Articles by James Gattuso

James Gattuso is a Senior Research Fellow in Regulatory Policy in the Roe Institute for Economic Policy Studies at The Heritage Foundation. Gattuso also leads the Enterprise and Free Markets Initiative at Heritage, with responsiblity for a range of regulatory and market issues. Prior to joining Heritage, he served as Vice President for Policy at the Competitive Enterprise Institute and also as Vice President for Policy Development with Citizens for a Sound Economy (CSE). From 1990 to 1993, he was Deputy Chief of the Office of Plans and Policy at the Federal Communications Commission. From May 1991 to June 1992, he was detailed from the FCC to the office of Vice President Dan Quayle, where he served as Associate Director of the President's Council on Competitiveness. He lives in Alexandria, Virginia with his wife Dana, 8 year-old son, Peter (whom he relies upon to operate his VCR), and his four year-old daughter Lindsey (who does the DVD player.) He has no known hobbies, but is not nearly as boring as he seems.


Cyren Calls and Siren Calls: More on Public Safety Spectrum

by on February 8, 2007

Jerry Brito said it all yesterday, in his excellent post on the Cyren Call plan to reallocate 30 Mhz of spectrum to public safety, instead of auctioning it as has long been planned. His conclusion is exactly right: Public safety needs spectrum reform, not more spectrum.

Earlier this week, I beat that same drum in a paper released by Heritage called “Cyren Call and Siren Calls,” pointing out that recent rule changes by the FCC may provide public safety users many of the claimed benefits of the Cyren Call plan, with no additional spectrum allocation. My conclusion:

“The FCC’s decision is not a cure-all for the problems of public safety communications. But it is an important step, not least because it shows that reform does not necessarily require massive new resources. The most important reforms are those that allow existing resources to be used in smarter and more effective ways. As is often the case, better does not have to mean more.”

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One Man, No Vote: Martin Tries to Break Logjam on BellSouth Merger

by on December 4, 2006

Eight months. That’s how long it has been since AT&T and BellSouth asked the FCC for permission to merge. Although the merger has since been OK’d by the Department of Justice, and by 18 state regulatory commissions, the Commission has yet to act. It’s not that Chairman Kevin Martin hasn’t tried to get this issue decided: three times in the past two months a vote has been scheduled, only to be put off. (The last delay being just a few days before the mid-term election).

The problem is that the Commission is deadlocked–two members supporting the merger, and two opposing it, reportedly insisting that net neutrality and other conditions be imposed.

Putting two and two together, you get four. But wait–the FCC has five members. The fifth, as it turns out is Robert McDowell, the newest member of the commission. McDowell, however, has been recused from the issue, since he previously worked for CompTel, a trade group that opposed the merger.

In an unusual move, Chairman Kevin Martin has asked the FCC’s general counsel to allow McDowell to vote anyway. Such a step would be unusual, but not unprecedented–for instance Democratic chairman Bill Kennard was allowed to vote on an issue in 2000 on which he was otherwise recused. This request isn’t unprecedented–Democratic chairman Bill Kennard, for instance, was allowed to vote in 2000 on a media issue despite the fact that he previously represented broadcasters. Martin argues that, given the stalemate on the merger, McDowell’s vote is necessary to break the logjam.

Conflict of interest rules, of course, shouldn’t be tossed away lightly. Commissioners after all may be prejudiced in favor of the side they used to work for. But this case has an unusual twist: All indications are that despite his previous employers’ position, McDowell would support the merger. Rather than vote with his old employers, McDowell would likely vote against them. There’s little chance that McDowell would be motivated to vote against the merger because of a salary he drew from folks on the other side.

Martin’s request is both bold and sensible. Hopefully, the GC will approve it, and the FCC will finally vote on this long-pending merger.

