Miscellaneous

The FCC’s transaction reviews have received substantial scholarly criticism lately. The FCC has increasingly used its license transaction reviews as an opportunity to engage in ad hoc merger reviews that substitute for formal rulemaking. FCC transaction conditions since 2000 have ranged from requiring AOL-Time Warner to make future instant messaging services interoperable, to price controls for broadband for low-income families, to mandating merging parties to donate $1 million to public safety initiatives.

In the last few months alone,

  • Randy May and Seth Cooper of the Free State Foundation wrote a piece that the transaction reviews contravene rule of law norms.
  • T. Randolph Beard et al. at the Phoenix Center published a research paper about how the FCC’s informal bargaining during mergers has become much more active and politically motivated in recent years.
  • Derek Bambauer, law professor at the University of Arizona, published a law review article that criticized the use of informal agency actions to pressure companies to act in certain ways. These secretive pressures “cloak what is in reality state action in the guise of private choice.”

This week, in the Harvard Journal of Law and Public Policy, my colleague Christopher Koopman and I added to this recent scholarship on the FCC’s controversial transaction reviews. Continue reading →

The FCC has signaled that it may vote to overhaul the Lifeline program this month. Today, Lifeline typically provides a $9.25 subsidy for low-income households to purchase landline or mobile telephone service from eligible providers. While Lifeline has problems–hence the bipartisan push for reform–years ago the FCC structured Lifeline in a way that generally improves access and mitigates abuse (the same cannot be said about the three other major universal service programs).

A direct subsidy plus a menu of options is a good way to expand access to low-income people (assuming there are effective anti-fraud procedures). A direct subsidy is more or less how the US and state governments help lower-income families afford products and services like energy, food, housing, and education. For energy bills there’s LIHEAP. For grocery bills there’s SNAP and WIC. For housing, there’s Section 8 vouchers. For higher education, there’s Pell grants.

Programs structured this way make transfers fairly transparent, which makes them an easy target for criticism but also promotes government accountability, and gives low-income households the ability to consume these services according to their preferences. If you want to attend a small Christian college, not a state university, Pell grants enable that. If you want to purchase rice and tomatoes, not bread and apples, SNAP enables that. The alternative, and far more costly, ways to improve consumer access to various services is to subsidize providers, which is basically how Medicare the rural telephone programs operate, or command-and-control industrial policy, like we have for television and much of agriculture.

Because the FCC is maintaining the consumer subsidy and expanding the menu of Lifeline options to include wired broadband, mobile broadband, and wifi devices, there’s much to commend in the proposed reforms. Continue reading →

This article originally appeared at techfreedom.org.

Today, the D.C. Circuit Court of Appeals stayed, for the second time, an FCC Order attempting to lower prison payphone phone calling rates. Back in 2003, Martha Wright had petitioned the FCC for relief, citing the exorbitant rates she was charged to call her incarcerated grandson. Finally, in 2012, the FCC sought comment on proposed price caps. In 2013, when Commissioner Mignon Clyburn took over as acting chairman, she rushed through an orderthat implemented rate-of-return regulation, a different approach on which the FCC had not yet sought public comment.

Once again, the D.C. Circuit has reminded the FCC that good intentions are not enough,” said Berin Szoka, President of TechFreedom. “The FCC must follow basic requirements of administrative law. When it fails to do so, all its talk of protecting consumers is just that: empty talk.”

When the FCC issued its 2013 order, TechFreedom issued the following statement:

If justice delayed is justice denied, the FCC has once again denied justice to the millions of Americans and their families who pay far too much for prison payphone calls. The FCC’s elaborate system of price controls was not among the ideas on which the FCC sought comment last December, nor is it supported by the record. Thus, today’s long-overdue order will very likely be struck down in court — and the Commission will have wasted nine years sitting on Martha Wright’s 2003 payphone justice petition, nine months proposing an illegal solution, and who-knows-how-long litigating about it — only to wind up right back where we started, with payphone operators paying up to two-thirds of their revenue in kickbacks to state prisons, in exchange for the monopoly privilege of gouging a truly captive audience.

This is just the latest example of the FCC’s M.O. of “Ready, Fire, Aim.” The FCC consistently dawdles, then suddenly works itself up into a rush to regulate in ways that are either illegal or unwise — and usually both. Once again, good intentions, the desire to make headlines, disregard for basic principles of legal process, and a deep-seated ideological preference for returning to rate-of-return price controls, have triumphed over common sense, due process and, sadly, actually helping anyone.

