Articles by Brent Skorup

Brent SkorupBrent is a senior research fellow with the Technology Policy Program at the Mercatus Center at GMU. He has an economics degree from Wheaton College and a law degree from George Mason University. Opinions are his own.


Lawmakers frequently hear impressive-sounding stats about net neutrality like “83% of voters support keeping FCC’s net neutrality rules.” This 83% number (and similar “75% of Republicans support the rules”) is based on a survey from the Program for Public Consultation released in December 2017, right before the FCC voted to repeal the 2015 Internet regulations.

These numbers should be treated with skepticism. This survey generates these high approval numbers by asking about net neutrality “rules” found nowhere in the 2015 Open Internet Order. The released survey does not ask about the substance of the Order, like the Title II classification, government price controls online, or the FCC’s newly-created authority to approve of and disapprove of new Internet services.

Here’s how the survey frames the issue:

Under the current regulations, ISPs are required to:   

provide customers access to all websites on the internet.   

provide equal access to all websites without giving any websites faster or slower download speeds.  

The survey then essentially asks the participant if they favor these “regulations.” The nearly 400-page Order is long and complex and I’m guessing the survey creators lacked expertise in this area because this is a serious misinterpretation of the Order. This framing is how net neutrality advocates discuss the issue, but the Obama FCC’s interpretations of the 2015 Order look nothing like these survey questions. Exaggeration and misinformation is common when discussing net neutrality and unfortunately these pollsters contributed to it. (The Washington Post Fact Checker column recently assigned “Three Pinocchios” to similar net neutrality advocate claims.)

Let’s break down these rules ostensibly found in the 2015 Order.

“ISPs are required to provide customers access to all websites on the internet”

This is wrong. The Obama FCC was quite clear in the 2015 Order and during litigation that ISPs are free to filter the Internet and block websites. From the oral arguments:

FCC lawyer: “If [ISPs] want to curate the Internet…that would drop them out of the definition of Broadband Internet Access Service.”
Judge Williams: “They have that option under the Order?”
FCC lawyer: “Absolutely, your Honor. …If they filter the Internet and don’t provide access to all or substantially all endpoints, then…the rules don’t apply to them.”

As a result, the judges who upheld the Order said, “The Order…specifies that an ISP remains ‘free to offer ‘edited’ services’ without becoming subject to the rule’s requirements.”

Further, in the 1996 Telecom Act, Congress gave Internet access providers legal protection in order to encourage them to block lewd and “objectionable content.” Today, many ISPs offer family-friendly Internet access that blocks, say, pornographic and violent content. An FCC Order cannot and did not rewrite the Telecom Act and cannot require “access to all websites on the internet.”

“ISPs are required to provide equal access to all websites without giving any websites faster or slower download speeds”

Again, wrong. There is no “equal access to all websites” mandate (see above). Further, the 2015 Order allows ISPs to prioritize certain Internet traffic because preventing prioritization online would break Internet services.

This myth–that net neutrality rules require ISPs to be dumb pipes, treating all bits the same–has been circulated for years but is derided by networks experts. MIT computer scientist and early Internet developer David Clark colorfully dismissed this idea as “happy little bunny rabbit dreams.” He pointed out that prioritization has been built into Internet protocols for years and “[t]he network is not neutral and never has been.” 

Other experts, such as tech entrepreneur and investor Mark Cuban and President Obama’s former chief technology officer Aneesh Chopra, have observed that the need for Internet “fast lanes” as Internet services grow more diverse. Further, the nature of interconnection agreements and content delivery networks mean that some websites pay for and receive better service than others.

This is not to say the Order is toothless. It authorizes government price controls and invents a vague “general conduct standard” that gives the agency broad authority to reject, favor, and restrict new Internet services. The survey, however, declined to ask members of the public about the substance of the 2015 rules and instead asked about support for net neutrality slogans that have only a tenuous relationship with the actual rules.