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Do FCC Rules Hinder Minority Ownership?

by on November 22, 2006

Communications Daily (subscription) reported Monday that Clear Channel’s upcoming sale of 448 stations will likely be structured in big blocks of licenses–with only about a dozen transactions in all. One reason, according to Comm Daily, is the FCC approval process. With big batches, the article reports, quoting a broadcast property appraiser: “They are not going to want to be involved in 400+ transactions. It would become a nightmare in terms of documentation.”

One consequence of this is that minority owners and small businesses would find it harder to buy acquire licenses, at least in the initial round. In other words, the FCC ownership rules–justified as a way to increase diversity in media–may actually be hindering minority ownership.

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Wal-Mart to Sen. Edwards: No Cutting in Line for PlayStation3

by on November 21, 2006 · 2 comments

Just like millions of other Americans, it seems former Sen. John Edwards is keen to get his hands on a PlayStation3. So much so that an Edwards staffer last week contacted the Raleigh, North Carolina Wal-Mart to reserve one for Edwards and his family. Later the same day, however, Edwards gave a speech denouncing Wal-Mart, telling a story about how his son chided another student for buying shoes there.

Shoes of course aren’t Playstations, which–it seems–are a necessity. Still, the discrepency didn’t escape the notice of Wal-Mart. The next day, the company issued a press release –tongue firmly in cheek–inviting Sen. Edwards visit his local store. The release went on, however, to note that:

…the PlayStation3 is an extremely popular item this Christmas season, and while the rest of America’s working families are waiting patiently in line, Senator Edwards wants to cut to the front. While, we cannot guarantee that Sen. Edwards will be among one of the first to obtain a PlayStation3, we are certain Sen. Edwards will be able to find great gifts for everyone on his Christmas list–many at Wal-Mart’s “roll-back prices.”

This isn’t exactly your typical corporate PR language. Someone in Bentonville, it seems, was pissed, and wasn’t afraid to let it be known. And rightly so. Wal-Mart has done far more to improve the lives of ordinary Americans than any politician, Sen. Edwards included–yet has long been a whipping boy of those politicians. It was right to hit back.

No word yet, on whether the senator ever got that Playstation.

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“Revered” Engineering Principles and Other Unpersuasive Arguments

by on November 13, 2006 · 4 comments

For the past few days, TLF’s Tim Lee and Brooke Oberwetter of the Competitive Enterprise Institute have been engaging in a, well, spirited discussion over net neutrality. The whole thing seems to have started when Oberwetter linked approvingly to one of Tim’s TLF posts. Proving that no good deed goes unpunished, Tim responded with a detailed criticism of Oberwetter. Such is the blogosphere.

You can see the whole gory mess here, here, here, and here. Oberwetter argues that tiered pricing for content delivery could potentially benefit consumers, by opening up another dimension of competition. Tim comes down hard on this idea–arguing that such a fee system is unlikely to develop, and in any case would be a bad thing.

At the risk of shattering the image of universal pan-TLF consensus, I have some problems with Tim’s easy dismissal of this potential market development.

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Say Goodnight Gracie: Burns and Allen Concede–Senator Tubes Loses Chairmanship

by on November 9, 2006

With this afternoon’s concessions of defeat by Senator George Allen and Conrad Burns, the GOP’s loss of the Senate is official. Tech policy played little role in this political earthquake, despite much early rhetoric by neutrality regulation supporters that it would be a big part of the debate. Yet, ironically, the final two dominoes to fall were both members of the Senate Commerce Committee, and key players in tech policy debates. Allen in particular will be missed by free-market supporters, as well as the tech industry (he ranked number one in the Senate on tech policy in a recent CNET survey.) Burns, a longtime communications subcommittee chair, had a more mixed record. He was an early supporter of telecom reform, but in recent years seemed to focus more on protecting rural state perks.

The headline news, however, is the change at the top of the committee. Senator Ted Stevens–who was made famous by Jon Stewart and YouTube for describing the Internet as a “series of tubes”–is out.

