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.
Skype’s petition seeking wireless net neutrality regulation lists a couple specific “abuses” the company claims justify FCC intervention. The first one is handset subsidies. All of the leading cellphone carriers heavily subsidize cellphones, because up-to-date handsets utilize spectrum more efficiently. The carriers recoup the subsidies via two-year service contracts. Criticized for discouraging consumers from switching providers, these arrangements nevertheless do help hold down the cost of service. Skype doesn’t like the fact that the subsidies put the carriers in a position to control the software that can be loaded onto the phones. Cellphones will soon roam seamlessly between 3G, Wi-Fi and DSL. Skype would like to cut deals with manufacturers to embed its software as a default setting.
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Legislation in the House of Representatives would require Internet service providers to store subscriber data specified by Attorney General Alberto R. Gonzales. The Attorney General would also get to decide how long the data would be stored. The bill, H.R. 837, provides:
SEC. 6. RECORD RETENTION REQUIREMENTS FOR INTERNET SERVICE PROVIDERS.
(a) Regulations- Not later than 90 days after the date of the enactment of this section, the Attorney General shall issue regulations governing the retention of records by Internet Service Providers. Such regulations shall, at a minimum, require retention of records, such as the name and address of the subscriber or registered user to whom an Internet Protocol address, user identification or telephone number was assigned, in order to permit compliance with court orders that may require production of such information.
(b) Failure To Comply- Whoever knowingly fails to retain any record required under this section shall be fined under title 18, United States Code, and imprisoned for not more than one year, or both.
Giving law enforcement the tools to protect our children and put creeps behind bars obviously sounds appealing. And I gather it polls very well in Republican suburbs, too. But as I have pointed out here, the real problem is inadequate prison terms for child molesters and the fact that, once released, child molesters have been allowed to evade registration and notification requirements. Data retention is an attempt to outsource the enforcement and supervision burden.
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How does Columbia Law Professor Tim Wu justify his proposal to impose massive new regulation on cellphone networks? His forthcoming paper, “Wireless Net Neutrality,” which Jerry discusses here, proposes regulating cellphone networks like common carriers:
(1) Allow any consumer to attach any safe device to their cellphone, and
(2) use the applications of their choice and view the content of their choice.
(3) Require cellphone providers to disclose, fully, prominently, and in plain English, the following information: * Limits on bandwidth usage; * Devices that are locked to a single network; and * Important limitations placed on features; and
(4) reevaluate their “walled garden” approach to application development, and work together to create clear and unified standards to which developers can work.
“Oligopoly”
Wu acknowledges critics will point to vibrant competition in the cellphone industry as the main reason we don’t need this. Although most people don’t, Wu completely dismisses the extreme competitiveness of the industry. According to him, it’s a “textbook oligopoly with four major players, premised on a bottleneck resource.”
Well, in an oligopoly prices could be expected to rise, service deterioriate and innovation suffer. But this is precisely the opposite of what we see in the cellphone space. Cellphones used to be a luxury item, now they’re ubiquitous. The FCC noted that during the five-year period ending in June 2002, the number of cellphone subscribers increased from 48.7 million to 134.6 million. This is a result of falling prices, improved coverage and the introduction of new features. None of this would have happened if the market were broken.
Wu’s oligopoly argument rests on two faulty premises:
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The FCC finally approved a long-overdue reform of anticompetitive video franchise rules by a vote of 3-2 after nearly a year of study. An Order will be issued sometime within six months. Grasping local officials won’t be able to drag out negotiations over franchise agreements with video service providers until the exhausted applicants capitulate to legal blackmail, a process which sometimes takes a year or two. Now, the negotiations will have to be completed within 90 days.
The deregulatory milestone is a victory for consumers, who will benefit from more rapid investment in competitive video offerings by AT&T and Verizon. It will also further reduce the possibility that broader telecom reform legislation will move through the next Congress, meaning fewer options to enact net neutrality regulation or pump up the current unsustainable universal service regime (which could lead to further taxation of Internet traffic).
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An interesting ethical dilemma confronts FCC Commissioner Robert M. McDowell, who could decide the fate of the AT&T/BellSouth merger.
It may not entirely be McDowell’s fault that the merger is languishing at the FCC despite the fact the Antitrust Division of the Department of Justice has already concluded it poses no significant threat to competition. After all, as McDowell pointed out in a recent statement, his four colleagues managed to approve the recent SBC/AT&T merger without him. But the analogy isn’t useful. Back then, many in Washington thought telecommunications legislation appeared to be moving through Congress and all sides had high hopes for their agendas. Everyone realizes the legislation is now dead, and this merger is the only opportunity on the horizon to enact a net neutrality nondiscrimination principle and prop up the unsustainable CLEC business model. Indications are McDowell doesn’t want to participate; the question is, should he anway?
