October 2009

Preparing to Pounce: D.C. angles for another industry

by Bret Swanson on October 19, 2009 · 27 comments

As you’ve no doubt heard, Washington D.C. is angling for a takeover of the . . . U.S. telecom industry?!

That’s right: broadband, routers, switches, data centers, software apps, Web video, mobile phones, the Internet. As if its agenda weren’t full enough, the government is preparing a dramatic centralization of authority over our healthiest, most dynamic, high-growth industry.

Two weeks ago, FCC chairman Julius Genachowski proposed new “net neutrality” regulations, which he will detail on October 22. Then on Friday, Yochai Benkler of Harvard’s Berkman Center published an FCC-commissioned report on international broadband comparisons. The voluminous survey serves up data from around the world on broadband penetration rates, speeds, and prices. But the real purpose of the report is to make a single point: foreign “open access” broadband regulation, good; American broadband competition, bad. These two tracks — “net neutrality” and “open access,” combined with a review of the U.S. wireless industry and other investigations — lead straight to an unprecedented government intrusion of America’s vibrant Internet industry.

Benkler and his team of investigators can be commended for the effort that went into what was no doubt a substantial undertaking. The report, however,

misses all kinds of important distinctions among national broadband markets, histories, and evolutions;
uses lots of suspect data;
underplays caveats and ignores some important statistical problems;
focuses too much on some metrics, not enough on others;
completely bungles America’s own broadband policy history; and
draws broad and overly-certain policy conclusions about a still-young, dynamic, complex Internet ecosystem.

The gaping, jaw-dropping irony of the report was its failure even to mention the chief outcome of America’s previous open-access regime: the telecom/tech crash of 2000-02. We tried this before. And it didn’t work! The Great Telecom Crash of 2000-02 was the equivalent for that industry what the Great Panic of 2008 was to the financial industry. A deeply painful and historic plunge. In the case of the Great Telecom Crash, U.S. tech and telecom companies lost some $3 trillion in market value and one million jobs. The harsh open access policies (mandated network sharing, price controls) that Benkler lauds in his new report were a main culprit. But in Benkler’s 231-page report on open access policies, there is no mention of the Great Crash. Continue reading →

27 comments

Crovitz on FTC Blogger Rules

by Adam Thierer on October 19, 2009 · 4 comments

Another great column by the Wall Street Journal’s Gordon Crovitz, who is quickly becoming my favorite tech policy columnist. In today’s column, “Bloggers Mugged by Regulators,” he comments on the FTC’s new disclosure rules for bloggers, which I discussed here over the weekend. Crovitz focuses on the enforcement challenges associated with the new rules and also argues that self-regulation should be given a chance to work:

There should be more disclosure, but the Web is different from earlier media in ways that make government regulation less relevant and practical. The Web has its own self-regulatory mechanisms. Failing to disclose interests sullies one’s reputation online, and reputation harm travels faster and lasts longer than it did before the Web.

There’s also greater need for caveat emptor online, because there is no practical way that any government agency can monitor the world’s bloggers and posters. There will always be people who post comments about products and services that are self-serving in one way or another, at least by someone’s definition. […]

Instead of trying to extend analog-era regulations onto the Web, the FTC should encourage readers to be vigilant about assessing for themselves the independence of sources online. At least we now know the biggest fraudulent claim so far on the Web: It’s been committed by regulators claiming there can be a government stamp of approval on everything anyone posts anywhere on the Web.

Amen brother.

4 comments

Recovery.gov verdict: half-baked

by Jerry Brito on October 19, 2009 · 8 comments

Last month I wrote about the imminent release of raw stimulus spending data and said that the jury was still out on the Obama Administration’s transparency pledge. Well, we’re now pretty close to a verdict, and it’s not good.

On Thursday, Recovery.gov added reports from the recipients of stimulus dollars–contractors and grantees explaining what money they got, what they’re doing with it, and who they have subcontracted. At Stimulus Watch we immediately got into the data looking to build the next version of our service, but soon found it was almost hopeless.

Recipient reports are offered in CSV format, which is not the most elegant way to present the data. Worse, the Recovery.gov “Download Center” offers three files for each state–one for prime recipients awards, one for sub-awards, and one for vendor awards–which means you have to piece them all together to do nationwide analysis. First, as far as I can tell, all vendor awards files are empty. Second, what we immediately wanted to do was tie the sub-awards to the primary awards (i.e. tie the subcontractors to the main contractor), but found no unique ID that could bind them together. Even worse, many of the data fields are inscrutable, and no glossary was provided.

