January 2014

Raze and Rebuild the Communications Act

by on January 31, 2014 · 0 comments

In December, Reps. Upton and Walden announced that they intend to update the Communications Act, which saw its last major revision in 1996. Today marks the deadline to submit initial comments regarding updating the Act. Below is my submission, which includes reference to a Mercatus paper by Raymond Gifford analyzing the Digital Age Communications (DACA) reports. These bipartisan reports would largely replace and reform our deficient communications laws.

Dear Chairman Upton,

As you and Rep. Walden recently acknowledged, U.S. communications law needs updating to remove accumulated regulatory excess and to strengthen market forces. When the 1934 Communications Act was passed, there was a national monopoly telephone provider and Congress’s understanding of radio spectrum physics was rudimentary. Chief among the Communication Act’s many flaws was giving the Federal Communication Commission authority to regulate wired and wireless communications according to “public interest, convenience, and necessity,” an amorphous standard that has been frequently abused. If delegating this expansive grant of discretion to the FCC was ever sensible, it clearly no longer is. Today, eight decades later, with competition between video, telephone, and Internet providers taking place over wired and wireless networks, the public interest standard simply invites costly rent-seeking and stifles technologies and business opportunities.

Like an old cottage receiving several massive additions spanning decades by different clumsy architects, communications law is a disorganized and dilapidated structure that should be razed and reconstituted. As new technologies emerged since the 1930s—broadcast television, cable, satellite, mobile phones, the Internet—and upended existing regulated businesses, the FCC and Congress layered on new rules attempting to mitigate the distortions.

Congressional attempts at reforming communications laws have appeared regularly ever since the 1996 amendments. During the last such attempt, in 2011, the Mercatus Center released a study discussing and summarizing a model for communications law reform known as the Digital Age Communications Act (DACA). That model legislation—consisting of five reports released in 2005 and 2006—came from the bipartisan DACA Working Group. The reports addressed five areas:

1. Regulatory framework;
2. Universal service;
3. Spectrum reform;
4. Federal-state jurisdiction; and
5. Institutional reform.

The DACA reports represent a flexible, market-oriented agenda from dozens of experts that, if implemented, would spur innovation, encourage competition, and benefit consumers. The regulatory framework report is the centerpiece recommendation and adopts a proposal largely based on the Federal Trade Commission Act, which provides a reformed FCC with nearly a century of common law for guidance. Significantly, the reports replace the FCC’s misused “public interest” standard with the general “unfair competition standard” from the FTC Act.

Despite the passage of time, those reports have held up remarkably well. The 2011 Mercatus paper describing the DACA reports is attached for submission in the record. The scholars at Mercatus are happy to discuss this paper and the cited materials below—including the DACA reports—further with Energy & Commerce Committee staff as they draft white papers and reform proposals.

Thank you for initiating discussion about updating the Communications Act. Reform can give America’s innovative technology and telecommunications sector a predictable and technology-neutral legal framework. When Congress replaces command-and-control rules with market forces, consumers will be the primary beneficiaries.

Sincerely,

Brent Skorup
Research Fellow, Technology Policy Program
Mercatus Center at George Mason University

Resources

Digital Age Communications Act (DACA) Working Groups Reports.

JEFFREY A. EISENACH ET AL., THE TELECOM REVOLUTION: AN AMERICAN OPPORTUNITY (1995).

Raymond L. Gifford, The Continuing Case for Serious Communications Law Reform, Mercatus Center Working Paper No. 11-44 (2011).

PETER HUBER, LAW AND DISORDER IN CYBERSPACE: ABOLISH THE FCC AND LET COMMON LAW RULE THE TELECOSM (1997).