In January 2014, the appeals court stayed key provisions of the order. The FCC then went back to the drawing board and, in October 2015, issued a second report and order and third NPRM that, among other things, established price caps for inmate calling services. Affected service providers challenged the order and sought a stay from the D.C. Circuit, which is granted only if, as the court said here, “petitioners have satisfied the stringent requirements for a stay pending court review,” which means showing a strong likelihood of success on the merits.

The stay issued by the D.C. Circuit isn’t a certain death knell for the inmate calling order, but it certainly casts a grim pall over the order’s future,” said Tom Struble, Policy Counsel at TechFreedom. “This FCC has proven more than willing to tout noble goals to justify its procedural shortfalls, but the courts are less willing to bless such an outcome-driven approach. The rules for administrative procedure are there for a reason, and agencies can’t simply disregard them when it suits their interests. If something is worth doing, they should take the time to do it right.”

“It’s worth noting that Judge Tatel was among the three judges voting for today’s stay,” concluded Szoka, noting that Tatel also sits on the D.C. Circuit panel hearing challenges to the FCC’s Open Internet Order. “Even though today’s stay order addresses unrelated issues, it may suggest that the D.C. Circuit is taking a harsher look at the FCC’s procedure, and while the court didn’t grant an initial stay in the challenge to the Open Internet Order, the FCC could still lose on the merits of that case when it comes to the threshold question of whether it provided adequate notice of Title II reclassification, and rules that went well beyond ‘net neutrality.’ If so, the court might simply kick the matter back to the FCC and set the stage for a fourth court battle over the key legal questions. It’s anyone’s bet as to which issue, prison payphones (started in 2003) or net neutrality (started in 2005) the FCC will actually manage to resolve first, after more than a decade of heated fulmination exceeded only by the FCC’s incompetence.”

Dan BrennerI was shocked and saddened to hear tonight that L.A. Superior Court Judge Dan Brenner was struck and killed in Los Angeles yesterday. I am just sick about it. He was a great man and good friend.

Dan was an outstanding legal mind who, before moving back out to California to become a judge in 2012, made a big impact here in DC while serving as a legal advisor to FCC chairman Mark Fowler in the 1980s. He went on to have a distinguished career as head of legal affairs at the National Cable & Telecommunications Association. He also served as an adjunct law professor in major law schools and wrote important essays and textbooks on media and broadband law.

More than all that, Dan Brenner was a dear friend to a great many people, and he was always the guy with the biggest smile on his face in any room he walked into. Dan had an absolutely infectious spirit; his amazing wit and wisdom inspired everyone around him. I never heard a single person say a bad word about Dan Brenner. Even people on the opposite side of any negotiating table from him respected and admired him. That’s pretty damn rare in a town like Washington, DC.

And Dan was a great friend to me. Continue reading →

Another year in the books for the Technology Liberation Front. Many developments unfolded in 2015 in the technology world and we covered much of it (on TLF and in other outlets). The most popular posts this year revolved around the Internet of Things, privacy, unlicensed spectrum, and municipal and public broadband networks. Thanks for reading, and enjoy the year in review. Continue reading →

The FCC’s Open Internet Order is long and complex and the challenge to it is likewise difficult to untangle. The agency regularly engages in ad hoc rulemaking that results, per Judge Posner, in “unprincipled compromises of Rube Goldberg complexity among contending interest groups viewed merely as clamoring suppliants who have somehow to be conciliated.” The Open Internet Order is no exception and therefore faces several legal vulnerabilities.

In my view, the soft underbelly of the Order is the agency’s position that ISPs are not First Amendment speakers. While courts are generally very deferential to agencies, they are not deferential on constitutional questions. Further, the court panel (two Democrat appointees, one Republican appointee), unfortunately, was not in the carriers’ favor. The major carriers, however, have focused their arguments on whether the agency should receive deference in classifying Internet access as a telecommunications service.

That said, it’s possible the major carriers could get at least a partial win with their arguments. That likelihood is increased because Alamo Broadband and Dan Berninger raised the First Amendment problems with the Order. Given the strength of the First Amendment arguments, the Court might shy away from reaching the issue of whether ISPs are speakers. Below, some thoughts on the moments during oral arguments that surprised me and what went according to predictions.

