Keeping politicians' hands off the Net & everything else related to technology
The Smoking Gun and Miami Herald report that a Miami International Airport TSA worker has been arrested for beating up a co-worker who joked about his endowment after observing the assailant walk through a whole-body imager or “strip-search machine.”
A recent study by Cecil Bohanon and Michael Hicks at Ball State University’s Digital Policy Institute found that statewide cable franchising has increased broadband deployment.
Half of the US states have now enacted legislation that creates statewide cable franchising. These laws allow new entrants into the video business (principally the phone companies) to get permission to offer video from the state, instead of having to deal with local governments to get cable franchises. Previous research, much of it cited here, found that cable competition reduces cable rates and expands the number of channels available to subscribers. Local franchising often delayed or prevented new competitors from entering the market.
Since the same wires get used to transmit video, telephone, and broadband, Bohanon and Hicks reasoned that opening up entry into cable would also increase competition in broadband and hence increase broadband subscribership. And that’s precisely what their econometric study finds. After controlling for other factors, broadband subscribership is 2-5 percent higher in states that have statewide video franchising. Based on this finding, Bohanon and Hicks estimate that statewide video franchising increased broadband subscribership by about 5 million.
Their study covers the years 1999-2008. Maybe some of these 5 million would eventually have gotten broadband anyway. At worst, this study shows that 5 million subscribers got broadband sooner than they otherwise would have.
The study does not test whether the increase in broadband subscribership occurred because statewide video franchising sped up investment and deployment of infrastructure, or if it simply spurred competition in places where phone and cable companies already had the relevant infrastructure deployed. I don’t know how one would get the confidential data on broadband investment in order to test this. But given the large amount of new investment related to broadband, I’d be willing to bet that statewide franchising encouraged both new broadband deployment and more intense competition where infrastructure was already in place.
No, I’m not here to tell you more about the “supersized” FTC. Berin has done yeoman’s work to highlight that issue, among other things with the PFF event you can review here. On TechDirt, Mike Masnick wrote this morning about how the feds are itching to regulate the Internet.
This is about the direct government invasions of privacy likely to occur if S. 3217 passes. On the Cato@Liberty blog I write about the detailed financial market research that new regulatory agencies would do—research aimed at you.
Example:
Section 1071(b) requires any deposit-taking financial institution to geo-code customer addresses and maintain records of deposits for at least three years. Think of the government having its own Google map of where you and your neighbors do your banking. The Bureau [of Consumer Financial Protection] may “use the data for any other purpose as permitted by law,” such as handing it off to other bureaus, like the Federal Bureau of Investigation.
“Washington, D.C. has determined that Washington, D.C. should manage the financial services industry. Your personal and private financial affairs will be managed there too.”
What would I say about my own writing but read the whole thing?
What makes a joke funny is that there is often a kernel of underlying truth. And when Senator Rockefeller quipped that COPPA’s age should be extended beyond 12 to age 18, or even 25, nervous laughter followed. Because unfortunately there’s existing movement afoot from some advocates to expand COPPA’s reach and scope to adolescents.
I attended this morning’s Congressional hearing on the Children’s Online Privacy Protection Act (COPPA), where I heard TLF’s own Berin Szoka deliver masterful testimony. Based on what we heard at the hearing, we’ll have to be on the lookout for efforts to create a new privacy regime for adolescents (13-17).
Senate Commerce (Consumer Protection Subcommittee) heard testimony from Facebook, Microsoft, PFF, Kathryn Montgomery, EPIC, and the FTC. Members at the hearing were: Rockefeller, Pryor, Wicker, and Klobuchar. The hearing was convened to learn about how new technologies impact children privacy in the context of the FTC’s current review of COPPA. Through the prepared testimony, it was clear that there were two camps for the role of Congress:
1. Congress doesn’t need to amend or propose new legislation. The FTC has sufficient authority to make changes to COPPA, as only minor changes are needed Continue reading →
I write in “The Laws of Disruption” of the risk of unintended consequences that regulators run in legislating emerging technologies. Because the pace of change for these technologies is so much faster than it is for law, the likelihood of defining a legal problem and crafting a solution that will address it is very slim. I give several examples in the book of regulatory actions that quickly become not just obsolete but, worse, wind up having the opposite result to what regulators intended.
An unfortunate example of that problem in the news quite a bit lately is the Electronic Communications Privacy Act or ECPA. (My first published legal scholarship, in 1994, was an article about a provision of ECPA that allowed law enforcement officers to use evidence they came across by accident in the course of an otherwise lawful wiretap, see “Electronic Communications and the Plain View Exception: More ‘Bad Physics.’”)
Passed in 1986, ECPA at the time was a model of smart lawmaking in response to changing technologies. It updated the federal wiretap statute, known as Title III, to take into account the rise of cellular technologies and electronic messages–which didn’t exist when the original law was passed in 1968.