Supporters of markets will shed few tears over Steven’s ejection from the chairman’s seat. The champion of Alaska’s “bridge to nowhere,” proponent of a $3 billion scheme to subsidize television, and author of a telecom bill with $5.2 billion more in subsidies, he hardly represented Adam Smith’s values. We are tempted, in fact, to crack a smile.

But not too big a smile. While Stevens may be out, he is replaced by Daniel Inouye of Hawaii. Although of different parties, Stevens and Inouye always had a close working relationship–Stevens, in fact, always referred to Inouye as his “co-chairman.” While Stevens would be hard to beat in the pork department, Inouye is no shirker (its a fair bet he can take credit for the special rules for “states comprised entirely of islands” in this year’s telecom legislation).

This isn’t to say there aren’t differences. Stevens, for instance, was somewhat opposed to neutrality regulation, while Inouye somewhat supportive. But in many other areas, it’ll be hard to spot a difference. In fact, on many issues–such as telecom subsidies–Inouye could be more successful at getting Stevens’ agenda adopted than Stevens was.

As I suggested earlier, settle in for a few interesting years.

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Big John Is Back: Dingell Warns FCC on Merger

by on November 8, 2006

John Dingell wasted no time in reasserting his authority over the FCC today. One day after the election that put the Democrats back in charge of the House after 12 years, DIngell–who is expected to take back his old reins as Commerce Committee Chairman–sent a message to the FCC that it should hold off on approving the BellSouth-AT&T merger until next year.

“I think it would be in their interest” said the incoming chairman, adding it “would be in the interest of the [Commerce] Committee” and “in the broad public interest”.

Dingell said that delay was needed to make sure the Department of Justice was “doing its responsibility” and that FCC was ensuring the public interest was served.

Never mind that the merger has already been pending eight months, and has been approved by DOJ and 18 state commissions already. FCC approval in fact was expected last week, until it was pulled from the FCC agenda at the last minute. Dingell would now like the transaction to stew for a few more months. Although later today he backed off the statement a bit, denying he had asked for a postponement, the message was clear, saying he wanted the Commission to avoid “ill will” in dealing with the Commerce Committee.

The whole thing evokes a sense of deja vu. In his long tenure as committee chairman before 1994, Dingell was famous for vigorously asserting authority over the FCC. Of course, Dingell was far from the only chairman to do so. Quaint theories that the FCC is an “independent agency” aside, the Commission has long been considered a “creature of Congress” by members from both parties. But no chairman protected that particular turf more jeolously than Dingell. He brought it almost to the level of an art form.

No one doubts, of course, that agencies are ultimately accountable to lawmakers. But there is something disturbing about the “creature of Congress” theory, especially when the decisions in question is a quasi-judicial one such as a merger approval. Certainly, there would be howls of protest if Congress asked the Justice Department to delay its legal process in a particular case. But the FCC’s processes are apparently fair game.

Don’t expect the Commission to buck Big John on this one. But it provides yet another reason to re-examine the FCC’s status an an “independent” agency, and how that works in practice.

Meanwhile, settle in for an interesting few years.

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Bell-South-AT&T: Regulation Via the Back Door?

by on October 25, 2006 · 4 comments

After a year of debate, neutrality regulation proponents have singularly failed (Salon.com notwithstanding) to get Congress to enact their proposals. This of course could change, especially if there’s a change in the control of Congress. But, should this front-door approach fail, it now seems proponents have a plan B: sneak regulation in as a condition of AT&T’s merger with Bell South.

The “It’s Our Net Coalition” asked the FCC to do just that in a petition filed with the agency yesterday. Specifically, the group asks the Commission to impose the net neutrality rules contained in the amendment by Senators Snowe and Dorgan now pending in the Senate.