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Film Industry Tax Incentive Race to the Bottom Continues

by on January 30, 2014 · 0 comments

The war among the states to see who can lavish the film industry with more generous tax credits in their attempt to become “the next Hollywood” continues, and it is quickly descending into a classic race to the bottom. A front-page article in today’s Wall Street Journal notes that the tax incentive bidding war has gotten so intense that it is hollowing out the old Hollywood labor pool and sending it on a road trip across the America in search of tax-induced job activity:

As film and TV production scatters around the country, more workers…  are packing up from California and moving to where the jobs are. Driving this exodus of lower-wage workers — stunt doubles, makeup artists, production assistants and others who keep movie sets humming — are successful efforts by a host of states to use tax incentives to poach production business from California. […] 

Only two movies with production budgets higher than $100 million filmed in Los Angeles in 2013, according to Film L.A. Inc., the city’s movie office. In 1997, the year “Titanic” was released, every big-budget film but one filmed at least partially in the city. The number of feature-film production days in Los Angeles peaked in 1996 and fell by 50% through last year, according to Film L.A. Projects such as reality television and student films have picked up some of the slack. But overall entertainment-industry employment has slid. About 120,000 Californians worked in the industry in 2012, down from 136,000 in 2004, according to the U.S. Bureau of Labor Statistics.

The labor migration has arisen in part because California hasn’t competed aggressively on the tax-break front, officials and executives say, while states like Georgia have made efforts to grab a sizable chunk of the industry. More than 40 states and 30 foreign countries are offering increasingly generous and creative tax incentives to lure entertainment producers.

On one hand, hooray for labor mobility! But seriously, this stinks because this labor shift is taking place in a wholly unnatural way, with a complex and growing web of tax inducements leading to massive distortions in this marketplace. Continue reading →

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FCC Chairman Wheeler Shows Uncommon Wisdom, Chooses Common Law Approach to Internet Oversight

by on January 30, 2014 · 0 comments

The Internet is abuzz with news that Federal Communications Commission Chairman Tom Wheeler favors a case-by-case approach to addressing Internet competition issues. It is the wisest course, and perhaps the most courageous. Some on the right will say he is going too far, and some on the left will say he isn’t going far enough. That is one reason Wheeler’s approach should be commended. Staunch disagreements about net neutrality and other Internet governance issues reflect the uncertainty inherent in a dynamic market.

Chairman Wheeler’s comments this week echoed Socrates (“I’m not smart enough to know what comes next [in innovation]”) and, to my surprise, Virginia Postrel (the Chairman favors addressing Internet issues “in a dynamic rather than a static way”). He recognizes that, in a two-sided market, there is no reason to assume that ISPs will necessarily have the ability to charge content providers rather than the other way around. The potential for strategic behavior on the Internet today is radically different than in the dial-up Internet era, and the Chairman appears prepared to consider those differences in his approach to communications regulation. Continue reading →

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Is Privacy an Unalienable Right? The Problem with Privacy Paternalism

by on January 27, 2014 · 1 comment

Last week, it was my great pleasure to be invited on NPR’s “On Point with Tom Ashbrook,” to debate Jeffrey Rosen, a leading privacy scholar and the president and chief executive of the National Constitution Center. In an editorial in the previous Sunday’s New York Times (“Madison’s Privacy Blind Spot”), Rosen proposed “constitutional amendment to prohibit unreasonable searches and seizures of our persons and electronic effects, whether by the government or by private corporations like Google and AT&T.” He said his proposed amendment would limit “outrageous and unreasonable” collection practices and would even disallow consumers from sharing their personal information with private actors even if they saw an advantage in doing so.

I responded to Rosen’s proposal in an essay posted on the IAPP Privacy Perspectives blog, “Do We Need A Constitutional Amendment Restricting Private-Sector Data Collection?” In my essay, I argued that there are several legal, economic, and practical problems with Rosen’s proposal. You can head over to the IAPP blog to read my entire response but the gist of it is that “a constitutional amendment [governing private data collection] would be too sweeping in effect and that better alternatives exist to deal with the privacy concerns he identifies.” There are very good reasons we treat public and private actors differently under the law and there “are all far more practical and less-restrictive steps that can be taken without resorting to the sort of constitutional sledgehammer that Jeff Rosen favors. We can protect privacy without rewriting the Constitution or upending the information economy,” I concluded.