“Net neutrality” has always been about giving the FCC, the US media regulator, vast authority to regulate the Internet. In doing so, the 2015 Order rejects the 20-year policy of the United States, codified in law, that the Internet and Internet services should be “unfettered by Federal or State regulation.” The US tech and telecom sector thrived before 2015 and the 2017 repeal of the 2015 rules will reinstate, fortunately, that light-touch regulatory regime.

Mobile broadband is a tough business in the US. There are four national carriers–Verizon, AT&T, T-Mobile, and Sprint–but since about 2011, mergers have been contemplated (and attempted, but blocked). Recently, the competition has gotten fiercer. The higher data buckets and unlimited data plans have been great for consumers.

The FCC’s latest mobile competition report, citing UBS data, says that industry ARPU (basically, monthly revenue per subscriber), which had been pretty stable since 1998, declined significantly from 2013 to 2016 from about $46 to about $36. These revenue pressures seemed to fall hardest on Sprint, who in February, issued $1.5 billion of “junk bonds” to help fund its network investments. Analysts pointed out in 2016 that “Sprint has not reported full-year net profits since 2006.” Further, mobile TV watching is becoming a bigger business. AT&T and Verizon both plan to offer a TV bundle to their wireless customers this year, and T-Mobile’s purchase of Layer3 indicates an interest in offering a mobile TV service.

It’s these trends that probably pushed T-Mobile and Sprint to announce yesterday their intention to merge. All eyes will be on the DOJ and the FCC as their competition divisions consider whether to approve the merger.

The Core Arguments

Merger opponents’ primary argument is what’s been raised several times since the 2011 AT&T-T-Mobile aborted merger: this “4 to 3” merger significantly raises the prospect of “tacit collusion.” After the merger, the story goes, the 3 remaining mobile carriers won’t work as hard to lower prices or improve services. While outright collusion on prices is illegal, they have a point that tacit collusion is more difficult for regulators to prove, to prevent, and to prosecute.

The counterargument, that T-Mobile and Sprint are already making, is that “mobile” is not a distinct market anymore–technologies and services are converging. Therefore, tacit collusion won’t be feasible because mobile broadband is increasingly competing with landline broadband providers (like Comcast and Charter), and possibly even media companies (like Netflix and Disney). Further, they claim, T-Mobile and Sprint going it alone will each struggle to deploy a capex-intensive 5G network that can compete with AT&T, Verizon, Comcast-NBCU, and the rest, but the merged company will be a formidable competitor in TV and in consumer and enterprise broadband.

Competitive Review

Any prediction about whether the deal will be approved or denied is premature. This is a horizontal merger in a highly-visible industry and it will receive an intense antitrust review. (Rachel Barkow and Peter Huber have an informative 2001 law journal article about telecom mergers at the DOJ and FCC.) The DOJ and FCC will seek years of emails and financial records from Sprint and T-Mobile executives and attempt to ascertain the “real” motivation for the merger and its likely consumer effects.

T-Mobile and Sprint will likely lean on evidence that consumers view (or soon will view) mobile broadband and TV as a substitute for landline broadband and TV. Much like phone and TV went from “local markets with one or two competitors” years ago to a “national market with several competitors,” their story seems to be, broadband is following a similar trajectory and viewing this as a 4 to 3 merger misreads industry trends.

There’s preliminary evidence that mobile broadband will put competitive pressure on conventional, landline broadband. Census surveys indicate that in 2013, 10% of Internet-using households were mobile Internet only (no landline Internet). By 2015, about 20% of households were mobile-only, and the proportion of Internet users who had landline broadband actually fell from 82% to 75%. But this is still preliminary and I haven’t seen economic evidence yet that mobile is putting pricing pressure on landline TV and broadband.

FCC Review

Antitrust review is only one step, however. The FCC transaction review process is typically longer and harder to predict. The FCC has concurrent authority with the DOJ under the Clayton Act to review telecommunications mergers under Sections 7 and 11 of the Clayton Act but it has never used that authority. Instead, the FCC uses its spectrum transfer review authority as a hook to evaluate mergers using the Communication Act’s (vague) “public interest standard.” Unlike antitrust standards, which generally put the burden on regulators to show consumer and competitive harm, the public interest standard as currently interpreted puts the burden on merging companies to show social and competitive benefits.

