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.
You wouldn’t know it from all the focus on neutrality regulation, but core of the telecom legislation now moving through Congress would liberalize cable franchising–stripping local authorities of much of their ability to block the entry of new video competitors. There has been quite a bit of evidence already that such a move would substantially reduce rates for consumers. But, it’s widely believed, this would come at the cost of lost income to local governments, who receive revenue from cable franchise fees. Only last week, Mayor Ken Fellman of Arvada, Colorado, testified to the Senate on behalf of several local government associations that legislation would threaten local revenues. Nationwide, most local officials remain skeptical of cable competition. (Mayor Curt Pringle of Anaheim, Ca. remains a notable exception. His talk at Heritage on the topic can be seen here.)
But there’s a new study out that tells a different story In a report for Criterion Economics released last month, Bob Crandall and Bob Litan, both of the Brookings Institution, calculate that the take for local governments from cable franchise fees would actually increase more than $400 million due to competition. The reason: although cable rates, Crandall and Litan predict, would drop 13.5 percent, subscribership would increase from by between 29.7 and 39.1 percent.
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FCC Chairman Martin’s push to impose “multicast” must-carry rules on cable providers looked like a done deal only a few days ago. Martin had made the the new mandate a priority, and with two new Republican members of the commission sworn in, its looked like Martin would certainly be able to get a majority to support him. He had even scheduled a vote for Wednesday, usually a sure sign that the votes were in the bag.
As it turned out, however, the bag was empty. The reason: Robert McDowell, who joined the commission only three weeks ago, said “no.” According to National Journal, sources said that McDowell “sees much benefit from the cable industry voluntarily agreeing to carry broadcasters’ multicasts and prefers a private sector solution.” Moreover, he was said to be unsure of the legality of the proposed regulation. Since the two Democrats apparently also opposed the move, that left Martin without a majority.
Hooray for the new guy. Forcing cable companies to carry multiple TV signals from each broadcaster over their systems is a bad idea. First, consumers would be worse off, since these channels would displace other channels consumers presumably prefer. (Note that cable firms actually pay broadcasters for the right to carry channels that are popular. By definition, we are talking about the unpopular ones here).
Moreover, the rules would violate the constitution. By actual count, multi-cast must-carry likely violates two amendments–the fifth amendment (taking of property) and the first (free speech). Do the math. That’s 20 percent of the bill of rights. Pretty good for one regulation. They might as well add in something about quartering troops and go for a trifecta.
Commissioner McDowell, you were right to block this. Welcome to the FCC, by the way. Glad to have you aboard.
This morning, CBS announced it had reached a final agreement with Dan Rather terminating his contract and his 44-year relationship with that network. When reports of the impending break-up came of few days ago, the public reaction was surprise. Not surprise that he was leaving, but surprise that he was still around at all. It seems that since he left the anchor’s chair, Rather fell victim to forgotten-but-not-gone syndrome. Although still part of the 60 Minutes CBS team, his output was slight, with fewer shows airing than any other anchor there.
It wasn’t the ending Rather wanted. As I wrote two years ago, Rather aspired to Walter Cronkite status. Cronkite, Rather’s predecessor at CBS, was a national icon, a kindly figure who the nation looked up to. Rather never achieved that status. Not only was he a bit too eccentric, and openly ideological –but the role of broadcast anchor itself became more and more irrelevant during Rather’s tenure.
Rather’s final downfall was swift, being caught reporting as news–then defending beyond all reason–clearly forged documents pertaining to George Bush. There was no good excuse for his behavior–either he was actively involved in a fraud, or (perhaps even more damning given his self-image as a crack journalist) he failed as a reporter. As Rather himself might have put it, he was beaten like a rented mule. CBS, after a decent interval, gently pushed him out of Cronkites’ chair.
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The LA Times ran a good story today on how the House telecom bill–thanks to a last-minute amendment–may raise the price of Internet phone calls. The provision reaffirms state authority to require voice-over-Internet providers to pay into universal service funds and to pay access fees to wireline carriers. In so doing, the bill apparently overturns an FCC decision two years ago preempting the states from such matters.
The cost could be significant. According to the article, the additional subsidy payments could increase VoIP bills some 7 percent. Summarizing the reaction of the VoIP community, Jeff Pulver said of the move: “It got me to the point of absolute depression.”
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Next week, the FCC may revisit the issue of whether cable providers will be required to carry every channel of programming transmitted by over the air broadcasters. “Must-carry” itself is not a new idea–for years cable systems have been forced to carry broadcast signals over their networks. When broadcasters switch to digital transmission, however, each will be able to transmit multiple channels over the same bit of spectrum. So, should cable firms be required to carry each and every one of these channels? The FCC said “no” to such multicast must-carry rules a few years ago. But that was under Chairman Michael Powell. Current chairman Kevin Martin feels differently about “multi-cast must-carry,” and may now have the votes to reverse the prior decision. (More on the issue here.)