The Washington Post carried an article earlier this week by Cecilia Kang that noted the Federal Trade Commission could gain enforcement power over online businesses as a result of the financial services legislation under discussion in Congress. Ms. Kang contrasted the possibility of an empowered FTC issuing fast-track regulations against the recent experience of the Federal Communications Commission, which has become bogged down in its search for legal authority to issue net neutrality regulations.
The comparison is insightful, but not for the reasons you might expect. Part of the debate over the FTC revolves around language in the House financial services bill that would repeal the “Magnuson-Moss” provisions that govern FTC promulgation of consumer protection regulations. (The name comes from the fact that these restrictions on FTC rulemaking were included in the Magnuson-Moss Warranty Act, which got the FTC into the business of regulating car warranties.)
If the FTC wants to regulate some type of general business practice under the FTC Act, it has to establish a factual record substantiating that there is actually a systemic problem that regulation can solve, hold a public hearing, allow cross-examination on factual matters, and conduct an economic analysis of the regulation’s effects. In short, the commission has to do the homework necessary to demonstrate that its proposed regulation will actually solve a widespread problem that actually exists.
When Tim Muris directed the FTC’s Bureau of Consumer Protection in the early 1980s, he authored an article in Regulation magazine pointing out that when the FTC does careful analysis before issuing a rule, the rule is more likely to benefit consumers, more likely to be upheld in court, and more likely to be issued expeditiously. He contrasted the evidence-based eyeglass rule, which took three years to issue, with the anecdote-based funeral rule, which took ten. Muris noted wryly, “Some critics of my position charge that it is revolutionary to ask a body of lawyers and economists not to impose its own view of proper regulation on the world without first systematically evaluating the problem.” Muris went on to serve as chairman of the FTC between 2001-04, and last month he defended the Magnuson-Moss restrictions in testimony before Congress.
What does this have to do with the FCC? The FCC lost its case against Comcast on appeal, precisely because the FCC tried to take shortcuts. The FCC tried to promote net neutrality by enforcing a set of “principles” that originated in a former chairman’s speech and were never promulgated in a notice-and-comment rulemaking. The FCC commissioners endorsed these principles without investigating whether there was a systemic problem (ie, more than a few anecdotes of misbehavior). Indeed, Chairman Martin’s Notice of Inquiry on “Broadband Industry Practices” that was launched around the same time the FCC took its enforcement action against Comcast turned up no evidence of a systemic problem. If the FCC now tries to impose net neutrality by reclassifying broadband as a “Title II” common carrier, it will have to do the difficult but necessary work of demonstrating, with real factual evidence, that broadband is more like a common carrier than like the lightly-regulated “information service” the commission previously decided it was.
We don’t need Congress to free the FTC from Magnuson-Moss. Instead, Congress should impose the same requirements on the FCC. Sometimes, taking the time to do your homework leads to better decisions, sooner.
Wired‘s Ryan Singel has given a read to Cyberwar, the new cybersecurity book by Richard Clarke and Robert Knake. (I picked out a potential example of actual cyberwarfare in a Glenn Reynolds review of the book last week.)
Singel—a journalist who has been a sophisticated reporter of computer security issues for years now—is not impressed with the book or the reviews it has gotten. In his review, Richard Clarke’s Cyberwar: File Under Fiction, he writes:
So much of Clarke’s evidence is either easily debunked with a Google search, or so defies common sense, that you’d think reviewers of the book would dismiss it outright. Instead, they seem content to quote the book liberally and accept his premise that cyberwar could flatten the United States, and no one in power cares at all. Of course, the debunking would be easier if the book had footnotes or endnotes, but neither are included — Revelation doesn’t need sources.
It’s brief enough, and refreshing enough. I say read the whole thing.
Sober assessments of computer, network, and data security are far less interesting than the thrillers that would drive Washington policymakers to overreact. This report in Government Computer News, for example, relates the findings of a recent Symantec report on threats to government systems and gives reason to settle down about cyberthreats from China.
China was the top country of origin for attacks against the government sector in 2009, accounting for 14 percent of the total, but too much should not be read into that statistic. The apparent country of origin says little about who actually is behind an attack, said Dean Turner, director of Symantec’s Global Intelligence Network.
China’s ranking is due primarily to the large number of computers in the country, Turner said. Less than a quarter of attacks originating in China were directed at government targets, while more than 48 percent of attacks from Brazil — No. 3 on the hit list — were directed at government. This makes it unlikely that China is specifically targeting government systems.
Compromised computers that are the apparent source of attacks often are controlled from elsewhere, and an attack apparently emanating from China does not necessarily mean that the Chinese government, or even anyone in China, is behind it. Attribution of attacks is notoriously difficult, and statistics do not necessarily indicate that the United States is under cyberattack by China. In fact, the United States ranked second in origin of government attacks in 2009, accounting for 11 percent.