Hopefully the FCC will hew to a more rigorous antitrust inquiry and reform the open-ended public interest inquiry. As Chris Koopman and I wrote for the law journal a few years ago, these FCC  “public interest” reviews are sometimes excessively long and advocates use the vague standards to force the FCC into ancillary concerns, like TV programming decisions and “net neutrality” compliance.

Part of the public interest inquiry is a complex “spectrum screen” analysis. Basically, transacting companies can’t have too much “good” spectrum in a single regional market. I doubt the spectrum screen analysis would be dispositive (much of the analysis in the past seemed pretty ad hoc), but I do wonder if it will be an issue since this was a major issue raised in the AT&T-T-Mobile attempted merger.

In any case, that’s where I see the core issues, though we’ll learn much more as the merger reviews commence.

Expanding rural broadband has generated significant interest in recent years. However, the current subsidy programs are often mismanaged and impose little accountability. It’s not clear what effect rural broadband subsidies have had, despite the amount of money spent on it. As economist Scott Wallsten has pointed out, the US government has spent around $100 billion on rural telecommunications and broadband since 1995 “without evidence that it has improved adoption.”

So I was pleased to hear a few months ago that the Montana Public Service Commission was making an inquiry into how to improve rural broadband subsidy programs. Montana looms large in rural broadband discussions because Montana telecommunications providers face some of the most challenging terrain the US–mountainous, vast, and lightly-populated. (In fact, “no bars on your phone” in rural Montana is a major plot element in the popular videogame Far Cry 5. HT Rob Jackson.)

I submitted comments in the Montana PSC proceeding and received an invitation to testify at a hearing on the subject. So last week I flew to Helena to discuss rural broadband programs with the PSC and panelists. I emphasized three points.

  • Federal broadband subsidy programs are facing higher costs and fewer beneficiaries.

Using FCC data, I calculated that since 1998, USF high-cost subsidies to Montana telecom companies have risen by about 40% while the number of rural customers served by those companies have decreased by over 50%. I suspect these trends are common nationally, and that USF subsidies are increasing while fewer people are benefiting.

  • Wireless broadband is the future, especially in rural areas.

“Fiber everywhere” is not a wise use of taxpayer funds and exurban and rural households are increasingly relying on wireless–from satellite, WISPs, and mobile. In 2016, the CDC reported that more households had wireless phone than landline phone service. You’re starting to see “cord cutting” pick up for broadband as well. Census surveys indicate that in 2013, 10% of Internet-using households were mobile Internet only (no landline Internet). By 2015, that percentage had doubled, and about 20% of households were mobile-only. The percentage is likely even higher today now that unlimited data plans are common. Someday soon the FCC will have to conclude that mobile broadband is a substitute for fixed broadband, and subsidy programs should reflect that.

  • Consumer-focused “tech vouchers” would be a huge improvement over current broadband programs.

Current programs subsidize the construction of networks even where there’s no demand. The main reason the vast majority of non-Internet users don’t subscribe to broadband is that they are uninterested in subscribing, according to surveys from the NTIA (55% are uninterested), Pew (70% are uninterested), and FCC and Connected Nation experts (63% are uninterested). With rising costs and diminishing returns to rural fiber construction, the FCC needs to reevaluate USF and make subsidies more consumer-focused. The UK for a couple years has pursued another model for rural broadband: consumer broadband vouchers. Since most people who don’t subscribe to broadband don’t want it, vouchers protect taxpayers from unnecessary expense and paying for gold-plated services.

For years, economists and the GAO have criticized the structure, complexity, and inefficiency of the USF programs, and particularly the rural program. The FCC is constantly changing the programs because of real and perceived deficiencies, but this has made the USF unwieldy. Montana providers participate in at least seven different rural USF programs alone (that doesn’t include the other USF programs and subprograms or other federal help, like RUS grants).