The Unexpected

A receptive ear in Judge Williams re: the First Amendment arguments. (Good for: ISPs) The First Amendment arguments went better than I’d expected. Alamo and Berninger’s counsel, Brett Shumate, argued the First Amendment issues well and had good responses for skeptical questions. Shumate found a receptive ear in Judge Williams, who seemed to understand the serious First Amendment risks posed by the Order. Williams repeatedly brought up the fact that MetroPCS a few years ago tried to curate the Internet and provide its customers free YouTube, only to face resistance from the FCC and net neutrality activists.

The other two judges were more skeptical but Shumate corrected some misconceptions. The biggest substantive objection from Srinivasan, who sounded the most skeptical of the First Amendment arguments, was that if the Court reaches the First Amendment issues, it has determined that the FCC has reasonably classified Internet access as a common carrier service. He suggested that this means the First Amendment issues mostly disappear. No, Shumate explained. Congress and the FCC can call services whatever they want. They could declare Google Search or Twitter feeds a common carrier service tomorrow and that would have zero effect on whether filtering by Google and Twitter is protected by the First Amendment. Tatel asked whether Section 230’s liability protections suggest ISPs are common carriers and Shumate corrected that misconception, a subject I have written on before.

A major FCC concession that ISPs have to option to change their offerings and escape common carrier regulation. (Good for: ISPs) Title II advocates are spinning the terse First Amendment exchanges as a victory. I’m not convinced. The reason the arguments didn’t generate more heat was because the FCC lawyer made a huge concession at the outset: ISPs that choose to filter the Internet are not covered by the Open Internet Order.

FCC lawyer: “If [ISPs] want to curate the Internet…that would drop them out of the definition of Broadband Internet Access Service.”

Judge Williams: “They have that option under the Order?”

FCC lawyer: “Absolutely, your Honor. …If they filter the Internet and don’t provide access to all or substantially all endpoints, then they drop out of the definition of [BIAS] and the rules don’t apply to them.”

This admission seriously undermines the purposes of the Order. The FCC is stating outright that ISPs have the option to filter and to avoid the rules. That seems to mean that Comcast’s Stream Internet protocol television service, where it is curating streaming TV programs, is not covered by the rules. If Facebook’s Free Basics or a similar service launched in the US giving free, limited access to the Web, that is not covered by the Order. Finally, this means that the many broadband packages that offer family-friendly filtering are outside of the FCC’s rules. It’s not clear how much remains to be regulated since all ISPs reserve the right to filter content and each filters at least some content.

Judge Tatel directing most questioning. (Good for: wash) Many view Judge Tatel as the “swing vote” but I was surprised at the relative quiet from Williams and Srinivasan. Tatel was the most inquisitive, by my listening. He was much more skeptical of some of the FCC’s arguments regarding interconnection than I expected but also more skeptical of the First Amendment arguments than I expected.

Little discussion of Chevron Step 0. (Good for: FCC) Many on the free-market side wanted to make this case about Chevron Step 0 and the notion that Title II is too economically and socially significant to warrant deference. Unfortunately, at oral argument there was very little discussion of Chevron Step 0.

The Expected

Focus on agency discretion. (Good for: FCC) The judges generally seem to see this as a straightforward Chevron case and the questions focused on Chevron Step 1, whether there is ambiguity in the statute about “offering telecommunications” for the FCC to interpret. As expected, the FCC did fairly well in their arguments because these technical issues are very hard to untangle.

On Chevron Step 2, whether the reinterpretation of “telecommunications service” to include Internet access was reasonable, the US Telecom attorney was strong. He leaned heavily on the fact that in Section 230, which amends the Communications Act, Congress announces a national policy that the Internet and specifically Internet access services, should remain “unfettered by Federal regulation.” That would seem to preclude the FCC from using, at the very least, its most powerful regulatory weapon–common carriage–against Internet access providers. Even if “telecommunications service” is ambiguous, he stated, it was unreasonable to include Internet access in that definition.

Focus on whether mobile broadband can be properly classified under Title II. (Benefit: ISPs) As many commentators have noted, the idea that the traditional phone network and the mobile broadband network can be classified as the same interconnected network is far-fetched. Each judge seemed very skeptical of the FCC’s argument and Tatel suggested there was a lack of adequate notice.

