Articles by Hance Haney

Hance Haney is Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute. Haney spent ten years as an aide to former Senator Bob Packwood (R-OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a BA in history from Willamette University and a JD from Lewis and Clark Law School in Portland, Oregon.


Repeal the EligibleTelecommunications Carrier Designation

by on July 19, 2020 · 0 comments

America’s small towns are underpopulated, while big cities of plague, protests, and panic are overpopulated, overpriced, and overpopularized. We could start by ensuring rural spaces high-speed internet (still unavailable as I can attest in the rural center of supposedly high-tech California)…. Victor Davis Hanson

A proposal by Congressman G.K. Butterfield of North Carolina could be a big step in the right direction of opening up rural spaces to full participation in the modern economy.  

His proposal would expand the eligibility of who can receive Federal support for building infrastructure in unserved areas, making it easier for cable operators, satellite providers and others to complete with traditional telecommunications carriers. 

The Butterfield vision is gaining bipartisan support and may possibly be included in a stimulus package.  It certainly should be.  

The proposal would simply eliminate the requirement that a competitor must receive designation as an Eligible Telecommunications Carrier (ETC) from a state public utility/service commission as a prerequisite for receiving Federal support.

This requirement harkens back to a bygone era when cable, wireless and satellite services were not substitutes for landline telephone service.  At that time, small rural telephone providers worried that a competitor would “cherry pick” or “cream skim” their most lucrative (enterprise) customers—such as the local hospital—and strand the small rural telco in a potential death spiral serving only the barely profitable (or even unprofitable) consumer segment.

Now that cable, satellite and wireless services are a substitute for many consumers, the requirement for ETC designation does nothing to protect small rural telcos from competition.  It is an anachronism.  However, it does create an unnecessary hurdle for cable, wireless and satellite providers to qualify for Federal support to help close the digital divide—which is an urgent priority.

Originally intended to prevent the loss of telecommunications services in rural areas, the requirement now serves to prevent the necessary expansion of those services to keep up with the modern world economy.  

As awful as this horrible pandemic is, at least we are driving less and spending more time with our families.  Many have learned that a daily commute may not be necessary.  Broadband seems to be boosting productivity and reducing air pollution at the same time.  Hopefully broadband can also help facilitate a revival of rural America.  

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STELAR Expiration Warranted

by on May 28, 2019 · 0 comments

Congress should let the Satellite Television Extension and Localism Act Reauthorization (STELAR) of 2014 expire at the end of this year. STELAR is the most recent reincarnation of the Satellite Home Viewer Act of 1988, a law that has long since outlived it’s purposes.

Owners of home satellite dishes in the 1980s—who were largely concentrated in rural areas—were receiving retransmission of popular television programs via satellite carriers in apparent violation of copyright law. When copyright owners objected, Congress established a compulsory, statutory license mandating that content providers allow secondary transmission via satellite to areas unserved by either a broadcaster or a cable operator, and requiring satellite carriers to compensate copyright holders at the rate of 3 cents per subscriber per month for the retransmission of a network TV station or 12 cents for a cable superstation.

The retransmission fees were purposely set low to help the emerging satellite carriers get established in the marketplace when innovation in satellite technology still had a long way to go. Today the carriers are thriving business enterprises, and there is no need for them to continue receiving subsidies. Broadcasters, on the other hand, face unprecedented competition for advertising revenue that historically covered the entire cost of content production.

Today a broadcaster receives 28 cents per subscriber per month when a satellite carrier retransmits their local television signal. But the fair market value of that signal is actually $2.50, according to one estimate.

There is no reason retransmission fees cannot be “determined in the marketplace through negotiations among carriers, broadcasters and copyright holders,” as the Reagan administration suggested in 1988.

Aside from perpetuating an unjustified subsidy, renewal of STELAR may deprive owners of home satellite dishes in the nation’s twelve smallest Designated Market Areas from receiving programming from their own local broadcast TV stations.