Unfortunately, most analysis and reporting on US broadband programs can be summed up as “don’t touch the existing programs–just send more money.” (There are some exceptions and scrutiny of the programs, like Tony Romm’s 2015 Politico investigation into the mismanagement of stimulus-funded Ag Department broadband projects.)

“Journalism as advocacy” is unfortunately the norm when it comes to broadband policy. Take, for instance, this article about the digital divide that omits mention of the $100 billion spent in rural areas alone, only to conclude that “small [broadband] companies and cooperatives are going it more or less alone, without much help yet from the federal government.”

(That story and another digital divide story had other problems, namely, a reliance on an academic study using faulty data purchased from a partisan campaign firm. FiveThirtyEight deserves credit for acknowledging the data’s flaws but that should have alerted the editors on the need for still more fact-checking.) 

States can’t rewrite federal statutes and regulations but it’s to the Montana PSC’s great credit that they sensed that all is not well. Current trends will only put more stress on the programs. Hopefully other state PUCs will see that the current programs do a disservice for universal service objectives and consumers.

Years ago it looked like the Obama FCC would make broadband deployment, especially wireless service and spectrum reform, a top priority. They accomplished plenty–including two of the largest spectrum auctions to date–but, under tremendous political and special interest pressure, FCC leadership diverted significant agency resources into regulatory battles that had very little upside, like regulating TV apps and unprecedented regulation of Internet services.

Fortunately, the Trump FCC so far has made broadband deployment the agency’s top priority, which Chairman Pai signaled last year with the creation of the Broadband Deployment Advisory Committee. As part of those deployment efforts, Commissioner Carr has led an effort to streamline some legacy regulatory obstacles, like historic preservation and environmental reviews and the FCC will vote this week on an order to expedite wireless infrastructure construction.

According to the FCC, somewhere around 96% of the US population has LTE coverage from three or more wireless operators, like Verizon, AT&T, T-Mobile, and Sprint. The operators’ job isn’t done in rural areas, but much of the future investment into broadband networks will be to “densify” their existing coverage maps with “small cells” in order to provide wireless customers more bandwidth.

Since telecom companies build infrastructure, many current projects require review under the federal National Historic Preservation Act and the National Environmental Policy Act. However, unlike for the 100-foot cellphone towers in the past, the environmental checklists currently required for small cells are largely perfunctory since small cells typically use existing infrastructure, like utility poles. For Sprint’s tens of thousands of small cell site applications, for instance, the proposed order says “every single review resulted in a finding of no significant impact.”

The order under consideration will bring some structure to regulatory timelines and procedures. This should save carriers on unnecessary regulatory overhead and, more importantly, save time.

The order comes at a crucial time, which is why the prior FCC’s net neutrality distractions are so regrettable. Mobile broadband has huge demands and inadequate infrastructure and spectrum. According to studies, millions of Americans are going “mobile only,” and bypassing landline Internet service. Census Bureau surveys estimated that in 2015, about 20% of Internet-using households were mobile-only. (HT to Michael Horney.) That number is likely even higher today.

The construction of higher-capacity and 5G wireless, combined with repeal of the 2015 Internet regulations, will give consumers more options and better prices for Internet services, and will support new mobile applications like remote-control of driverless cars and AR “smart glasses” for blind people. Hopefully, after this order, the agency will continue with spectrum liberalization and other reforms that will expedite broadband projects.

In the waning days of the Obama administration, the US Department of Transportation (USDOT) proposed to mandate a government-designed “talking cars” technology–so-called DSRC devices–on all new cars. Fortunately, in part because of opposition from free-market advocates, the Trump administration paused the proposed mandate. The FCC had set aside spectrum in the 5.9 GHz band for DSRC technologies in 1999 but it’s been largely unused since then and these new developments raise the question: What to do with that 75 MHz of fairly “clean” spectrum? Hopefully the FCC will take the opportunity to liberalize the use of the DSRC band so it can be put to better uses.