But I wanted to elaborate on one particular thing I found particularly interesting about Rosen’s comments when we were on NPR together. During the show, Rosen kept stressing how we needed to adopt a more European construction of privacy as “dignity rights” and he even said his proposed privacy amendment would even disallow individuals from surrendering their private data or their privacy because he viewed these rights as “unalienable.” In other words, from Rosen’s perspective, privacy pretty much trumps everything, even if you want to trade it off against other values.  Continue reading →

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Video of PBS News Hour Discussion on Privacy in the Age of Big Data

by on January 24, 2014 · 0 comments

Last night, I appeared on a short segment on the PBS News Hour discussing, “What’s the future of privacy in a big data world?” I was also joined by Jules Polonetsky, executive director of the Future of Privacy Forum. If you’re interested, here’s the video. Transcript is here. Finally, down below the fold, I’ve listed a few law review articles and other essays of mine on this same subject.

Continue reading →

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Jack Schinasi on global privacy regulation

by on January 21, 2014 · 0 comments

Jack Schinasi discusses his recent working paper, Practicing Privacy Online: Examining Data Protection Regulations Through Google’s Global Expansion published in the Columbia Journal of Transnational Law. Schinasi takes an in-depth look at how online privacy laws differ across the world’s biggest Internet markets — specifically the United States, the European Union and China. Schinasi discusses how we exchange data for services and whether users are aware they’re making this exchange. And, if not, should intermediaries like Google be mandated to make its data tracking more apparent? Or should we better educate Internet users about data sharing and privacy? Schinasi also covers whether privacy laws currently in place in the US and EU are effective, what types of privacy concerns necessitate regulation in these markets, and whether we’ll see China take online privacy more seriously in the future.

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Who Won the Net Neutrality Case?

by on January 15, 2014 · 1 comment

On its face, Verizon won a resounding victory in Verizon v. FCC since the controversial net neutrality regulations were vacated by all three DC Circuit judges. This marks the second time in four years the FCC had its net neutrality enforcement struck down.

Look at published reactions, though, and you’ll see that both sides feel they suffered a damaging loss in yesterday’s decision.

Prominent net neutrality advocates say “the court loss was even more emphatic and disastrous than anyone expected” and a “FEMA-level fail.”

Conversely, critics of net neutrality say that it was a “big win for FCC” and that “the court has given the FCC near limitless power to regulate not just broadband, but the Internet itself.”

Most analysis of the case will point out that it’s a mixed bag for both sides. What is clear is that the net neutrality movement suffered an almost complete loss in the short term. The FCC’s regulations from the Open Internet Order preventing ISPs from “unreasonable discrimination” and “blocking” of Internet traffic were struck down. The court said those prohibitions are equivalent to common carrier obligations. Since ISPs are not common carriers–per previous FCC rulings–most of the Open Internet Order was vacated.

The long term is more uncertain and net neutrality critics have ample reason to be concerned. The court yesterday said the FCC has broad authority to regulate ISPs’ treatment of traffic under Section 706 of the 1996 Telecommunications Act. This somewhat unanticipated conclusion–given its breadth–leaves the FCC with several options if it wants to enact net neutrality or “net neutrality-lite” regulations.

Putting aside the possibility that the FCC or Verizon will appeal the decision, these are the developments to watch:

1. Title II reclassification.

The FCC could always reclassify ISPs as common carriers and subject them to common carrier obligations. I think this is unlikely for several reasons.

First, reclassification would absolutely poison relationships with Congressional Republicans, some important Democrats, and the broadband industry. This is a large reason why then-FCC Chairman Genachowski did not seriously pursue reclassification in 2010. If anything, the political climate is worse for reclassification. Republicans and ISPs simply oppose reclassification more than Democrats and advocates support it.