This legislation has been the subject of, to put it mildly, considerable controversy. It hasn’t been voted on–in this Congress it would likely fail if it were. And similar proposals were repeatedly defeated in the House. But the “It’s Our Net Coalition” would save us all the inconveniences of this congressional debate, and simply have the FCC impose the Snowe-Dorgan rules (at least as to AT&T) on its own, without even the bother of a separate rulemaking proceeding.

The idea of imposing conditions on mergers isn’t new–or by itself controversial. But such conditions should be aimed at alleviating a reduction in competition caused by a merger. The Department of Justice, however, has already found that the merger is not likely to substantially reduce competition in any market. BellSouth and AT&T’s businesses simply don’t overlap much.

Strangely, the Coalition, in it’s eight-page petition devotes only a single paragraph to the merger’s effect on competition. broadly asserting that the merger would solidify the market power of broadband firms. Most of the petition is instead devoted to rehashing general arguments for neutrality regulation.

Former FCC Commissioner Harold Furchtgott-Roth often complained about the FCC merger reviews, and the conditions imposed on approvals, called the process “lawless, standardless, and endless.” He was right. Mergers should be approved or rejected based on their specific effect on competition. The process should not be used to impose regulation through the back door.

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The Economist: Your Television is Ringing

by on October 18, 2006

The cover may feature Kim Jong-il, but you should skip past all that nuclear weapons stuff when you read this week’s Economist magazine and go straight to their special survey on telecommunications. In typical Economist fashion, the series of articles–cited earlier by Jim Harper–covers the length and breath of telecommunications from a global perspective.

Being fairly parochial, however, I found their comments on the neutrality regulation debate in the U.S. of particular interest:

…self-styled defenders of the internet like to portray the net-neutrality debate as a fight to stop evil telecoms firms messing with freedom and innovation. The reality is rather more complicated. For a start, the internet is not, in fact, neutral today. Fast broadband connections already cost more than slower ones, for consumers and businesses alike. As well as buying fast pipes and building huge “server farms”, big companies such as Google and eBay also pay extra for specialist “content delivery” services, such as Akamai, to make their websites download even faster. None of this has hampered innovation or hurt small companies.

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Even More Norwegian Neutrality News

by on October 17, 2006 · 4 comments

As argued by Tim and Jim in their recent posts, the decision by the Norwegian broadband carrier NextGenTel to limit the bandwidth available to NRK (Norway’s broadcaster) for its IPTV service–unless it paid for more, and the subsequent withdrawal of that policy, shows a functioning market, rather than a market failure.

Tim and Jim stress that consumer reaction forced NextGenTel to reverse its policy. They are correct, although that still leaves the impression that this was a case of a network giant trying (unsuccessfully) to use its muscle to impose unreasonable conditions. But there’s more to it than that. First, NextGenTel doesn’t seem like much of a giant. It’s no monopolist, or even a former monopolist. Instead, its a relatively small start-up, launched only six years ago. Purchased earlier this year by a firm called TeliaSonera, NextGenTel itself only has some 150 employees. It’s not clear to me whether they even own their own infrastructure. Their website mentions only that its network “consists of approximately 850 DSLAMs,” implying the rest is leased. If bottleneck control of infrastructure is a necessary condition for neutrality regulation–as most regulation agree it is–then NextGenTel’s actions should not be of concern.

In any case, NextGenTel’s policy was hardly unreasonable. The “victim” in this case was NRK, the Norwegian Broadcasting Corporation. The IPTV service at issue here was apparently launched by NRK earlier this year. In a press release issued in May, NRK boasted that its service would be provided “with minimal capital investment and very low cost of ownership.” Part of that capital investment needed for the high-bandwidth demands of NRK’s new service no doubt would be made instead by NextGenTel and other broadband networks. It seems entirely understandable that NextGenTel didn’t want to play this role in NRK’s business plans.

Rather than a dominant firm using its power to impose unreasonable restrictions, this seems to be a case of a competitive firm asking for reasonable compensation. It also seems that if supporters of neutrality regulation want a smoking gun of market failure, they will have to keep looking.

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