Background

Since the mid-1990s, the USDOT and auto device suppliers have needed the FCC’s assistance–via free spectrum–to jumpstart the USDOT’s vehicle-to-vehicle technology plans. The DSRC disappointment provides an illustration of what the FCC (and other agencies) should not do. DSRC was one of the FCC’s last major “beauty contests,” which is where the agency dispenses valuable spectrum for free on the condition it be used for certain, narrow uses–in this case, only USDOT-approved wireless systems for transportation. The grand plans for DSRC haven’t lived up to its expectations (USDOT officials in 2004 were predicting commercialization as early as 2005) and the device mandate in 2016–now paused–was a Hail Mary attempt to compel widespread adoption of the technology.

Last year, I submitted public interest comments to the USDOT opposing the proposed DSRC mandate as premature, anticompetitive, and unsafe (researchers found, for instance, that “the system will be able to reliably predict collisions only about 35% of the time”). I noted that, after nearly 20 years of work on DSRC, the USDOT and their hand-selected vendors had made little progress and were being leapfrogged by competing systems, like automatic emergency brakes, to say nothing of self-driving cars. The FCC has noticed the fallow DSRC spectrum and Commissioners O’Rielly and Rosenworcel proposed in 2015 to allow other, non-DSRC wireless technologies, like WiFi, into the band.

The FCC’s Role

These DSRC devices use spectrum in the 5.9 GHz band. The FCC set aside radio spectrum in the band for DSRC applications in 1999 based on a scant 19 comments and reply comments from outside parties. 

Despite the typical flowery language in the 1999 Order, FCC commissioners and Wireless Bureau staff must have had an inkling this was not a good idea. After decades of beauty contests, it was clear the spectrum set-asides were inefficient and anticonsumer, and in 1993 Congress gave the FCC authority to auction spectrum to the highest bidder. The FCC also moved towards “flexible-use” licenses in the 1990s, thus replacing top-down technology choices with market-driven ones. The DSRC set-aside broke from those practices, likely because DSRC in 1999 had powerful backers that the FCC simply couldn’t ignore: the USDOT, device vendors, automakers, and some members of Congress.

The FCC then codified the first DSRC standards in 2003. However, innovation at the speed of government, it turns out, isn’t very speedy at all. The fast-moving connected car industry simply moved ahead without waiting for DSRC technology to catch up. (Government-selected vendors making devices according to 15-year old government-prescribed technical standards on spectrum allocated by the government in 1999. Gee, what could go wrong?)

A Second Chance

So if the DSRC plans didn’t pan out, what should be done with that spectrum? Hopefully the FCC will liberalize the band and, possibly, combine it with the adjacent bands.

The gold standard for maximizing the use of spectrum is flexible-use, licensed spectrum, so the best option is probably liberalizing the DSRC spectrum, combining it with the adjacent higher band (5.925 GHz to 6.425 GHz) and auctioning it. In November 2017, the FCC asked about freeing this latter band for flexible, licensed use.  

The other (probably more popular) option is liberalizing the DSRC band and making it available for free, that is, unlicensed use. Giving away spectrum for free often leads to misallocation but this option is better than keeping it dedicated for DSRC technology. Unlicensed is for flexible uses and allows for many consumer technologies like WiFi, Bluetooth, and unlicensed LTE devices.

Further, because of global technical standards, unlicensed devices in the DSRC band make far more sense, it seems to me, in 5.9 GHz than in the CBRS band* (3.6 GHz), which many countries are using for licensed services like LTE. The FCC is currently trying to simplify the rules in the CBRS band to encourage investment in licensed services, and perhaps that’s a compromise the FCC will reach with those who want more unlicensed spectrum: make 3.6 GHz more accommodating for licensed, flexible uses but in return open the DSRC band to unlicensed devices.

Either way, the FCC has an opportunity to liberalize the use of the DSRC band. Grand plans for DSRC didn’t work out and hopefully the FCC can repurpose that spectrum for flexible uses, either licensed or unlicensed.

 

 

*Technically, the GAA devices in the CBRS band are non-exclusive licenses, but the rules intentionally resemble an unlicensed framework.