Second, the content companies–like Google, Hulu, and Netflix–who would ostensibly benefit from net neutrality seem to have cooled to the idea. Part of content companies’ waning interest in net neutrality, I suspect, is exhaustion. This fight has gone on for a decade with little to show for it. They may also realize that ISPs are not likely to engage in truly abusive behaviors. Broadband speeds and capacity have advanced substantially in a decade and concerns about being squeezed out have lessened. There are also powerful norms that ISPs are not likely to violate. Consumers don’t like unseemly behavior by ISPs–like throttling a competing VoIP or video provider. If only because of the PR risk, ISPs have significant incentives to maintain the level of service they have historically provided.

Third, reclassification is a time-consuming and legally fraught process. Even the most principled net neutrality proponents don’t want ISPs subjected to every applicable Title II obligation. But “forbearance” of Title II regulations means several regulatory proceedings, each one potentially subject to litigation.

Finally, Chairman Tom Wheeler, fortunately, does not appear to be an ideologue willing to spend most of his tenure as chairman re-fighting this bitter fight. His comments last month were telling:

I think we’re also going to see a two-sided market where Netflix might say, ‘well, I’ll pay in order to make sure that . . . my subscriber receives, the best possible transmission of this movie.’ I think we want to let those kinds of things evolve.

This statement struck dread in the hearts of many net neutrality proponents. I’ve always believed he was talking about specialized services when he made this statement since pay-for-priority deals were essentially banned by the Open Internet Order. Regardless, his apparent comfort with changing pricing dynamics in two-sided markets indicates he is not a net neutrality partisan. I suspect Chairman Wheeler wants to go down as the chairman who guided America to a mobile future. His priorities seem to be in getting spectrum auctions right, not in rehashing old battles.

2. Pay-for-priority deals.

The legal uncertainties need to be settled before ISPs begin looking at prioritization deals, but they’ll probably pursue some. For example, gaming services might want to pay ISPs to make sure gamers receive low latency connections and large enterprise customers might want prioritized traffic for services like virtual desktops for, say, on-the-road employees. No one knows how common these deals will be. In any case, these deals will probably be closely monitored by the FCC for perceived abuses of market power, as explained next.

3. Increased FCC scrutiny using Section 706.

Substantial and costly scrutiny of ISPs’ traffic management from the FCC is the long-term fear. It now appears that the FCC has many tools to regulate how ISPs treat traffic under Section 706. I call this net neutrality-lite but 706 authority has the potential to be a more powerful weapon than the Open Internet Order. Not only can the FCC use 706 to regulate ISPs through adjudications, the mere threat of using 706 against ISPs may induce compliance. If there is a bright side to the court’s recognition of the FCC’s 706 authority, it’s that it makes Title II reclassification of ISPs less likely.

Verizon v. FCC was mostly a win for those of us who viewed the Open Internet Order as a regulatory overreach. Risks remain since net neutrality as a policy goal will not die, but reclassification is a long shot, fortunately. Policy watchers will be analyzing Wheeler’s actions, in particular, to see whether the FCC pursues its Section 706 authority to regulate ISPs. Hopefully the court’s decision is accepted as final and marks the end of the most heated battles over net neutrality. The FCC could then turn its attention to important issues like spectrum auctions, the IP transition, and the rapidly changing television market.

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The Growing Conflict of Visions over the Internet of Things & Privacy

by on January 14, 2014 · 2 comments

When Google announced it was acquiring digital thermostat company Nest yesterday, it set off another round of privacy and security-related technopanic talk on Twitter and elsewhere. Fear and loathing seemed to be the order of the day. It seems that each new product launch or business announcement in the “Internet of Things” space is destined to set off another round of Chicken Little hand-wringing. We are typically told that the digital sky will soon fall on our collective heads unless we act preemptively to somehow head-off some sort of pending privacy or security apocalypse.

Meanwhile, however, a whole heck of lot of people are demanding more and more of these technologies, and American entrepreneurs are already engaged in heated competition with European and Asian rivals to be at the forefront of the next round Internet innovation to satisfy those consumer demands. So, how is this going to play out?

