Miscellaneous

Is the FCC jumping the gun on broadband and the universal service fund?

by on December 2, 2009 · 0 comments

In a speech yesterday, FCC Chairman Julius Genachowski pledged to revisit the Federal Communications Commission’s universal service programs for telecommunications as part of the National Broadband Plan: 

 The key points for today are these: USF is a multi-billion dollar annual fund that continues to support yesterday’s communications infrastructure. The goal of universality is as important as ever — and to meet our country’s innovation goals, we need to reorient the fund to support broadband communications. This is a thorny issue, with no shortage of practical and statutory challenges. We need to wring savings out of the system, protect consumers, avoid flashcuts, while ultimately moving USF in the direction it needs to go to support our 21st century platform for innovation. 

The USF program spends approximately $7 billion annually. Most of the money goes to subsidize phone service in “high cost” areas. Eeuww – phone service.  So twentieth century! All of us who have not yet shifted 100% of our personal communications to Facebook and Twitter pay for the universal service fund via surcharges of about 12 percent on our wireless and  wireline phone bills, including VOIP. (Dirty little secret: you also pay for universal telephone service if you use a wireless broadband card, because each card is assigned a phone number.) 

Genachowski’s comment follows some rather interestingly-timed announcements from the FCC’s broadband task force. On November 13, the task force asked for public comment on the role the universal service fund and “intercarrier compensation” (another, more opaque set of transfers from consumers in general to rural phone companies) should play in the national broadband plan. Comments are due December 7. Five days after soliciting comments, on November 18, the FCC announced that the structure of the universal service fund is one of the “critical gaps” in the path to universal broadband.

I doubt the FCC has telepathically determined what the parties will say in the comments they file on December 7, but there’s no need to. The FCC has ground through so many rounds of comments on universal service reform that the problems and potential solutions are well-known. At a conference on universal service about five years ago, I recall one speaker commented, “Everything that can be said about universal service has already been said, but not everyone’s had a chance to say it, so that’s why we still have conferences on it.” About a year ago, the FCC almost used a court-imposed deadline as an opportunity to actually reform universal service and intercarrier compensation, but the commissioners failed to reach consensus.

Here are some major problems with the universal service fund, in no particular order:

  • It subsidizes voice phone service with built-in incentives for inefficiency on the part of providers.
  • It subsidizes wireless voice service without limiting the subsidy to one essential connection per household, so it has effectively created an entitlement to both wired and mobile phone service in rural areas.
  • The FCC does not measure or track the outcomes produced by the subsidies to see what they actually accomplish for the public. (Section 201 of the draft Boucher-Terry USF reform bill would require the FCC to adopt outcome-oriented performance measures.)
  • The contribution mechanism acts like a percentage tax that discourages use of price-sensitive services like long-distance, wireless voice, and wireless broadband.
  • The “death of distance” has slashed long-distance phone charges, which means wireless bears a growing percentage of the burden and the funding mechanism may well be unsustainable.

(For more detail on these issues, read the assortment comments on USF reform by various Mercatus Center colleagues and me here, here, here, here, here, here, here, here, here, and here. BTW, did I mention this issue has been beaten to death?)

So is the FCC jumping the gun, rushing to judgment on universal service before the comments are in?  Heck no. It’s about time.

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Who’s Going Mobile (on the Internet)?

by on December 1, 2009 · 12 comments

We all know those “hyper-users” that are constantly connected with their cell phones, smartphones, or other mobile device. Often, they’re the person next to you on the metro or standing in line. Often, they’re young. And according to a new Pew report, most of these young hyper-users are young Latinos and blacks.

NPR had a great segment this morning about the Pew Hispanic Center study. It discussed the “digital divide” and the lack of computers in homes of minority populations. In an interesting twist, the Pew study says that many minorities are just skipping the home computer and upgrading their cell phone plans for data use.