Internet regulation advocates lost their fight at the FCC, which voted in December 2017 to rescind the 2015 Open Internet Order. Regulation advocates have now taken their “net neutrality” regulations to the states.

Some state officials–via procurement contracts, executive order, or legislation–are attempting to monitor and regulate traffic management techniques and Internet service provider business models in the name of net neutrality. No one, apparently, told these officials that government-mandated net neutrality principles are dead in the US.

As the litigation over the 2015 rules showed, our national laissez faire policy towards the Internet and our First Amendment guts any attempt to enforce net neutrality. Recall that the 1996 amendments to the Communications Act announce a clear national policy about the Internet: Continue reading →

Last week the FCC commissioners voted to restructure the agency and create an Office of Economics and Analytics. Hopefully the new Office will give some rigor to the “public interest standard” that guides most FCC decisions. It’s important the FCC formally inject economics in to public interest determinations, perhaps much like the Australian telecom regulator’s “total welfare standard,” which is basically a social welfare calculation plus consideration of “broader social impacts.”

In contrast, the existing “standard” has several components and subcomponents (some of them contradictory) depending on the circumstances; that is, it’s no standard at all. As the first general counsel of the Federal Radio Commission, Louis Caldwell, said of the public interest standard, it means

as little as any phrase that the drafters of the Act could have used and still comply with the constitutional requirement that there be some standard to guide the administrative wisdom of the licensing authority.

Unfortunately, this means public interest determinations are largely shielded from serious court scrutiny. As Judge Posner said of the standard in Schurz Communications v. FCC,

So nebulous a mandate invests the Commission with an enormous discretion and correspondingly limits the practical scope of responsible judicial review.

Posner colorfully characterized FCC public interest analysis in that case:

The Commission’s majority opinion … is long, but much of it consists of boilerplate, the recitation of the multitudinous parties’ multifarious contentions, and self-congratulatory rhetoric about how careful and thoughtful and measured and balanced the majority has been in evaluating those contentions and carrying out its responsibilities. Stripped of verbiage, the opinion, like a Persian cat with its fur shaved, is alarmingly pale and thin.

Every party who does significant work before the FCC has agreed with Judge Posner’s sentiments at one time or another.

Which brings us to the Office of Economics and Analytics. Cost-benefit analysis has its limits, but economic rigor is increasingly important as the FCC turns its attention away from media regulation and towards spectrum assignment and broadband subsidies.

The worst excesses of FCC regulation are in the past where, for instance, one broadcaster’s staff in 1989 “was required to review 14,000 pages of records to compile information for one [FCC] interrogatory alone out of 299.” Or when, say, FCC staff had to sift through and consider 60,000 TV and radio “fairness” complaints in 1970. These regulatory excesses were corrected by economists (namely, Ronald Coase’s recommendation that spectrum licenses be auctioned, rather than given away for free by the FCC after a broadcast “beauty contest” hearing), but history shows that FCC proceedings spiral out of control without the agency intending it.

Since Congress gave such a nebulous standard, the FCC is always at risk of regressing. Look no further than the FCC’s meaningless “Internet conduct standard” from its 2015 Open Internet Order. This “net neutrality” regulation is a throwback to the bad old days, an unpredictable conduct standard that–like the Fairness Doctrine–would constantly draw the FCC into social policy activism and distract companies with interminable FCC investigations and unknowable compliance requirements.

In the OIO’s mercifully short life, we saw glimpses of the disputes that would’ve distracted the agency and regulated companies. For instance, prominent net neutrality supporters had wildly different views about whether a common practice, “zero rating” of IP content, by T-Mobile violated the Internet conduct standard. Chairman Tom Wheeler initially called it “highly innovative and highly competitive” while Harvard professor Susan Crawford said it was “dangerous” and “malignant” and should be outlawed “immediately.” The nearly year-long FCC investigations into zero rating and the equivocal report sent a clear, chilling message to ISPs and app companies: 20 years of permissionless innovation for the Internet was long enough. Submit your new technologies and business plans to us or face the consequences.