Due to severe capacity constraints inherent in satellite technology in the 1980s, the statutory license originally allowed satellite carriers to retransmit a single, distant signal (e.g. from a New York or Los Angeles network affiliate) throughout their entire footprint. As the technology has improved, the statutory license has been expanded in recent years to include local-into-local retransmission. DISH Network, which already provides local-into-local retransmission throughout the nation (in all 210 DMAs), has demonstrated that a statutory license for distant signals is no longer necessary or warranted.

Although DirecTV does not yet offer nationwide local-into-local retransmission, this is a voluntary business decision that should not dictate the renewal of a statutory license based on 30 year old technology.


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Kid Vid Rules Ripe for Review

by on July 9, 2018 · 0 comments

A group of lawmakers is asking the Federal Communications Commission to maintain the agency’s 27 year old “Kid Vid” rules in their “current form,” rather than open a proceeding to evaluate whether the rules can be improved or are even still necessary.

The rules were enacted by the FCC pursuant to the Children’s’ Television Act of 1990—in the analog era, when digital technologies were just starting to be deployed, and the same year that initial steps were being taken to privatize the Internet and open it for commercial use.  A lot has changed since the Act was passed. Continue reading →

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More On What’s In Store for the FCC’s Open Internet Rules

by on September 11, 2015 · 0 comments

Hal Singer has discovered that total wireline broadband investment has declined 12% in the first half of 2015 compared to the first half of 2014.  The net decrease was $3.3 billion across the six largest ISPs.  As far as what could have caused this, the Federal Communications Commission’s Open Internet Order “is the best explanation for the capex meltdown,” Singer writes.

Despite numerous warnings from economists and other experts, the FCC confidently predicted in paragraph 40 of the Open Internet Order that “recent events have demonstrated that our rules will not disrupt capital markets or investment.”

Chairman Wheeler acknowledged that diminished investment in the network is unacceptable when the commission adopted the Open Internet Order by a partisan 3-2 vote.  His statement said:

Our challenge is to achieve two equally important goals: ensure incentives for private investment in broadband infrastructure so the U.S. has world-leading networks and ensure that those networks are fast, fair, and open for all Americans. (emphasis added.)

The Open Internet Order achieves the first goal, he claimed, by “providing certainty for broadband providers and the online marketplace.” (emphasis added.)

Yet by asserting jurisdiction over interconnection for the first time and by adding a vague new catchall “general conduct” rule, the Order is a recipe for uncertainty.  When asked at a February press conference to provide some examples of how the general conduct rule might be used to stop “new and novel threats” to the Internet, Wheeler admitted “we don’t really know…we don’t know where things go next…”  This is not certainty.

As Singer points out, the FCC has speculated that the Open Internet rules would generate only $100 million in annual benefits for content providers compared to the reduction of investment in the network of at least $3.3 billion since last year.  While the rules obviously won’t survive cost-benefit analysis, I’m not sure they will survive some preliminary questions and even get to a cost-benefit analysis stage. Continue reading →

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Special Access Regulation Would Harm Competition

by on August 24, 2015 · 0 comments

A British telecom executive alleges that Verizon and AT&T may be overcharging corporate customers approximately $9 billion a year for wholesale “special access,” services, according to the Financial Times.

The Federal Communications Commission is presently evaluating proprietary data from both providers and purchasers of high-capacity, private line (i.e., special access) services.  Some competitors want nothing less than for the FCC to regulate Verizon’s and AT&T’s prices and terms of service. There’s a real danger the FCC could be persuaded–as it has in the past–to set wholesale prices at or below cost in the name of promoting competition.  That discourages investment in the network by incumbents and new entrants alike.

As researcher Susan Gately explained in 2007, a study by her firm claimed $8.3 billion in special access “overcharges” in 2006.  She predicted they could reach $9.0-$9.5 billion in 2007.  This would mean that special access overcharges haven’t increased at all in the past seven to eight years, implying that Verizon and AT&T must not be doing a very good job “abusing their landline monopolies to hurt competitors” (the words of the Financial Times writer).