(Symantec is a vendor to governments, so naturally prone to threat inflation itself. GCN reporter William Jackson deserves credit for the sobriety of the story.)
Cybersecurity-related fearmongering could drive unnecessary dischord between the United States and China, leading to actual conflict where none is warranted. Singel again:
[A]rtists of exaggeration . . . seem to think spinning tall tales is the only way to make bureaucracies move in the right direction. But yelling ‘Cyberwar’ in a crowded internet is not without consequence. Not only does it promote unnecessary fear, it feeds the forces of parochial nationalism and militarism — undermining a communications system that has arguably done more to connect the world’s citizens than the last 50 years of diplomacy.
Wine (and beer) lovers who want to order hard-to-get vintages online have benefited greatly from federal court decisions that say state alcohol laws cannot discriminate against out-of-state sellers. Federal legislation introduced last week could threaten electronic commerce as it further entrenches middlemen who normally profit from every bottle of alcohol that passes from producers to consumers.
To understand what’s going on, you have to know something about Commerce Clause litigation. I’m not a lawyer, though I once played the teetotaling William Jennings Bryan character in a high school production of Inherit the Wind. This proves my motives are pure. And since a lot of lawyers practice economics without a license, I figure I’ll return the favor.
The Commerce Clause of the US Constitution says that Congress, not the states, can regulate interstate commerce. A longstanding judicial interpretation, the “dormant” Commerce Clause, holds that if Congress has not chosen to regulate some aspect of interstate commerce, that means Congress doesn’t want the states to regulate it either. So, normally a state can regulate interstate commerce only if Congress has given explicit permission.
If state law discriminates against out-of-state sellers who compete with in-state sellers, the state is regulating interstate commerce. A state is not allowed to do this unless it can prove the discrimination is necessary to accomplish some clear state purpose that cannot be accomplished in some other way. States have to present evidence that proves these points, not just make arguments.
The 21st Amendment, which repealed Prohibition, gave states the right to regulate alcohol. Recent court cases involving direct wine shipment clarified that when states regulate alcohol, they must still obey the Commerce Clause. This makes good sense. Imagine if the 21st Amendment freed states from the rest of the Constitution when they regulate alcohol. The police could break into your house without warning if they imagined you might give your 20-year-old a beer, but they’d still need a search warrant if they thought you were cooking meth.
In Granholm v. Heald (2005), the Surpeme Court said that states could either allow in-state and out-of-state sellers to ship wine directly to consumers, or prohibit it for both, but states couldn’t ban direct shipment for out-of-state sellers and allow it for in-state sellers. In response, most states have liberalized their direct shipment laws rather than making them more restrictive. In Family Wine Makers of California v. Jenkins (2008), federal courts said that an ostensibly neutral law that had a discriminatory effect on out-of-state sellers was also unconstitutional. Massachusetts had enacted a law that allowed only wineries producing 30,000 gallons or less to ship directly to consumers; the production cap was large enough to allow all in-state wineries to direct ship but small enough to exclude 637 larger out-of-state wineries that produce 98 percent of all wine in the United States. The judge’s opinion essentially said, “By their fruits you shall know them,” and it reserved special grapes of wrath for the blatantly protectionist motives voiced by advocates of the law. Massachusetts appealed this decision to the First Circuit Court of Appeals, lost, and on April 12 decided not to appeal to the Supreme Court.
On April 15, Massachusetts Rep. Bill Delahunt introduced federal legislation that would turn alcoholic Commerce Clause litigation sideways. The legislation makes four big changes in the rules of the game:
Word on the street is that the biggest pushers of this legislation are the beer wholesalers. Since most of this litigation has involved wine, what’s going on here?
The real goal of this legislation is not harrassing wineries that want to ship a few bottles to out-of-state customers. The real goal is to preserve anti-competitive state laws that force brewers, wine makers, and distillers to market most of their product through beer, wine, and spirits wholesalers, instead of marketing directly to retailers and restaurants. The proposed legislation would effectively insulate these state laws from challenge under the Commerce Clause, federal antitrust laws, or any other federal laws that might give alcohol producers and consumers some leverage to break the wholesalers’ lock on the market.
Call it states’ rights kool-aid with a chaser of economic protectionism. A strange brew indeed.
Secrecy breeds suspicion, and little in the intellectual property area has garnered more suspicion than ACTA, the Anti-Counterfeiting Trade Agreement.
ACTA is a multilateral trade agreement that has been under negotiation since 2007. But the negotiations haven’t been public, and access to key documents has only been provided to people willing to sign a non-disclosure agreement.