Fortunately, by rescinding the 2015 Order and creating the new economics Office, Chairman Pai and his Republican colleagues are improving the outlook for the development of the Internet. Hopefully the Office will make social welfare calculations a critical part of the public interest standard.

There was a bold, bizarre proposal published by Axios yesterday that includes leaked documents by a “senior National Security Council official” for accelerating 5G deployment in the US. “5G” refers to the latest generation of wireless technologies, whose evolving specifications are being standardized by global telecommunications companies as we speak. The proposal highlights some reasonable concerns–the need for secure networks, the deleterious slowness in getting wireless infrastructure permits from thousands of municipalities and counties–but recommends an unreasonable solution–a government-operated, nationwide wireless network.

The proposal to nationalize some 5G equipment and network components needs to be nipped in the bud. It relies on the dated notion that centralized government management outperforms “wasteful competition.” It’s infeasible and would severely damage the US telecom and Internet sector, one of the brightest spots in the US economy. The plan will likely go nowhere but the fact it’s being circulated by administration officials is alarming.

First, a little context. In 1927, the US nationalized all radiofrequency spectrum, and for decades the government rations out dribbles of spectrum for commercial use (though much has improved since liberalization in the 1990s). To this day all spectrum is nationalized and wireless companies operate at sufferance. What this new document proposes is to make a poor situation worse.

In particular, the presentation proposes to re-nationalize 500 MHz of spectrum (the 3.7 GHz to 4.2 GHz band, which contains mostly satellite and government incumbents) and build wireless equipment and infrastructure across the country to transmit on this band. The federal government would act as a wholesaler to the commercial networks (AT&T, Verizon, T-Mobile, Sprint, etc.), who would sell retail wireless plans to consumers and businesses.

The justification for nationalizing a portion of 5G networks has a national security component and an economic component: prevent Chinese spying and beat China in the “5G race.”

The announced goals are simultaneously broad and narrow, and at severe tension.

The plan is broad in that it contemplates nationalizing part of the 5G equipment and network. However, it’s narrow in that it would nationalize only a portion of the 5G network (3.7 GHz to 4.2 GHz) and not other portions (like 600 MHz and 28 GHz). This undermines the national security purpose (assuming it’s even feasible to protect the nationalized portion) since 5G networks interconnect. It’d be like having government checkpoints on Interstate 95 but leaving all other interstates checkpoint-free.

Further, the document author misunderstands the evolutionary nature of 5G networks. 5G for awhile will be an overlay on the existing 4G LTE network, not a brand-new parallel network, as the NSC document assumes. 5G equipment will be installed on 4G LTE infrastructure in neighborhoods where capacity is strained. As Sherif Hanna, director of the 5G team at Qualcomm, noted on Twitter, in fact, “the first version of the 5G [standard]…by definition requires an existing 4G radio and core network.”

The most implausible idea in the document is a nationwide 5G network could be deployed in the next few years. Environmental and historic preservation review in a single city can take longer than that. (AT&T has battled NIMBYs and local government in San Francisco for a decade, for instance, to install a few hundred utility boxes on the public right-of-way.) The federal government deploying and maintaining hundreds of thousands 5G installations in two years from scratch is a pipe dream. And how to pay for it? The “Financing” section in the document says nothing about how the federal government will find tens of billions of dollars for nationwide deployment of a government 5G network.

The plan to nationalize a portion of 5G wireless networks and deploy nationwide is unwise and unrealistic. It would permanently damage the US broadband industry, it would antagonize city and state officials, it would raise serious privacy and First Amendment concerns, and it would require billions of new tax dollars to deploy. The released plan would also fail to ensure the network security it purports to protect. US telecom companies are lining up to pay the government for spectrum and to invest private dollars to build world-class 5G networks. If the federal government wants to accelerate 5G deployment, it should sell more spectrum and redirect existing government funding towards roadside infrastructure. Network security is a difficult problem but nationalizing networks is overkill.

