Keeping politicians' hands off the Net & everything else related to technology
Attorney General Alberto R. Gonzales and now FBI Director Robert Mueller (see Adam’s post) are fond of reminding us that the Internet creates opportunities for terrorists and sexual predators. But for law enforcement, the Internet is a gift. For example, it allows undercover agents to pose as children for the purpose of apprehending sexual predators. Consider this anecdotal evidence of the success of these operations:
Kudos to Attorney General Alberto R. Gonzales for cracking down on child sexual exploitation, but it’s troubling he’s still considering whether to ask Congress for legislation to require communications companies to store things like search queries and which web sites their customers visit. Proposals like this endanger the civil liberties of the innocent and risk creating a police state. They are a dangerous substitute for adequately-funded law enforcement and prisons, and for a higher priority on children’s safety than on second- and third-chances for dangerous criminals.
Jim discussed some of the problems with government-mandated data retention here and Adam added his thoughts here. I would add that when Congress held hearings on protecting children from sexual predators in 2005, it emerged that protecting children didn’t used to be a very high priority for some public officials. Consider these findings:
A few weeks ago, the FCC courageously requested public comment on the merits of using auctions to determine who gets Universal Service support to provide subsidized phone service in rural areas. One difficulty with a reverse auction is what, if anything, to do about stranded investment. What are the legitimate investment expectations that the incumbent provider deserves to recover?
Under the current system, the incumbent rural phone companies will be subsidized in perpetuity. Yet, cable VoIP service and wireless systems have been built in many rural areas without Universal Service support. Many of the competitors are now seeking their fair share. Chairman Kevin Martin noted Tuesday at a Senate hearing that these competitors received $1 million when he came to the commission but get $1 billion now.
Martin stood up for reforming Universal Service so it supports the best and most efficient new technologies, and he took a beating from Senate Commerce Chairman Ted Stevens (R-AK)–an ally of the incumbent rural phone companies–who, like most politicians, focused on who would be the winners and losers:
Bureaucrats aren’t clueless, so when one makes a comment the defies logic, like the following, it may mean something’s up:
The spokesman is referring to a comment from someone at Microsoft to the effect that uncertainty over how the EU will act is making it hard for the company to make some critical decisions on how to design its new operating system, Windows Vista. Microsoft asked for guidance from the EU and the EU has declined to respond, so it’s probably anything but misleading to say the commission could be the cause of delays.
Nearly 20 percent of Internet telephone test calls experienced unacceptable call quality over the last 18 months, according to Brix Networks. The company provides a free voice quality testing portal (TestYourVoIP.com) for measuring the quality of broadband Internet phone connections.
Wall Street Journal columnist Lee Gomes interviewed Brix Chief Technology Officer Kaynam Hedayat about the findings:
Why the decline?
With the emergence of sites like YouTube, and music downloads and emails with large attachments, there is just more traffic on the Internet.
Why are phone calls so susceptible to Internet traffic increases?
Voice calls are very real-time-sensitive. If the other person’s voice drops off, you can’t carry on the conversation. It becomes like the old days when you called international over a satellite. The delays were so long that you had to say a sentence, pause a couple of seconds without saying anything, and then wait for a response from the other end.
If Congress enacts net neutrality regulation, network providers could prioritize VoIP services but they would have to do so on a nondiscriminatory basis. That means they’d have to act as a disinterested wholesaler, treating every retail provider of VoIP services, including their own affiliates, equally. Would they do that? Or would it be more profitable to let all VoIP services deteriorate so consumers place a higher value on traditional phone services? You be the judge.
P.S. To those who have extended a warm welcome, thank you.
The Chairman of the Federal Trade Commission made a significant contribution to understanding the proper role of government in ensuring net neutrality. Speaking at the Progress & Freedom Foundation’s Aspen Summit this week, Deborah Platt Majoras cited the principle that, absent clear and specific evidence of market failure or consumer harm, policymakers should not enact blanket prohibitions of particular business models or conduct.
Second, she reminds us that broadband Internet access services are within the FTC’s jurisdiction and that the agency’s powers are proven. The FTC has successfully targeted Internet service providers who have allegedly enganged in deceptive practices and it has also required a cable system to provide open access to Internet service providers. This track record makes it pretty clear the FTC not only has the power but it also has the inclination to preserve openness and other values associated with the Internet. The allegation is that the D-word (deregulation) is coming to broadband services. Aside from the FTC, the FCC and the Antitrust Division also have jurisdiction over broadband services. Contrary to what one might think from listening to the appeals of net neutrality advocates, there are three levels of government oversight of broadband services.
Third, Majoras acknowledged that important questions have been raised and more information is needed. She announced the formation of an Internet Access Task Force to examine issues related to net neutrality and other matters. Net neutrality has been a debate about hypotheticals, which is part of the reason it has seemed so unproductive. This task force will be made up of economists and attorneys from throughout the FTC who are competition and consumer protection experts. Unlike the FCC, which only does communications, the FTC has wide-ranging experience and expertise arising from their involvement in every sector of the economy. This makes the FTC, perhaps, less beholden to some of the passions and prejudices which animate the special interests that have a dog in this fight. The FTC’s involvement will probably contribute greatly to the debate. With this kind of comprehensive look at all the facts underway, I’ll bet many-to-most in Congress will prefer to review the findings before they cast a vote.