Mobile devices are a great example of leapfrog technology. Who needs a desktop or a laptop when your phone is almost as powerful (and arguably even more useful)?

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Once Again, Power Laws Rule all Media & Digital Inequality is Unavoidable

by on November 29, 2009 · 14 comments

Facebook power lawPerfect media equality is impossible.  There has never been anything close to “equal outcomes” when it comes to the distribution or relative success of old media: books, magazines, music, movies, book, theater tickets, etc.  A small handful of titles have always dominated, usually according to a classic “power law” or “80-20? distribution, with roughly 20% of the titles getting 80% of the traffic / revenue.

But here’s the really interesting thing: This trend is increasing, not decreasing, for newer and more “democratic” online media.  As I pointed out in two previous essays [“YouTube, Power Laws & the Persistence of Media Inequality” & “Cuban on Fragmentation & Attention in the Blogosphere (or Why Power Laws Really Do Govern All Media)”], there is solid evidence that blogs, YouTube, Twitter, and other digital media outlets and platforms not only follow a classic power law distribution but that the distribution is even more heavily skewed toward the “fat head” of the distribution curve, not “the long tail” of it.

The latest evidence of the persistence of power laws across media comes from Facebook. Erick Schonfeld has a new essay up at TechCrunch (“It’s Not Easy Being Popular. 77 Percent Of Facebook Fan Pages Have Under 1,000 Fans“) highlighting some new findings from an upcoming report by Sysomos, a social media monitoring and analytics firm. Here’s the summary from Schonfeld: Continue reading →

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Mistaken Moral Equivalency

by on November 25, 2009 · 17 comments

Former Google executive turned Obama administration deputy chief technology officer Andrew McLaughlin made some unfortunate comments at a law school technology conference last week equating private network management to government censorship as it is practiced in China.

By many accounts, President Obama’s visit to China was unimpressive. It apparently included a press conference at which no questions were allowed and government censorship of the president’s anti-censorship comments. On its heels, McLaughlin equated Chinese government censorship with network management by U.S. Internet service providers.

“If it bothers you that the China government does it, it should bother you when your cable company does it,” McLaughlin said. That line is wrong on at least two counts.

First, your cable company doesn’t do it. There have been two cases in which ISPs interfered with traffic in ways that are generally regarded as wrongful. Comcast slowed down BitTorrent file sharing traffic in some places for a period of time, did a poor job of disclosing it, and relented when the practice came to light. (People who don’t know the facts will argue that the FCC stepped in, but market pressures had solved the problem before the FCC did anything.) The second was a 2005 case in which a North Carolina phone company/ISP called Madison River Communications allegedly blocked Vonnage VoIP traffic.

In neither of these anecdotes did the ISP degrade Internet traffic because of its content—because of the information any person was trying to communicate to another. Comcast was trying to make sure that its customers could get access to the Internet despite some bandwidth hogs on its network. Madison River was apparently trying to keep people using its telephone lines rather than making Internet phone calls. That’s a market no-no, but not censorship.

Second, if the latter were happening, Chinese government censorship and corporate censorship would have no moral equivalency. In a free country, the manager of a private network can say to customers, “You may not transmit certain messages over our network.” People who don’t like that contract term can go to other networks, and they surely would. (Tim Lee’s paper, The Durable Internet: Preserving Network Neutrality Without Regulation, shows that ownership of networks and platforms does not equate to control of their content.)

When the government of China forces networks and platforms to remove content that it doesn’t like, that demand comes ultimately from the end of a gun. Governments like China’s imprison and kill their people for expressing disfavored views and for organizing to live freer lives. This has no relationship to cable companies’ network management practices, even when these ISPs deviate from consumer demand.

McLaughlin is a professional colleague who has my esteem. I defended Google’s involvement in the Chinese market during his tenure there. But if he lacks grounding in the fundamentals of freedom—thinking that private U.S. ISPs and the Chinese government are part of some undifferentiated mass of authority—I relish the chance to differ with him.