Already, four out of five [update: all five] FCC commissioners have come out strongly against this plan. Someone reading the NSC proposal would get the impression that the US is sitting still while China is racing ahead on 5G. The US has unique challenges but wireless broadband deployment is probably the FCC’s highest priority. The Commission is aware of the permitting problems and formed the Broadband Deployment Advisory Committee in part for that very purpose (I’m a member). The agency, in cooperation with the Department of Commerce, is also busy looking for more spectrum to release for 5G.

Recode is reporting that White House officials are already distancing the White House from the proposal. Hopefully they will publicly reject the plan soon.

The FCC released a proposed Order today that would create an Office of Economics and Analytics. Last April, Chairman Pai proposed this data-centric office. There are about a dozen bureaus and offices within the FCC and this proposed change in the FCC’s organizational structure would consolidate a few offices and many FCC economists and experts into a single office.

This is welcome news. Several years ago when I was in law school, I was a legal clerk for the FCC Wireless Bureau and for the FCC Office of General Counsel. During that ten-month stint, I was surprised at the number of economists, who were all excellent, at the FCC. I assisted several of them closely (and helped organize what one FCC official dubbed, unofficially, “The Economists’ Cage Match” for outside experts sparring over the competitive effects of the proposed AT&T-T-Mobile merger). However, my impression even during my limited time at the FCC was well-stated by Chairman Pai in April:

[E]conomists are not systematically incorporated into policy work at the FCC. Instead, their expertise is typically applied in an ad hoc fashion, often late in the process. There is no consistent approach to their use.

And since the economists are sprinkled about the agency, their work is often “siloed” within their respective bureau. Economics as an afterthought in telecom is not good for the development of US tech industries, nor for consumers.

As Geoffrey Manne and Allen Gibby said recently, “the future of telecom regulation is antitrust,” and the creation of the OEA is a good step in line with global trends. Many nations–like the Netherlands, Denmark, Spain, Japan, South Korea, and New Zealand–are restructuring legacy telecom regulators. The days of public and private telecom monopolies and discrete, separate communications, computer, and media industries (thus bureaus) is past. Convergence, driven by IP networks and deregulation, has created these trends and resulted in sometimes dramatic restructuring of agencies.

In Denmark, for instance, as Roslyn Layton and Joe Kane have written, national parties and regulators took inspiration from the deregulatory plans of the Clinton FCC. The Social Democrats, the Radical Left, the Left, the Conservative People’s Party, the Socialist People’s Party, and the Center Democrats agreed in 1999:

The 1990s were focused on breaking down old monopoly; now it is important to make the frameworks for telecom, IT, radio, TV meld together—convergence. We believe that new technologies will create competition.

It is important to ensure that regulation does not create a barrier for the possibility of new converged products; for example, telecom operators should be able to offer content if they so choose. It is also important to ensure digital signature capability, digital payment, consumer protection, and digital rights. Regulation must be technologically neutral, and technology choices are to be handled by the market. The goal is to move away from sector-specific regulation toward competition-oriented regulation. We would prefer to handle telecom with competition laws, but some special regulation may be needed in certain cases—for example, regulation for access to copper and universal service.

This agreement was followed up by the quiet shuttering of NITA, the Danish telecom agency, in 2011.

Bringing economic rigor to the FCC’s notoriously vague “public interest” standard seemed to be occurring (slowly) during the Clinton and Bush administrations. However, during the Obama years, this progress was de-railed, largely by the net neutrality silliness, which not only distracted US regulators from actual problems like rural broadband expansion but also reinvigorated the media-access movement, whose followers believe the FCC should have a major role in shaping US culture, media, and technologies.

Fortunately, those days are in the rearview mirror. The proposed creation of the OEA represents another pivot toward the likely future of US telecom regulation: a focus on consumer welfare, competition, and data-driven policy.

Technology policy has made major inroads into a growing number of fields in recent years, including health care, labor, and transportation, and we at the Technology Liberation Front have brought a free-market lens to these issues for over a decade. As is our annual tradition, below are the most popular posts* from the past year, as well as key excerpts.

Enjoy, and Happy New Year. Continue reading →