Finally, while the agency reports of the money they’re doling out includes both the address of the contractor and the address of the project itself, the recipient reports only include the contractor’s address. In order to let citizens know what recovery projects are in their neighborhoods, however, we need to know the place of performance, not simply the construction company’s address, for example.

Others have also panned the release on data quality and other issues. This is not the “unprecedented” level of transparency and accountability that we have been promised, and it’s certainly not what I expect from an $8 million website. Vice President Biden, in charge of ensuring recovery transparency, should take notice and take action.

There are many of us in the developer community who want to help make possible the thousands of “citizen IGs” that Recovery Accountability and Transparency Board Chair Earl Devaney has touted. In order to do that, though, we need the data, and this isn’t cutting it.

Cross-posted from Surprisingly Free. Leave a comment on the original article.

8 comments

IAB’s Brilliant Open Letter to the FTC on Blogger Rules

by Adam Thierer on October 17, 2009 · 10 comments

Three cheers for Randall Rothenberg, President and Chief Executive Officer of the Interactive Advertising Bureau (IAB) for having the guts to send this splendid open letter to Federal Trade Commission (FTC) Chairman Jon Leibowitz about the agency’s new disclosure rules for bloggers. Rothenberg’s entertaining and brutally honest letter is a rarity for a trade association chief. Most of the time trade associations fall all over themselves to whisper sweet-nothings in the ears of regulators, even when those regulators are out to crush the industries in question. But Rothernberg doesn’t pull any punches in his letter to Chairman Leibowitz. After walking through some of the stunning ambiguities of the rules, such as how much “weight consumers give to [a] review” by a blogger who might have a commercial sponsor, Rothenberg asks:

With all due respect, Mr. Chairman: Huh? Does the FTC really intend to probe America’s opinion-mongering apparatus this closely? Do you have a team of Freuds and Jungs able to examine “the weight” consumers give such opinion – and the way they weigh that weight?

Naturally, this expedition from Oceania – that’s the place Big Brother ruled – should be worrisome to all Americans, and to all viewers, readers, listeners, users, and providers of any communications medium. But for the 400 members of the Interactive Advertising Bureau, most of which are small and medium-sized enterprises struggling to build their businesses in the face of the worst decline in marketing spending since the 1930’s, the implication that online social media represent a separate class of communications channels with less Constitutional protection than corporate-owned newspapers, radio stations, or cable television networks is of particularly grave concern.

They – and we — are not arguing that bloggers and social media be treated differently than incumbent media. After all, most newspapers, magazines, radio stations and television networks, in recognition that Americans are embracing new forms of social communications, have established their own blogs, boards, Facebook pages, Twitter feeds, and the like. Rather, we’re saying the new conversational media should be accorded the same rights and freedoms as other communications channels.

Yep, exactly right and it echoes the questions I’ve raised here before. And his letter just gets better from there regarding the enforcement nightmare presented by these ambiguous rules:

Continue reading →

10 comments

Wal-Mart, Cell Phones & Mobile Marketplace Pricing Competition

by Adam Thierer on October 17, 2009 · 34 comments

Wal-Mart is often cast as a villain by some labor unions, local politicians and small retailers, but for the average consumer Wal-Mart has been a savior: A relentless price-cutting machine that instantly changes the dynamics of every market it touches. Indeed, when Wal-Mart decides to jump into a sector by offering a new good or service in its stores, something akin to “the Southwest effect” on steroids kicks in: That market segment is often transformed overnight in that the good or service Wal-Mart starts delivering is essentially instantly commoditized. For the seller of that good or service, this is both a blessing and a curse: They gain the massive market reach that goes along with being in Wal-Mart’s 8,000 retail stores. On the other hand, they instantly surrender any semblance of pricing power they once had. And this typically also puts downward pressure on prices not just for the particular good carried in the Wal-Mart stores, but for that entire market segment more generally. [This exact scenario is currently playing out in the book marketplace as Wal-Mart has gone to war with Amazon in cost-cutting bonanza.]

