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.


A government appeal of a court decision approving AT&T’s acquisition of Tim Warner is a joke.  But maybe it is not surprising when you consider what AT&T management has been up to.

AT&T used to be a power house in Washington.  It now can’t seem to lobby it’s way out of a brown paper bag.

AT&T’s longtime chief representative in Washington—Jim Ciccone—was brilliant.  AT&T’s managers and investors have no idea how much Ciccone accomplished on their behalf. His successor—Pat Quinn—was a brilliant regulatory lawyer.  Quinn was absolutely the best person that could possibly represent you before the Federal Communications Commission.  Unfortunately, Quinn couldn’t see the big picture, and he flamed out as Ciccone’s succesor.

I have no idea who represents AT&T in Washington at this time.  As a shareholder, I believe AT&T management is negligent.

It is no surprise to me that the Department of Justice is appealing the court decision approving the AT&T/Time Warner merger—because AT&T is AWOL in Washington.

P.S. I want to credit my former boss, former Senator Bob Packwood of Oregon–chairman of the Senate Commerce Committee in the early 80’s–for the brown paper bag metaphor.  He didn’t apply it to AT&T, but I think it fits now.

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 →

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 →

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.

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 →

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 →

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 →

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 →

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 →

Chairman and CEO Masayoshi Son of SoftBank again criticized U.S. broadband (see this and this) at last week’s Code Conference.

The U.S. created the Internet, but its speeds rank 15th out of 16 major countries, ahead of only the Philippines.  Mexico is No. 17, by the way.

It turns out that Son couldn’t have been referring to the broadband service he receives from Comcast, since the survey data he was citing—as he has in the past—appears to be from OpenSignal and was gleaned from a subset of the six million users of the OpenSignal app who had 4G LTE wireless access in the second half of 2013.

Oh, and Son neglected to mention that immediately ahead of the U.S. in the OpenSignal survey is Japan. Continue reading →