last of these, then the drone community has an interesting opportunity to show that regulations for small commercial drones do not pass a cost-benefit test. So start new drone businesses, but as Matt Waite says, “Don’t do anything stupid. Bad actors make bad policy.”

Kudos to Brendan Schulman, the attorney for Pirker, who has been a tireless advocate for the freedom to innovate using drone technology. He is on Twitter at @dronelaws, and if you’re at all interested in this issue, he is a great person to follow.

The House Subcommittee on Communications and Technology will soon consider whether to reauthorize the Satellite Television Extension and Localism Act (STELA) set to expire at the end of the year. A hearing scheduled for this week has been postponed on account of weather.

Congress ought to scrap the current compulsory license in STELA that governs the importation of distant broadcast signals by Direct Broadcast Satellite providers.  STELA is redundant and outdated. The 25 year-old statute invites rent-seeking every time it comes up for reauthorization.

At the same time, Congress should also resist calls to use the STELA reauthorization process to consider retransmission consent reforms.  The retransmission consent framework is designed to function like the free market and is not the problem.

Continue reading →

It seems to me that a lot of the angst about the Comcast-Netflix paid transit deal results from a general discomfort with two-sided markets rather than any specific harm caused by the deal. But is there any reason to be suspicious of two-sided markets per se?

Consider a (straight) singles bar. Men and women come to the singles bar to meet each other. On some nights, it’s ladies’ night, and women get in free and get a free drink. On other nights, it’s not ladies’ night, and both men and women have to pay to get in and buy drinks.

There is no a priori reason to believe that ladies’ night is more just or efficient than other nights. The owner of the bar will benefit if the bar is a good place for social congress, and she will price accordingly. If men in the area are particularly shy, she may have to institute a “mens’ night” to get them to come out. If women start demanding too many free drinks, she may have to put an end to ladies’ night (even if some men benefit from the presence of tipsy women, they may not be as willing as the women to pay the full cost of all of the drinks). Whether a market should be two-sided or one-sided is an empirical question, and the answer can change over time depending on circumstances.

Some commentators seem to be arguing that two-sided markets are fine as long as the market is competitive. Well, OK, suppose the singles bar is the only singles bar in a 100-mile radius? How does that change the analysis above? Not at all, I say.

Analysis of two-sided markets can get very complex, but we shouldn’t let that complexity turn into reflexive opposition.

Google’s announcement this week of plans to expand to dozens of more cities got me thinking about the broadband market and some parallels to transportation markets. Taxi cab and broadband companies are seeing business plans undermined with the emergence of nimble Silicon Valley firms–Uber and Google Fiber, respectively.

The incumbent operators in both cases were subject to costly regulatory obligations in the past but in return they were given some protection from competitors. The taxi medallion system and local cable franchise requirements made new entry difficult. Uber and Google have managed to break into the market through popular innovations, the persistence to work with local regulators, and motivated supporters. Now, in both industries, localities are considering forbearing from regulations and welcoming a competitor that poses an economic threat to the existing operators.

Notably, Google Fiber will not be subject to the extensive build-out requirements imposed on cable companies who typically built their networks according to local franchise agreements in the 1970s and 1980s. Google, in contrast, generally does substantial market research to see if there is an adequate uptake rate among households in particular areas. Neighborhoods that have sufficient interest in Google Fiber become Fiberhoods.

Similarly, companies like Uber and Lyft are exempted from many of the regulations governing taxis. Taxi rates are regulated and drivers have little discretion in deciding who to transport, for instance. Uber and Lyft drivers, in contrast, are not price-regulated and can allow rates to rise and fall with demand. Further, Uber and Lyft have a two-way rating system: drivers rate passengers and passengers rate drivers via smartphone apps. This innovation lowers costs and improves safety: the rider who throws up in cars after bar-hopping, who verbally or physically abuses drivers (one Chicago cab driver told me he was held up at gunpoint several times per year), or who is constantly late will eventually have a hard time hailing an Uber or Lyft. The ratings system naturally forces out expensive riders (and ill-tempered drivers).

Interestingly, support and opposition for Uber and Google Fiber cuts across partisan lines (and across households–my wife, after hearing my argument, is not as sanguine about these upstarts). Because these companies upset long-held expectations, express or implied, strong opposition remains. Nevertheless, states and localities should welcome the rapid expansion of both Uber and Google Fiber.