_______________
See: “The Federal Trade Commission in the Online World: Promoting Competition and Protecting Consumers,” Remarks by Deborah Platt Majoras, Chairman, Federal Trade Commission, Progress & Freedom Foundation’s Aspen Summit, August 21, 2006
See: “PREPARED STATEMENT OF THE FEDERAL TRADE COMMISSION before the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE on FTC JURISDICTION OVER BROADBAND INTERNET ACCESS SERVICES,” by William E. Kovacic, Commissioner, Washington, D.C., June 14, 2006
Critics claimed broadband access is a duopoly (a market in which there are only two providers) but this is technically inaccurate in much of the country so now the complaint is that 98 per cent of broadband customers receive their service from either the telephone company or the cable company. Even this criticism is irrelevant. Consumer harm occurs where prices are excessive or quality is deficient. In the case of broadband, competition is leading to lower prices and higher bandwidth.
Most economists agree it’s misleading to read too much into market shares, although I could point out that regional bell operating companies–the main targets of net neutrality regulation–report only 39.3% of total high-speed connections and that this is far less than a dominant position (other providers who are not telephone companies are lumped together in the FCC’s broadband status report). More important is whether consumers could vote with their feet if an incumbent provider abuses its customer relationships. They could if there are alternate providers or new providers could enter the market. According to the FCC, satellite providers have at least some presence in 88% of the nation’s zip codes, ADSL in 82% and cable modem in 57%. These numbers suggest a lot of consumers have more competitive choices than the critics like to point to. Other technologies, such as fixed and mobile wireless (cellular, PCS and WiMAX) and power line, are growing fast and have enormous potential. They prove that new providers can enter the market.
Broadband is spreading rapidly, according to the FCC. High-speed lines increased by 18% during the second half of 2005 compared to a 12% increase during the first half of 2005. This wouldn’t be happening if broadband providers were gouging their customers or restricting their choices. In order to recoup their multi-billion dollar investments, the providers need to attract all the traffic they can.
The report also says that 99% of the nation’s zip codes have at least one provider who serves at least one customer, and that 99% of the nation’s population lives in those zip codes. Most would agree if only one household or business or a privileged handful have a choice of competitors, that’s a problem. The numbers are actually more positive and the methodology used to gather them more useful than it seems. Cable and telephone networks are never built to serve small groups of people. Networks are capital intensive with high fixed costs, so the cost of bringing on an additional user is always lower than it was for the most recent user. If you have a network you want to build it out as fast as you can, because every additional customer will generate a higher profit margin than the one before. Satellite and wireless providers are capable of serving small groups or even only one customer in an entire zip code, but the fact is they market their services widely and have no incentive to market in such a way as to manipulate the statistics that the FCC gathers in this report.
Duopoly is one of those frightening terms that can either be meaningful or meaningless. In the context of broadband access services, it is meaningless.
_______________
See: “High-Speed Services for Internet Access: Status as of December 31, 2005,” Report of the FCC’s Industry Analysis and Technology Division, Wireline Competition Bureau, July 2006
State and local lawmakers learned in the 1990s that large, broad-based tax increases are political losers and that they redistribute taxpayers (to lower taxing jurisdictions) rather than redistributing income. Hence, the growing interest in targeting tax increases to divide taxpayers into smaller groups and minimize voter backlash. Tobacco and alcohol are the favorites, but the same thing is happening in telecom and housing. These are some of the findings from a study by Daniel Clifton and Elizabeth Karasmeighan for Americans for Tax Reform.
According to Tom Tauke, “broadband and, in particular, wireless services are increasingly viewed by state and local governments as the golden goose for raising new revenue. The state and local tax burden on communications is now two and a half times what it is for other businesses … Today in some states, taxes on cell phones exceed that of liquor and tobacco.”
Broadband and cellphone providers don’t pay these taxes, of course. They are merely tax collectors. Unfortunately, the taxes lead to higher prices for broadband and cellphone services, which lowers demand, as Tauke points out. Lower demand is bad for innovation, the economy and the future spending plans of politicians and social service advocates.
Clifton and Karasmeighan recommend that states limit spending to the rate of population growth plus inflation to ensure that revenue gains during upturns can be used to offset losses during recessions. They also recommend that states reduce their reliance on volatile revenue sources such as capital gains and dividends. States used temporary surges in capital gains revenue in the 1990s to increase spending permanently. When the stock market declined, states lost 80% of this revenue but kept spending anyway. Many fooled voters into raising taxes to cover the “unforseen” gap.
State and local tax policies are one of the chief threats to investment and innovation in the tech sector today.
_______________
See: “State Tax Trends Over Twenty-Five Years: Tax Increases Down, Revenue Sources Shifting,” by Daniel Clifton and Elizabeth Karasmeighan, Americans for Tax Reform, Aug. 2006
See: “Staying Ahead of the Broadband Curve,” Remarks by Tom Tauke, Executive Vice President–Public Affairs, Policy and Communications, Verizon Communications, at the Progress & Freedom Foundation’s Aspen Summit, Aug. 22, 2006
See: “The Excessive State and Local Tax Burden on Wireless Telecommunications Service,” by Scott Mackey, Economist, Kimbell-Sherman-Ellis, Jun. 2004
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.
