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

We spend a lot of time here defending the simple proposition that flexible free-market pricing is a good thing. You would think that in 2012 we wouldn’t need to do so, but there’s a growing movement afoot today by some academics, regulatory activists, and public policymakers to have government start asserting more authority over broadband pricing. In particular, they want Congress, the FCC, or state officials to investigate and possibly even regulate efforts by wireline and wireless broadband carriers to use usage-based pricing and data caps as a method of calibrating supply and demand. This was the focus of my last weekly Forbes column, “The Specter Of Broadband Price Controls.” In the piece I note that:

Data caps and usage-based pricing are forms of what economists refer to as price discrimination. Although viewed with suspicion by some policymakers and regulatory-minded academics and activists, price discrimination is widely recognized to improve consumer welfare. Price-differentiated and prioritized services are part of almost every industrial sector in our capitalist economy. Notable examples include airline and hotel reservations, prioritized shipping services, amusement park passes, and fuel and energy pricing. Economists agree that price discrimination represents a sensible way to calibrate supply and demand while ensuring the fixed costs of doing business get covered. Consumers benefit from such pricing experimentation by gaining more options while firms gain more certainty about investment and service decisions.

This is confirmed by an excellent new Mercatus Center working paper on “The Impact of Data Caps and Other Forms of Usage-Based Pricing for Broadband Access,” by Daniel A. Lyons, an assistant professor of law at Boston College Law School. Lyons explains why a return to price controls for communications would be monumentally misguided. Lyons notes that “data caps and other forms of metered consumption are not inherently anti-consumer or anticompetitive. Rather, they reflect different pricing strategies through which a broadband company may recover its costs from its customer base and fund future infrastructure investment.” He notes that “by aligning costs more closely with use, usage-based pricing may effectively shift more network costs onto those consumers who use the network the most.”

What I find most interesting about the debate over broadband pricing flexibility is the way some so-called “consumer advocates” cannot seemingly wrap their heads around the fact that price discrimination can actually benefit most consumers by creating more and better pricing options and service alternatives. As I noted in my Forbes essay, “if policymakers lock-in flat rate pricing or regulate pricing such that it is not allowed to fluctuate with demand or investment needs, then it is likely that light users (including many lower income users) will end up paying more than they need to for their overall share of network costs. If that is also disallowed through rate regulation, then network investment will suffer and further innovation will be discouraged. Something has to give because, again, there really is no free lunch.”

It remains to be seen whether true free market pricing will be allowed to continue in this context, but make no doubt about it, this is the most important aspect of the ongoing debate about modern information economics. If America returns to price and rate controls for communications, innovation and investment will suffer greatly.

Oh, and here’s a video featuring Eli Dourado, who can explain this much more eloquently than me! …

Additional Reading

• More on Net Neutrality, the Importance of Business Model Experimentation & Pricing Flexibility (May 9, 2012)
• Real Talk on Net Neutrality (May 9, 2012)
• Netflix Falls Prey to Marginal Cost Fallacy & Pleads for a Broadband Free Ride (July 8, 2011)
• Smartphones & Usage-Based Pricing: Are Price Controls Coming? (July 12, 2011)
• Why Congestion Pricing for the iPhone & Broadband Makes Sense (October 7, 2009)
• The (Un)Free Press Calls for Internet Price Controls: “The Broadband Internet Fairness Act” (June 17, 2009)
• Free Press Hypocrisy over Metering & Internet Price Controls (June 18, 2009)
• Bandwidth Cap Hysteria & the Alternative (October 4, 2008)
• Once Again, Why Not Meter Broadband Pipes?  (September 7, 2007)
• Why Not Meter? (March 12, 2007)
• The Real Net Neutrality Debate: Pricing Flexibility Versus Pricing Regulation (October 27, 2005)

In a past life — that is, from roughly 1994-2004 — I spent an enormous amount of time countering the proponents of “open access” regulation for communications and high-tech networks.  My work in that field culminated in the publication of a 2003 book with my old Cato colleague Wayne Crews entitled, What’s Yours is Mine: Open Access & the Rise of Infrastructure Socialism. We aimed to counter the efforts of bureaucrats and central planners to command technology companies and industry sectors to share networks, facilities, or specific technologies with rivals in the name of “competition.”  Simply stated, sharing is not competing, and competition in the creation of networks is just as important as competition in the goods, services, and information that move across those networks.  Moreover, there are property right considerations that come into play when governments seek to commandeer networks or take over network management decisions.

