Miscellaneous

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 →

Chairman Thomas E. Wheeler of the Federal Communications Commission unveiled his proposal this week for regulating broadband Internet access under a 1934 law. Since there are three Democrats and two Republicans on the FCC, Wheeler’s proposal is likely to pass on a party-line vote and is almost certain to be appealed.

Free market advocates have pointed out that FCC regulation is not only unnecessary for continued Internet openness, but it could lead to years of disruptive litigation and jeopardize investment and innovation in the network.

Writing in WIRED magazine, Wheeler argues that the Internet wouldn’t even exist if the FCC hadn’t mandated open access for telephone network equipment in the 1960s, and that his mid-1980s startup either failed or was doomed because the phone network was open whereas the cable networks (on which his startup depended) were closed. He also predicts that regulation can be accomplished while encouraging investment in broadband networks, because there will be “no rate regulation, no tariffs, no last-mile unbundling.”  There are a number of problems with Chairman Wheeler’s analysis. First, let’s examine the historical assumptions that underlie the Wheeler proposal.

Continue reading →

My employer, the Mercatus Center, provides ridiculously generous funding (up to $40,000/year) for graduate students. There are several opportunities depending on your goals, but I encourage people interested in technology policy to particularly consider the MA Fellowship, as that can come with an opportunity to work with the tech policy team here at Mercatus. Mind the deadlines!

The PhD Fellowship is a three-year, competitive, full-time fellowship program for students who are pursuing a doctoral degree in economics at George Mason University. Our PhD Fellows take courses in market process economics, public choice, and institutional analysis and work on projects that use these lenses to understand global prosperity and the dynamics of social change. Successful PhD Fellows have secured tenure track positions at colleges and universities throughout the US and Europe.

It includes full tuition support, a stipend, and experience as a research assistant working closely with Mercatus-affiliated Mason faculty. It is a total award of up to $120,000 over three years. Acceptance into the fellowship program is dependent on acceptance into the PhD program in economics at George Mason University. The deadline for applications is February 1, 2015.

Continue reading →

Supporters of Title II reclassification for broadband Internet access services point to the fact that some wireless services have been governed by a subset of Title II provisions since 1993.  No one is complaining about that.  So what, then, is the basis for opposition to similar regulatory treatment for broadband?

Austin Schlick, the former FCC general counsel, outlined the so-called “Third Way” legal framework for broadband in a 2010 memo that proposed Title II reclassification along with forbearance of all but six of Title II’s 48 provisions.  He noted that “this third way is a proven success for wireless communications.”  This is the model that President Obama is backing.  Title II reclassification “doesn’t have to be a big deal,” Harold Feld reminds us, since the wireless industry seems to be doing okay despite the fact mobile phone service was classified as a Title II service in 1993.

To be clear, only mobile voice services are subject to Title II, since the FCC classified broadband access to the Internet over wireless networks as an “information” service (and thus completely exempt from Title II) in March of 2007.

Sec. 6002(c) of the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66) modified Sec. 332 of the Communications Act so commercial mobile services would be treated “as a common carrier … except for such provisions of title II as the Commission may specify by regulation as inapplicable…”

The FCC commendably did forbear.  Former Chairman Reed E. Hundt would later boast in his memoir that the commission “totally deregulated the wireless industry.” He added that this was possible thanks to a Democratic Congress and former Vice President Al Gore’s tie-breaking Senate vote. Continue reading →

How Much Tax?

by on October 30, 2014 · 0 comments

As I and others have recently noted, if the Federal Communications Commission reclassifies broadband Internet access as a “telecommunications” service, broadband would automatically become subject to the federal Universal Service tax—currently 16.1%, or more than twice the highest state sales tax (California–7.5%), according to the Tax Foundation.

Erik Telford, writing in The Detroit News, has reached a similar conclusion.

U.S. wireline broadband revenue rose to $43 billion in 2012 from $41 billion in 2011, according to one estimate. “Total U.S. mobile data revenue hit $90 billion in 2013 and is expected to rise above $100 billion this year,” according to another estimate.  Assuming that the wireline and wireless broadband industries as a whole earn approximately $150 billion this year, the current 16.1% Universal Service Contribution Factor would generate over $24 billion in new revenue for government programs administered by the FCC if broadband were defined as a telecommunications service.

The Census Bureau reports that there were approximately 90 million households with Internet use at home in 2012. Wireline broadband providers would have to collect approximately $89 from each one of those households in order to satisfy a 16.1% tax liability on earnings of $50 billion. There were over 117 million smartphone users over the age of 15 in 2011, according to the Census Bureau. Smartphones would account for the bulk of mobile data revenue. Mobile broadband providers would have to collect approximately $137 from each of those smartphone users to shoulder a tax liability of 16.1% on earnings of $100 billion. Continue reading →