Srinivasan pointed out that striking down the wireless rules and maintaining the wireline rules would mean that using the same tablet in different areas of your house would lead to different regulatory treatment, depending on whether you’re on the cellular broadband network or Wifi. Title II supporters think this is pretty clever gotcha but communications law already abounds with seemingly absurd FCC- and court-created legal distinctions. (The FCC invents its own absurd distinction and offers vastly different regulatory treatment for DNS operated by an ISP v. DNS operated by literally anyone else.)

Conclusion

Predictions about major regulatory cases are notoriously difficult. I’ve read (and made) enough predictions about big court cases to know that prognosticators almost always get it wrong. If that’s the case, at least consider one thought-provoking outcome: the rules are largely struck down because the FCC provided inadequate notice on most of the major issues of classification.

If the rules, in contrast, were sustained under Chevron and judged to have had adequate notice, the Court would likely need to confront the First Amendment issues. I don’t think Tatel and Srinivasan, especially, want to rule on these hard constitutional questions. The judges must know the Supreme Court has, as Prof. Susan Crawford says, an “absolutist approach” to the First Amendment that protects speakers of all kinds. Sustaining the rules means the FCC risks a loss on First Amendment grounds on appeal that would nearly eliminate the ability of the FCC to regulate the Internet. For that reason, and because of the notice problems, the Court may strike down the rules on notice and comment grounds, thereby preserving the ability of the FCC to take a fourth bite at the apple.

On October 7th I appeared on a webinar hosted by Prof. Barry Umansky and Ball State’s Digital Policy Institute about the FCC’s Title II case before the DC Circuit Court of Appeals, US Telecom Association v. FCC. The other panelists were Andrew Schwartzman of Georgetown University and Stuart Brotman of Harvard Law School and the Brookings Institution. Check it out, but here’s a brief summary of our hour-long discussion. Continue reading →

Tech Policy Threat Matrix

by on September 24, 2015 · 1 comment

On the whiteboard that hangs in my office, I have a giant matrix of technology policy issues and the various policy “threat vectors” that might end up driving regulation of particular technologies or sectors. Along with my colleagues at the Mercatus Center’s Technology Policy Program, we constantly revise this list of policy priorities and simultaneously make an (obviously quite subjective) attempt to put some weights on the potential policy severity associated with each threat of intervention. The matrix looks like this: [Sorry about the small fonts. You can click on the image to make it easier to see.]

 

Tech Policy Issue Matrix 2015

I use 5 general policy concerns when considering the likelihood of regulatory intervention in any given area. Those policy concerns are:

  1. privacy (reputation issues, fear of “profiling” & “discrimination,” amorphous psychological / cognitive harms);
  2. safety (health & physical safety or, alternatively, child safety and speech / cultural concerns);
  3. security (hacking, cybersecurity, law enforcement issues);
  4. economic disruption (automation, job dislocation, sectoral disruptions); and,
  5. intellectual property (copyright and patent issues).

Continue reading →

The FCC is being dragged–reluctantly, it appears–into disputes that resemble the infamous beauty contests of bygone years, where the agency takes on the impossible task of deciding which wireless services deliver more benefits to the public. Two novel technologies used for wireless broadband–TLPS and LTE-U–reveal the growing tensions in unlicensed spectrum. The two technologies are different and pose slightly different regulatory issues but each is an attempt to bring wireless Internet to consumers. Their advocates believe these technologies will provide better service than existing wifi technology and will also improve wifi performance. Their major similarity is that others, namely wifi advocates, object that the unlicensed bands are already too crowded and these new technologies will cause interference to existing users.

The LTE-U issue is new and developing. The TLPS proceeding, on the other hand, has been pending for a few years and there are warning signs the FCC may enter into beauty contests–choosing which technologies are entitled to free spectrum–once again.

What are FCC beauty contests and why does the FCC want to avoid them? Continue reading →

Ten or fifteen years ago, when I sat around and thought about what I would do with my life, I never considered directing the technology policy program at Mercatus. It’s not exactly a career track you can get on — not like being a lawyer, a doctor, a professor.

One of the things I loved about Peter Thiel’s book Zero to One is that it is self-consciously anti-track. The book is a distillation of Thiel’s 2012 Stanford course on startups. In the preface, he writes,

“My primary goal in teaching the class was to help my students see beyond the tracks laid down by academic specialties to the broader future that is theirs to create.”

I think he is right. The modern economy provides unprecedented opportunity for people with talent and grit and passion to do unique and interesting things with their lives, not just follow an expected path. Continue reading →