The reason I bring all this up is because, as most of you probably already heard, Wal-Mart jumped into the prepaid cell phone business this week with the launch of Straight Talk:

a new solution in no-contract cellular, exclusively at more than 3,200 Walmart stores nationwide starting October 18, 2009. Straight Talk will bring to the market a new low price for no-contract wireless service with two prepaid plans now available to customers nationwide at $30 and $45 a month. Straight Talk will only be available in Walmart stores and online at www.Walmart.com and www.StraightTalk.com. The average U.S. adult spends $78 on his or her cell phone bill to receive 1000 minutes a month. By switching to the $30 Straight Talk plan, for example, the average 1,000 minutes-per-month consumer could save more than $500 per year and still be on a reliable nationwide network.

I don’t want to overplay the significance of this development, but I really do believe that Wal-Mart’s presence in this field is significant, at least for entry-level mobile phones. While it would be easy for those of us who use more advanced smartphones to shrug off the Wal-Mart announcement, it would be a mistake for reasons made clear by David Worthington over at Technologizer: Continue reading →

34 comments

Congratulations, Adam Thierer!

by Jim Harper on October 16, 2009 · 6 comments

Adam Thierer has been named the new president of the Progress & Freedom Foundation.

TLF readers don’t need to be told that he’s a tireless advocate for technology policies that preserve freedom and innovation. He was the driving force behind creation of this blog, for example, and he is a prodigious writer and commentator.

Adam will do even more to advance those goals and protect the Internet from stifling regulation from his new perch. Congratulations, Adam!

6 comments

Broadband as a Human Right (and a short list of other things I am entitled to on your dime)

by Adam Thierer on October 14, 2009 · 46 comments

Hey people. You owe me. All of you. You owe me free broadband. I am entitled to it, after all. That seems to be where our current FCC is heading, anyway. And hey, Finland’s just done it, and the supposed Silicon Valley capitalists at TechCrunch are giddy with delight about it. We’re apparently all just Scandinavian socialists at heart now.

Thus, I too have decided to throw in the towel on the idea of everyone carrying their own weight and picking up their own tab. So, get your wallets open and ready for me because I have lots and lots of things that I believe I have an inalienable right to receive free of charge from the government (i.e, “the people”; i.e., “YOU”). Please let me know which of the things on my high-tech wish list that you’ll be purchasing for me and I’ll check you off my registry so I don’t have to send the cops to your house to collect:

free broadband (fiber, Wi-Max, and whatever else is around the corner);
a couple of free new computers (and a really fast ones, thank you very much);
3 new HDTVs for my home (including one of those sweet new DLP projectors that usually cost about $10,000 bucks. And I’ll need you to pay for someone to help me install it. Or could you just come over and do that for me perhaps?);
3 free new DVRs for each new TV set that you are buying me (and could I get a nice universal remote to control everything, please);
a free subscription in my area to either DirecTV, Cox Cable, or Verizon FIOS TV (with all the premium channels and sports packages… and don’t forget the Playboy Channel!);
a free lifetime subscription to Netflix (or I guess I would settle for a free Blu-Ray player and some free movies);
free new wi-fi router and signal extenders for my home (N-standard please, none of that B or G garbage… too slow for me);
free mobile phone service for life + an iPhone + unlimited downloads in their app store (oh, could you have that iPhone autographed by Steve Jobs if you get a chance?);
free Playstation or XBox + lots of games (and if I could get one of those driving wheels to play my new Gran Turismo game that would be dandy); and finally,
free lifetime tech support when all this crap breaks down.

In closing, I thank you for your generosity. I mean, look, I know I don’t actually deserve any of this stuff, and that there’s no good reason that you should have to pay for my free-riding ways, and there’s obviously nothing in our Constitution to support all this, but hey… screw all that! This is my God-given birthright. I am entitled, baby! Now get busy thinking of how you are all going to start paying for me, you selfish bastards.

46 comments

Dynamic Competition and Antitrust

by Jerry Ellig on October 14, 2009 · 0 comments

If you read nothing else this year about dynamic competition theory and antitrust, check out this recently-released paper by J. Gregory Sidak and David J. Teece, available from SSRN. Sidak and Teece explain why the current economic framework that formally underpins antitrust insufficiently accounts for “Schumpeterian,” “innovative,” or “dynamic” competition. They provide a good discussion of the insights from behavioral economics, evolutionary economics, Austrian economics, and corporate strategy that would be useful in remaking the economic foundations of antitrust. Then they explain implications for specific topics, such as market definition, defining potential competitors, mergers, and intellectual property.