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CNET reports that Google has been contacted by cell phone carriers who don’t want their customers accessing Google Maps from their cell phones. One Google executive claims: “we’ve been getting notes from some of the telco carriers who are saying ‘look, you need to stop our customers from downloading this thing’.” If the report is true, it says a lot about whether or not we need heavy-handed government regulation to protect basic Internet freedoms.
Google Maps one of the best cell phone features I have ever used and I would be angry if my cell phone carrier tried to take it away. They could, of course. They’re under no network neutrality-type obligations. Any cell phone carrier could block access to Google Maps tomorrow. But if the media report is true, some have decided to appeal to Google instead. Maybe they fear a customer backlash if they take action on their own. Dissatisfied customers could jump ship. There are four major cell phone carriers to choose from. But existing customers are locked into service agreements, so one would assume the carriers are in a strong position. What they fear, I suspect, is bad press and resulting damage to the brand. They also may be afraid of provoking Washington. Either way, they already seem to feel there are limitations on what they can do even in the absence of net neutrality regulation.
Why didn’t the Baby Bells compete with one another when Congress ended their exclusive franchises in 1996? Each possessed the necessary expertise and vast resources. The FCC was most eager to help. Did the Baby Bells conspire to carve up their territories in order to maintain their respective monopolies? In Bell Atlantic Corp. v. Twombly, counsel for Twombly allege that they did, though they can’t cite any direct evidence. The Supreme Court heard oral arguments yesterday.
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The once and future chairman of the House Energy & Commerce Committee, John Dingell, recently supported strong net neutrality regulation (to prevent “private taxation of the Internet”) and opposed cable franchise reform. Now he has warned the FCC that it ought to postpone consideration of the AT&T-BellSouth merger until next year. These positions suggest Dingell believes there are benefits of regulation.
Perhaps he does. Yet, this is the same man who forcefully advocated deregulation when Congress debated the Telecommunications Act of 1996. During the floor debate on Aug. 2, 1995, Dingell noted:
… the rates of AT&T, MCI, and Sprint fly in perfect formation. They fly like the formation of the nuts and bolts in an aircraft, all tied together by invisible forces, which has led to a situation where they all make money and nobody gets into that because of the behavior of Judge Green and his law clerks and a gaggle of Justice Department lawyers and three floors of AT&T lawyers, who have been foreclosing the participation of any other person in or outside of the telecommunications industry.
Regulation, although meant to benefit consumers, was exploited by the regualted entities to maintain higher prices even though computers and fiber optics were driving down the cost of providing service.
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If you thought “net neutrality” is primarily about preventing telephone and cable companies from blocking access to particular web sites or degrading someone else’s services and applications, you would be wrong. AT&T and BellSouth, who are seeking approval from the Federal Communications Commission to complete their merger, will voluntarily commit not to do those things. Consumer groups, however, want the FCC to impose an “additional fifth principle of non-discrimination” on AT&T and BellSouth as a condition of their merger.
If you’re keeping track, here are the four principles that are no longer subject to debate:
(1) consumers are entitled to access the lawful Internet content of their choice;
(2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement;
(3) consumers are entitled to connect their choice of legal devices that do not harm the network; and
(4) consumers are entitled to competition among network providers, application and service providers, and content providers.
If the FCC falls for this suggestion, to impose a non-discrimination requirement on network providers, it would outlaw the partnership, bundling and pricing strategies that are the basis for all advertising efforts. That would harm consumers, who benefit the most from advertising.
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Antitrust enthusiasts thought they scored a coup in 2004 when they persuaded Congress to encourage the courts to conduct more assertive reviews of corporate mergers (with rights of participation for gadflys, busybodies and others) pursuant to the Tunney Act (see my previous post). Apparently, the move was too clever by half. The Antitrust Division sidestepped this feature of the Tunney Act completely by approving the AT&T-BellSouth merger with no conditions. The New York Times claims the Bush Administration has abdicated its responsibility to act as a “referee,” as if one is needed. The newspaper complains the administration hasn’t brought a single major monopoly case under the Sherman Act, as if that proves anything. Most amusing of all, it notes that career officials were “demoralized” when the administration cleared Whirlpool’s acquisition of Maytag, inferring this could happen again. The Times didn’t explain the relevence of that. Apparently, some believe, bureaucrats ought to be able to perform their jobs as they see fit, or at least their judgment is superior to elected politicians or officials who’ve been confirmed by the Senate.
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