It is inconsistent with the U.S. public’s expectations to have government officials negotiate public policies without providing public access to the deliberations and the documents. There are some limitations and exceptions to this principle. Generic diplomatic relations probably develop best in an environment where candor can prevail. Issues related to national security may require secret negotiations. But intellectual property issues affect all Americans’ communications, commerce, entertainment, expression, access to knowledge, medical care, privacy, and more.
The good news is that a text of the current draft agreement has now been released. According to James Love of Knowledge Ecology International, ACTA “goes way beyond counterfeiting and copyright piracy, into several categories of intellectual property rights, including patents, semi conductor chip designs, pharmaceutical test data and other topics.”
Public debate on ACTA can now begin, but it begins with doubts surrounding it, doubts that were sown by the non-public process in which ACTA has developed so far.
Last week the D.C. Circuit Court of Appeals ruled that the Federal Communications Commission cannot impose net neutrality rules on broadband providers under its “ancillary jurisdiction” under the Communications Act. If it wants to impose net neutrality, the FCC must first reverse previous decisions and reclassify broadband as a “Title II” common carrier.
Whoa! The previous two sentences prove that this economist has been spending way too much time around telecom lawyers.
In almost-plain English, the court decision means the FCC cannot impose net neutrality regulations unless it publicly changes its five-headed mind and decides that broadband is much like an old-fashioned telephone monopoly and should be regulated much the same way.
A lot of regulatory economists pretty much gag at this idea, or worse. Non-economists wonder what triggers this visceral reaction.
Let me explain. As the recipient of 8 years of excellent Jesuit education, of course I have three reasons.
First, anyone who follows the scholarly literature on economic regulation generally knows that this form of regulation has a pretty checkered track record. In a wide variety of industries, economic regulation has increased prices, inflated costs, stunted innovation, and/or created shortages. In addition, because this regulation transfers enormous amounts of wealth — $75 billion annually in the case of federal telecommunications regulation — it creates enormous incentives for firms to lobby and litigate to bend the rules in their favor. While big corporations may feel they benefit from these expenditures, from a society-wide perspective the fight over wealth transfers is pure waste because it rarely produces anything of value for consumers.
Utility regulation works best in relatively stangant industries where a company makes a big capital investment, pays a few employees to run it, and doesn’t need to innovate much. In those kinds of situations, it’s easier for regulators and other outsiders to determine costs, set some rates that let the utility earn a reasonable rate of return, and keep the regulated company from gaming the system too much. If you think this describes broadband, well, good luck. A local water utility is probably the best example.
Second, anyone knowledgeable about the economic theory underlying utility regulation (which includes most economists who specialize in the area, and some lawyers) understands that regulation is supposed to be a last resort for “natural monopoly” industries where it’s cheaper to have one firm serve the entire market. A monopolist protected from competition could increase prices, degrade service, or do other things that increase its profits while harming consumers; economic regulation seeks to prevent those behaviors. But if competition is possible, competition is preferable.
When phone, cable, wireless, and satellite companies bombard us continually with solicitations to switch to their broadband services, and I can see multiple wires running down the street outside my house when I go up on the roof to adjust the satellite dish, it’s pretty darn obvious that broadband is NOT a natural monopoly, even if competition isn’t “perfect.” Therefore, broadband lacks a key prerequisite for public utility regulation to possibly increase consumer welfare. Indeed, the most anti-consumer results of economic regulation have occurred when government created monopolies, cartels and/or shortages by imposing this regulation on industries where competition is possible, such as cable TV, trucking, railroads, airlines, oil, and natural gas.
Third, recent economic studies find that the FCC’s decision to classify cable, DSL, and fiber broadband as a less-heavily-regulated “information service” generated a tsunami of investment and spurred competition. See, for example, this study by my GMU colleagues Thomas Hazlett and Anil Caliskan. Some more cites are available on pp. 17-18 of this comment to the FCC. If you don’t believe economic studies, just keep in mind that the aggressive marketing of dirt-cheap entry-level DSL tracks pretty closely with the FCC’s decision that DSL is an information service not subject to Title II regulation. Coincidence?
So, please excuse those of us regulatory economists who vomit when the subject of Title II comes up. If you check out the links above, perhaps the reaction will be more understandable.
I have not addressed the question of whether it’s realistic to think that reclassification of broadband under Title II could be a workable mechanism to impose just a limited, targeted, surgical, light-handed, smart, data-driven, evidence-based, transparent, transformative, sustainable, green, hybrid, itsy bitsy teenie weeny yellow polka-dot bikini smidgen of net neutrality regulation to prevent only certain forms of anti-consumer discrimination, without imposing the customary broad panpoly of public utility price and service regulation. Whether that’s possible in theory, or likely in real-world political practice, is a different issue for a different day. (Whether the other name for that kind of regulation is “antitrust” is also a different issue for a different day.) For the moment, I just wanted to provide some context on the broader Title II issue.
And now I’ll go clean off my shoes.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.