The taxi registration systems and the cable franchise agreements were major regulatory mistakes. Local regulators should reduce regulations for all similarly-situated competitors and resist the temptation to remedy past errors with more distortions. Of course, there is a decades-long debate about when deregulation turns into subsidies, and this conversation applies to Uber and Google Fiber.

That debate is important, but regulators and policymakers should take every chance to roll back the rules of the past–not layer on more mandates in an ill-conceived attempt to “level the playing field.” Transportation and broadband markets are changing for the better with more competition and localities should generally stand aside.

The volatility of Bitcoin prices is one of the strongest headwinds the currency faces. Unfortunately, until my quantitative analysis last month, most of the discussion surrounding Bitcoin volatility so far has been anecdotal. I want to make it easier for people to move beyond anecdotes, so I have created a Bitcoin volatility index at btcvol.info, which I’m hoping can become or inspire a standard metric that people can agree on.

The volatility index at btcvol.info is based on daily closing prices for Bitcoin as reported by CoinDesk. I calculate the difference in daily log prices for each day in the dataset, and then calculate the sample standard deviation of those daily returns for the preceding 30 days. The result is an estimate of how spread out daily price fluctuations are—volatility.

The site also includes a basic API, so feel free to integrate this volatility measure into your site or use it for data analysis.

I of course hope that Bitcoin volatility becomes much lower over time. I expect both the maturing of the ecosystem as well as the introduction of a Bitcoin derivatives market will cause volatility to decrease. Having one or more volatility metrics will help us determine whether these or other factors make a difference.

You can support btcvol.info by spreading the word or of course by donating via Bitcoin to the address at the bottom of the site.

Verizon v. FCC, the court decision overturning the Federal Communications Commission’s (FCC) net neutrality rules, didn’t rule directly on the First Amendment issues. It did, however, reject the reasoning of net neutrality advocates who claim Internet service providers (ISPs) are not entitled to freedom of speech.

The court recognized that, in terms of the functionality that it offers consumers and the economic relationships among industry participants, the Internet is as similar to analog cable networks as it is to analog telephone networks. As a result, the court considered most of the issues in the net neutrality case to be “indistinguishable” from those addressed in Midwest Video II, a seminal case addressing the FCC’s authority over cable systems. The court’s emphasis on the substantive similarities between analog cable services, which are clearly entitled to First Amendment protection, indicates that ISPs are likewise entitled to protection.

Net neutrality advocates argued that ISPs are not First Amendment “speakers” because ISPs do not exercise editorial discretion over Internet content. In essence, these advocates argued that ISPs forfeited their First Amendment rights as a result of their “actual conduct” in the marketplace.

Though the court didn’t address the First Amendment issues directly, the court’s reasoning regarding common carrier issues indicates that the “actual conduct” of ISPs is legally irrelevant to their status as First Amendment speakers. Continue reading →

It appears that Federal Communications Commission (FCC) Chairman Tom Wheeler is returning to a competition-based approach to communications regulation. Chairman Wheeler’s emphasis on “competition, competition, competition” indicates his intent to intervene in communications markets only when it is necessary to correct a market failure.

I expect most on both sides of the political spectrum would welcome a return to rigorous market analysis at the FCC, but you can’t please all of the people all of the time. The American Television Alliance (ATVA), whose FCC petition wouldn’t withstand even a cursory market power analysis, is sure to be among the displeased.

The ATVA petition asks the FCC to regulate prices for retransmission consent (the prices video service providers (VSPs) pay for the rights to provide broadcast television programming to pay-TV subscribers) because retransmission fees and competition among VSPs are increasing. Though true, this data doesn’t indicate that TV stations or broadcast television networks have market power — it indicates that legislative and policy efforts to increase competition among VSPs are working. Continue reading →

Ladar Levison on Lavabit

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by on February 4, 2014 · 0 comments

Ladar Levison, founder of encrypted email service Lavabit, discusses recent government action that led him to shut down his firm. When it was suspected that NSA whistleblower Edward Snowden used Lavabit’s email service, the FBI issued a National Security Letter ordering Levison to hand over SSL keys, jeopardizing the privacy of Lavabit’s 410,000 users. Levison discusses his inspiration for founding Lavabit and why he chose to suspend the service; how Lavabit was different from email services like Gmail; developments in his case and how the Fourth Amendment has come into play; and his involvement with the recently-formed Dark Mail Technical Alliance.

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On Saturday, C-SPAN aired a segment of The Communicators featuring me and Free Press’ Chance Williams. In the 30-minute segment, Chance and I discussed the future of net neutrality now that the FCC’s Open Internet rules are vacated. You can see the taping here or below.