As I wrote in 2009, researchers at both the National Regulatory Research Institute (NRRI) and National Economic Research Associates (NERA) pointed out that Gately and her colleagues relied on extremely flawed FCC accounting data.  This is why the FCC required data collection from providers and purchasers in 2012, the results of which are not yet publicly known.  Both the NRRI and NERA studies suggested the possibility that accusations of overcharging could be greatly exaggerated.  If Verizon and AT&T were over-earning, their competitors would find it profitable to invest in their own facilities instead of seeking more regulation.

Verizon and AT&T are responsible for much of the investment in the network.  Many of the firms that entered the market as a result of the 1996 telecom act have been reluctant to invest in competitive facilities, preferring to lease facilities at low regulated prices.  The FCC has always expressed a preference for multiple competing networks (i.e., facilities-based competition), but taking the profit out of special access is sure to defeat this goal by making it more economical to lease.

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The Wrong Way to End the Terrestrial Radio Exemption

by on April 19, 2015 · 0 comments

A bill before Congress would for the first time require radio broadcasters to pay royalty fees to recording artists and record labels pursuant to the Copyright Act. The proposed Fair Play Fair Pay Act (H.R. 1733) would “[make] sure that all radio services play by the same rules, and all artists are fairly compensated,” according to Congressman Jerrold Nadler (D-NY).

… AM/FM radio has used whatever music it wants without paying a cent to the musicians, vocalists, and labels that created it. Satellite radio has paid below market royalties for the music it uses …

The bill would still allow for different fees for AM/FM radio, satellite radio and Internet radio, but it would mandate a “minimum fee” for each type of service for the first time.

A February report from the U.S. Copyright Office cites the promotional value of airtime as the longstanding justification for exempting terrestrial radio broadcasters from paying royalties under the Copyright Act.

In the traditional view of the market, broadcasters and labels representing copyright owners enjoy a mutually beneficial relationship whereby terrestrial radio stations exploit sound recordings to attract the listener pools that generate advertising dollars, and, in return, sound recording owners receive exposure that promotes record and other sales.

The Copyright Office now feels there are “significant questions” whether the traditional view remains credible today. But significant questions are not the same thing as clear evidence. Continue reading →

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This Is Not How We Should Ensure Net Neutrality

by on February 5, 2015 · 0 comments

Chairman Thomas E. Wheeler of the Federal Communications Commission unveiled his proposal this week for regulating broadband Internet access under a 1934 law. Since there are three Democrats and two Republicans on the FCC, Wheeler’s proposal is likely to pass on a party-line vote and is almost certain to be appealed.

Free market advocates have pointed out that FCC regulation is not only unnecessary for continued Internet openness, but it could lead to years of disruptive litigation and jeopardize investment and innovation in the network.

Writing in WIRED magazine, Wheeler argues that the Internet wouldn’t even exist if the FCC hadn’t mandated open access for telephone network equipment in the 1960s, and that his mid-1980s startup either failed or was doomed because the phone network was open whereas the cable networks (on which his startup depended) were closed. He also predicts that regulation can be accomplished while encouraging investment in broadband networks, because there will be “no rate regulation, no tariffs, no last-mile unbundling.”  There are a number of problems with Chairman Wheeler’s analysis. First, let’s examine the historical assumptions that underlie the Wheeler proposal.

Continue reading →

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The Myth That Title II Regulation of Broadband and Wireless Would Be Comparable

by on November 19, 2014 · 0 comments

Supporters of Title II reclassification for broadband Internet access services point to the fact that some wireless services have been governed by a subset of Title II provisions since 1993.  No one is complaining about that.  So what, then, is the basis for opposition to similar regulatory treatment for broadband?