This gets to what becoming the defining policy issue of our time, not just for the Internet but for technology policy more generally: To what extent should the creators of new technologies seek the blessing of public officials before they develop and deploy their innovations? We can think of this as “the permission question” and it is creating a massive rift between those who desire more preemptive, precautionary safeguards for a variety of reasons (safety, security, privacy, copyright, etc.) and those of us who continue to believe that permissionless innovation should be the guiding ethos of our age. The chasm between these two worldviews is only going to deepen in coming years as the pace of innovation around new technologies (the Internet of Things, wearable tech, driverless cars, 3D printing, commercial drones, etc) continues to accelerate.

Sarah Kessler of Fast Company was kind enough to call me last night and ask for some general comments about Google buying Nest and she also sought out the comments of Marc Rotenberg of EPIC about privacy in the Internet of Things era more generally. Our comments provide a useful example of the divide between these two worldviews and foreshadow debates to come: Continue reading →

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CES 2014 Report: The Internet of Things Arrives, but Will Washington Welcome It?

by on January 8, 2014 · 1 comment

With each booth I pass and presentation I listen to at the 2014 International Consumer Electronics Show (CES), it becomes increasingly evident that the “Internet of Things” era has arrived. In just a few short years, the Internet of Things (IoT) has gone from industry buzzword to marketplace reality. Countless new IoT devices are on display throughout the halls of the Las Vegas Convention Center this week, including various wearable technologies, smart appliances, remote monitoring services, autonomous vehicles, and much more.

This isn’t vaporware; these are devices or services that are already on the market or will launch shortly. Some will fail, of course, just as many other earlier technologies on display at past CES shows didn’t pan out. But many of these IoT technologies will succeed, driven by growing consumer demand for highly personalized, ubiquitous, and instantaneous services.

But will policymakers let the Internet of Things revolution continue or will they stop it dead in its tracks? Interestingly, not too many people out here in Vegas at the CES seem all that worried about the latter outcome. Indeed, what I find most striking about the conversation out here at CES this week versus the one about IoT that has been taking place in Washington over the past year is that there is a large and growing disconnect between consumers and policymakers about what the Internet of Things means for the future.

When every device has a sensor, a chip, and some sort of networking capability, amazing opportunities become available to consumers. And that’s what has them so excited and ready to embrace these new technologies. But those same capabilities are exactly what raise the blood pressure of many policymakers and policy activists who fear the safety, security, or privacy-related problems that might creep up in a world filled with such technologies.

But at least so far, most consumers don’t seem to share the same worries. Continue reading →

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Mercatus will pay you to get a graduate degree, be our research assistant

by on January 8, 2014 · 1 comment

If you’re looking to pursue an econ graduate degree, you should know that the Mercatus Center offers several amazing fellowships for both masters and PhD students. And while they’re mostly for econ students, the Adam Smith fellowship is open to students in other fields as well. In addition to money and a great education, you could get the chance to work with me, Adam, Eli, and Brent. Application deadlines are in March, so get going…

The PhD Fellowship is a three-year, competitive, full-time fellowship program for students who are pursuing a doctoral degree in economics at George Mason University. It includes full tuition support, a stipend, and experience as a research assistant working closely with Mercatus-affiliated Mason faculty. It is a total award of up to $120,000 over three years. The application deadline is February 1, 2014.

The MA Fellowship is a two-year, competitive, full-time fellowship program for students pursuing a master’s degree in economics at George Mason University who are interested in gaining advanced training in applied economics in preparation for a career in public policy. It includes full tuition support, a stipend, and practical experience as a research assistant working with Mercatus scholars. It is a total award of up to $80,000 over two years. The application deadline is March 1, 2014.

The Adam Smith Fellowship is a one-year, competitive fellowship for graduate students attending PhD programs at any university, in a variety of fields, including economics, philosophy, political science, and sociology. Smith Fellows receive a stipend and attend workshops and seminars on the Austrian, Virginia, and Bloomington schools of political economy. It is a total award of up to $10,000 for the year. The application deadline is March 15, 2014.

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