But let’s just stick to the economic issue here regarding the incentives created by the network-sharing mentality of the “forced access” movement and the fiction associated with the belief that network sharing can create competition.  My old PFF colleague Randy May, who currently serves as President of the Free State Foundation, continues to cover developments in this field far closer than I do, and has always done much better work on the subject than me.  Recently, Randy addressed some new fictions put forth by the radical Leftist activity group, the (Un-)Free Press who are, once again, spinning a revisionist history of telecom and media policy.  Specifically, Free Press has recently suggested that in the late 1990s we lived in a veritable communications nirvana, with thousands of Internet Service Providers and/or “competitive exchange carriers” hotly “competing” for our business.  Here’s how Randy May addresses this:

Let’s assume for the sake of argument that the 6000 figure for the number of independent ISPs is an indisputable fact. Nevertheless, I would not want the FCC’s development of a broadband plan to be “data driven” (in the wrong way) by this particular data point. Rather, I would want commissioners to understand that the 6000 ISPs existed merely at the sufferance of an agency policy of “managed competition” through regulated common carrier resale, and that such a “managed competition” policy does not provide incentives either for the incumbent providers to upgrade their networks or for the so-called “competitors” actually to build out their own network facilities. And I would want them to understand that, in the long run, which is what matters, consumers benefit more from facilities-based competition that supports sustainable competition than from managed resale that does not support sustainable competition.

As usual, Randy gets it exactly right.  Of course, it is certainly true that if you don’t give a damn about facilities-based innovation and the growth of networks at the core, not just the periphery, then forced access regulation may seem preferable.  If you want to treat the provision of broadband as a “plain vanilla” commoditized service, with just a basic level of service available from dozens of “competitors,” then forced access can maintain the illusion of “a market” for a time.  Indeed, this is essential what many foreign governments are still doing today; squeezing as much juice out of the old lemons as possible and hoping for a miracle when infrastructure upgrades are needed.  Some supporters of this regulatory model will say that government can always just pass a big tax increase or use a massive government outlay for new services, or something along those lines.  But even if you think government spending on high-tech infrastructure is the sensible way to go — and it certainly doesn’t seem to be going so well these days — you still have to hope that government bureaucrats will do a better job of directing investments and innovation than private network managers. Again, if you can believe in that fairy tale, then forced access is just your ticket. But don’t be surprised when the bubble bursts and investment dries up. [For the complete story on how all this unfolded here in the U.S. over the past decades, see Jeff Eisenach’s PFF paper, “Broadband Policy: Does the U.S. Have It Right After All?”]

Of course, these battles live on with the Net neutrality wars as the forced access crowd seeks to assert more government control over broadband networks by regulating terms of service or even price (see 1, 2, 3, 4).  I’ve become quite convinced that we’ll always have these forced access fights with us.  The network or service in question might change — broadband networks, operating systems, search engines, whatever — but the battle about control over digital technologies and networks will continue.  Here’s hoping that real Internet freedom prevails.

Om Malik has a hot-headed screed on his blog today about the supposed evils of capitalism, full of tales of corporate conspiracies and the such. But I love the way most of his reader have taken him to task for calling on FCC Chairman Kevin Martin to become a true “21st century Robin Hood who is looking out for the U.S. Internet consumer” by “putting an end to this metered broadband nonsense right now.”

Just jump past Om’s irrational rant and go right the really excellent discussion taking place among his readers in the comments. It’s the best discussion I have seen on the issue in a long time.