This week, he got support for this expanded regulation from an unlikely source: AT&T. AT&T, you may remember, has in recent months been exhaustively making the case against another set of rules–neutrality regulation. The federal government should keep its paws off private networks, they (rightly) argued, warning that they would discourage needed investment in private networks. However, this week a spokesman said that, regarding must-carry, it had no objection to federal paws. “We’re more than happy to put this programming on our network,” he said. “We support multicast must-carry.”
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If anyone out there is looking for even more to read (for instance if you are thumbing through old issues of MacWorld), you might want to check out Heritage’s new Linked! page. This page provides constantly-updated links to news and commentary from the web on a full range of public policy issues, including (of course) technology. For all issues check here. For tech only, go here
Enjoy.
The past week has truly been a miserable one for supporters of neutrality regulation. Last Thursday, they got shellacked 269-152 in the House vote on the issue. Despite earlier talk of GOP members joining the pro-reg crowd, only 11 actually did so. But a surprising 58 Democrats voted against it. Then, yesterday, the Washington Post–no, not the conservative Washington Times, but the Post–editorialized against regulation. (By the way, no extra points will be awarded for guessing that pro-regulation advocate Jeff Chester responded to this by making an ethics charge, claiming that the Post didn’t disclose its conflicts of interest. Anyone sense a pattern here?)
The third shoe fell on the regulation crowd yesterday, when Senator Ted Stevens released his revised telecom reform bill in the Senate. Contrary to expectations, Stevens did not add neutrality regulation provisions to his bill. Instead he stood firm, with the bill only calling for a study of the issue. Kudos to Sen. Stevens for holding his ground on this.
Of course, the neutrality debate is far from over–and momentum could change. However, with only a few months left in the congressional schedule, regulation proponents must be looking nervously at the calendar, and hoping it won’t bring any more weeks like this one.
Never mind fees for priority broadband service. What this nation really needs is a fee on anyone still using the term “trickle-down economics.” In a post yesterday on Digital Destiny, Jeff Chester of the Center for Digital Democracy pulled the Commodore-era cliche out of his white hat, in a blogpost entitled “Memo to Heritage’s James Gattuso: The era of trickle down media economics is over.”
The trickle down era is over? Well, ok. I never said it wasn’t. I never said trickle down at all. I honestly don’t know what “trickle-down media economics” even means.
Chester’s memo follows an earlier post criticizing my recent Heritage Foundation paper on neutrality regulation as “a litany of rationalizations and under-developed analysis.” Sensing that he disagreed with me on some points, I read on to see where my paper had gone wrong. But he didn’t say. Instead he focused on Heritage’s funding, promising a substantive response in “our next post.”
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Jeff Chester of the Center for Digital Democracy wasted no time responding to my recent Heritage piece on neutrality regulation, posting a comment on his blog over the weekend. Well, sort of responding. Actually, the piece didn’t discuss my arguments or facts at all. (Chester promised to do that later.) Instead, he focused on the scoop that Heritage has received money from AT&T and Verizon, which he says should have been disclosed. “Hey, Guess Who Helps Fund the Heritage Foundation?” the blog title breathlessly asks.
Hey, guess how Chester found this out? In the Heritage annual report, of course. Where it was disclosed. Along with the names of hundreds of other donors. Other donors that include pro-neutrality regulation Microsoft, as well as Verizon and AT&T. The report also discloses that only about five percent of our revenue comes from corporations of any kind. The rest comes from individuals and foundations.
Yet all of this is skipped over by Chester. There’s a tactical advantage to this. There are times that attacking your opponent’s motives is an attractive alternative to substantive arguments. But I won’t say that he wrote for merely tactical reasons. While not reciprocated, I’ll assume he actually believes what he writes.
Yet this may be the more disturbing prospect. His ad hominem approach represents a nice black-and-white picture of the policy world, one where pro-regulation consumer advocates fight for what they believe is right, and everyone else has somehow been paid off. That view is all too common among many on the left. These erstwhile trust-busters relish their own perceived monopoly on white hats, and won’t suffer competition.
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In case you haven’t had your fill of net neutrality yet, here is a new paper of mine, published today by The Heritage Foundation, surveying the issue. My conclusion:
Proposed network neutrality rules would impose comprehensive, unnecessary, and harmful mandates on broadband networks. Such unnecessary mandates–the most extensive regulation of the Internet ever considered by Congress–would stymie the efficient use of scarce Internet capacity, discourage investment, and even threaten the growth of competition among broadband networks.
Despite the grim scenarios painted by the supporters of regulation, there is little or no evidence of market abuse by network owners. This is for good reason: Today’s broadband market is competitive, and any network abusing its position would quickly lose customers. Moreover, if any abuse does occur, existing competition law is more than sufficient to address the problem.
Advocates of neutrality regulation argue that the future of the Internet is at issue in this debate. They are correct. This is why such regulation of the Internet should be rejected.
In other words, regulation would be a bad thing.
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