Most intriguing is their claim that the antitrust agencies have been drifting toward dynamic competition analysis without always acknowledging that’s what they’re doing:

If a lesson can be generalized, it is that one should approach with considerable skepticism the august pronouncements of the suppleness of existing antitrust doctrine to accommodate consideration of dynamic efficiency. It is time for the antitrust enforcement agencies and the courts to address forthrightly the challenge of developing more dynamically efficient merger guidelines. Achievement of that goal would lay the foundation for an analogous refinement of substantive rules of liability, defenses, and remedies across antitrust law generally. (pp. 43-44)

Sidak and Teece note that the Federal Trade Commission and Antitrust Division’s recent solicitation of comments on their merger guidelines could provide an opportunity to articulate some new economic foundations for antitrust. After reading the list of things the FTC and DOJ do not intend to change, it looks to me like the agencies will cling pretty fiercely to many traditional static concepts used in antitrust analysis. But two questions they raise provide glimmers of hope:

8. Should the Guidelines be revised to explain more fully … how market shares and market concentration are measured and interpreted in dynamic markets, including markets experiencing significant technological change?

15. Should the Guidelines be updated to address more explicitly the non-price effects of mergers, especially the effects of mergers on innovation?

Still, this seems narrow to me. “Normal” markets will remain subject to static analysis, while those special markets experiencing significant technological change might be analyzed differently. That seems to define dynamic competition awfully narrowly.

0 comments

Event Oct. 29: Coase’s FCC at 50

by Jerry Brito on October 14, 2009 · 5 comments

This month marks the 50th anniversary of Ronald Coase’s seminal article, The Federal Communications Commission. Coase’s critique of the political allocation of radio spectrum, and his arguments for achieving efficient allocation by allowing the government to sell rights to the spectrum, has had a profound effect on the course of communications policy.

While Coase’s ideas have been vindicated, and a market in radio property has developed, what impact have they had on the FCC? What is Coase’s legacy, and how salient are his ideas for the future of spectrum allocation? A distinguished set of speakers will address these questions at the event, “Ronald Coase’s The Federal Communications Commission at 50,” co-hosted by The Mercatus Center at George Mason University and The Progress & Freedom Foundation.

Opening remarks will be given by Commissioner Robert M. McDowell of the Federal Communications Commission. The remarks will be followed by a panel discussion on the themes presenting in the landmark book. Participants will include:

Prof. Thomas W. Hazlett, George Mason University School of Law
Dr. Jeffrey A. Eisenach, Empiris LLC & George Mason University School of Law
Dr. Evan Kwerel, Federal Communications Commission
John Williams, Federal Communications Commission (invited)

“Ronald Coase’s The Federal Communications Commission at 50,” will be held Thursday, October 29th from 9:00am to 12:00pm in Hazel Hall, Room 121 (ground floor) at the George Mason University School of Law in Arlington. Please RSVP after the jump.

Continue reading →

5 comments

Debating the Pace of Progress

by Jim Harper on October 14, 2009 · 9 comments

Last night, thanks to Craig’s List and a Web-enabled cell phone, I unloaded two extra tickets to tonight’s World Cup qualifying game between the U.S. and Costa Rica in under an hour. (8:00, ESPN2 “USA! USA! USA!”)

Wanting to avoid the hassle of selling the tickets at RFK, I placed an ad on Craig’s List offering them at cost, figuring I might find a taker and arrange to hand them off downtown today or at the stadium tonight. Checking email as I walked to the gym, I found an inquiry about the tickets and phoned the guy, who happened to live 100 feet from where I was walking. A few minutes later, he had the tickets and I had the cash.

This quaint story is a single data point in a trend line—the high-tech version of It’s Getting Better All the Time. Everyone living a connected life enjoys hundreds, or even thousands, of conveniences every day because of information technology. Through billions of transactions across the society, technology improves our lives in ways unimaginable two decades ago.

Before 1995, nobody ever traded spare soccer tickets in under an hour, on a Tuesday night, without even changing his evening routine. If soccer tickets are too trivial (you must not understand the game), the same dynamics deliver incremental, but massive improvements in material wealth, awareness, education, and social and political empowerment to everyone—even those who don’t live “online.”

Sometimes debates about technology regulation are cast in doom and gloom terms like the Malthusian arguments about material wealth. But the benefits we already enjoy thanks to technology are not going away, and they will continue to accrue. We are arguing about the pace of progress, not its existence.

This is no reason to let up in our quest to give technologists and investors the freedom to produce more innovations that enhance everyone’s well-being even more. But it does counsel us to be optimistic and to teach this optimism to our ideological opponents, many of whom seem to look ahead and see only calamity.

9 comments

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