Austin Schlick, the former FCC general counsel, outlined the so-called “Third Way” legal framework for broadband in a 2010 memo that proposed Title II reclassification along with forbearance of all but six of Title II’s 48 provisions.  He noted that “this third way is a proven success for wireless communications.”  This is the model that President Obama is backing.  Title II reclassification “doesn’t have to be a big deal,” Harold Feld reminds us, since the wireless industry seems to be doing okay despite the fact mobile phone service was classified as a Title II service in 1993.

To be clear, only mobile voice services are subject to Title II, since the FCC classified broadband access to the Internet over wireless networks as an “information” service (and thus completely exempt from Title II) in March of 2007.

Sec. 6002(c) of the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66) modified Sec. 332 of the Communications Act so commercial mobile services would be treated “as a common carrier … except for such provisions of title II as the Commission may specify by regulation as inapplicable…”

The FCC commendably did forbear.  Former Chairman Reed E. Hundt would later boast in his memoir that the commission “totally deregulated the wireless industry.” He added that this was possible thanks to a Democratic Congress and former Vice President Al Gore’s tie-breaking Senate vote. Continue reading →

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How Much Tax?

by on October 30, 2014 · 0 comments

As I and others have recently noted, if the Federal Communications Commission reclassifies broadband Internet access as a “telecommunications” service, broadband would automatically become subject to the federal Universal Service tax—currently 16.1%, or more than twice the highest state sales tax (California–7.5%), according to the Tax Foundation.

Erik Telford, writing in The Detroit News, has reached a similar conclusion.

U.S. wireline broadband revenue rose to $43 billion in 2012 from $41 billion in 2011, according to one estimate. “Total U.S. mobile data revenue hit $90 billion in 2013 and is expected to rise above $100 billion this year,” according to another estimate.  Assuming that the wireline and wireless broadband industries as a whole earn approximately $150 billion this year, the current 16.1% Universal Service Contribution Factor would generate over $24 billion in new revenue for government programs administered by the FCC if broadband were defined as a telecommunications service.

The Census Bureau reports that there were approximately 90 million households with Internet use at home in 2012. Wireline broadband providers would have to collect approximately $89 from each one of those households in order to satisfy a 16.1% tax liability on earnings of $50 billion. There were over 117 million smartphone users over the age of 15 in 2011, according to the Census Bureau. Smartphones would account for the bulk of mobile data revenue. Mobile broadband providers would have to collect approximately $137 from each of those smartphone users to shoulder a tax liability of 16.1% on earnings of $100 billion. Continue reading →

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Tax Consequences of Net Neutrality

by on October 21, 2014 · 1 comment

Would the Federal Communications Commission expose broadband Internet access services to tax rates of at least 16.6% of every dollar spent on international and interstate data transfers—and averaging 11.23% on transfers within a particular state and locality—if it reclassifies broadband as a telecommunications service pursuant to Title II of the Communications Act of 1934?

As former FCC Commissioner Harold Furchtgott-Roth notes in a recent Forbes column, the Internet Tax Freedom Act only prohibits state and local taxes on Internet access.  It says nothing about federal user fees.  The House Energy & Commerce Committee report accompanying the “Permanent Internet Tax Freedom Act” (H.R. 3086) makes this distinction clear.

The law specifies that it does not prohibit the collection of the 911 access or Universal Service Fund (USF) fees. The USF is imposed on telephone service rather than Internet access anyway, although the FCC periodically contemplates broadening the base to include data services.

The USF fee applies to all interstate and international telecommunications revenues.  If the FCC reclassifies broadband Internet access as a telecommunications service in the Open Internet Proceeding, the USF fee would automatically apply unless and until the commission concluded a separate rulemaking proceeding to exempt Internet access.  The Universal Service Contribution Factor is not insignificant. Last month, the commission increased it to 16.1%.  According to Furchtgott-Roth,

At the current 16.1% fee structure, it would be perhaps the largest, one-time tax increase on the Internet.  The FCC would have many billions of dollars of expanded revenue base to fund new programs without, according to the FCC, any need for congressional authorization.

Continue reading →

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