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Best Internet & Digital Technology Policy Reporters on Twitter

by on November 19, 2009 · 6 comments

Yo people, help me build this list of the best Internet and digital technology (“Info-Tech”) policy reporters on Twitter:

http://twitter.com/AdamThierer/infotech-policy-reporters/members

I’m trying to make sure I’m following the best reporters out there who cover public policy developments related to the Internet, cyberlaw, digital media, and so on. I’ve got just under 50 reporters on there currently, but I’m sure I’m missing some.  I would love to get some other suggestions about who is missing from my list, and I encourage others to follow my list if they find it a useful way to keep track of some of the best reporters on this beat.

Incidentally, I do understand it is hard to define exactly who counts as a “reporter” these days, but my general rule of thumb here is that (I think) almost everybody on my list actually gets paid to write about these issues.  In other words, I kept tech policy bloggers off this list. There’s just too many of them to count.

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Participatory Medicine via Online Social Networking

by on November 16, 2009 · 9 comments

Great NPR story today on how online social networking is helping to bring medical patients together to talk about their conditions and compare treatments.

The story quotes Susannah Fox of the Pew Internet and American Life Project:

“They are posting their first-person accounts of treatments and side effects from medications,” says Fox. “They are recording and posting those podcasts. They’re tagging content. They are part of the conversation. And that, I think, is an indicator of where we could be going in terms of the future of participatory medicine.”

For every story that talks about the bad on the Internet, there are are hundreds of positive examples about how online communities improves lives. If only we can get the doctors to use online technology more often….

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Regulatory Whack-a-Mole

by on November 11, 2009 · 0 comments

If you have any credit cards, you’ve probably received notices recently that your credit card company is going to do you some wonderful favors, like apply payments to the balances carrying the highest interest rate first. These same notices also contain changes in other contract terms that might make you worse off. One of mine, for example, tells me that henceforth my annual percentage rate on purchases will be the prime rate plue 11.99 percent, with a minimum of 17.99 percent. The company tells me this is higher than my old fixed rate. (I don’t know what it was, since I never use credit cards to borrow.)

These changes are the result of new federal regulations that were supposed to make credit card companies give us a break on certain terms and conditions. But since all of the terms and conditions of the credit card contract are not comprehensively regulated, the companies can adjust other terms to make up for the money they lose as a result of the mandated regulatory changes. Some scholars call this “term substitution.”  I call it “regulatory whack-a-mole,” after that carnival game in which you whack a mole that pops up out of a hole only to have another mole pop up out of another hole.

What does this have to do with technology policy? Term substitution is a pervasive feature of reality whenever regulators regulate some, but not all, aspects of a transaction. Since technology markets are not comprehensively regulated like public utilities, we can expect to see term substitution all over the place in technology markets in response to regulatory mandates.

If you want to find term substitution in technology markets, think of transactions that are only partially regulated: 

  • If wireless companies couldn’t charge early termination fees, we’d pay more for phones.
  • The last time the federal government tried to regulate “basic” cable rates (for your local broadcast and public affairs channels), rates for “expanded basic” and premium channels went up. 
  • Casket sales have also experienced term substitution. Responding to low-priced Internet competition and federal regulations that allow consumers to BYOB (bring your own box), funeral directors simply reduce casket prices and increase the price they charge for their services.
  • Net neutrality regulation might have this kind of effect, if it prevents network operators from charging high-bandwidth users different prices from low-bandwidth users. Forcing them to charge everyone the same, unregulated price could mean the low-bandwidth users pay more than they otherwise would.

I’m curious to hear more actual examples from readers of term substitution in technology markets.  What’s the most interesting thing you’ve seen?

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Open Source is Not the Enemy

by on November 3, 2009 · 14 comments

My colleague Jerry Brito and I are attending the annual meeting of the State Policy Network in Asheville, NC.  In the process, we’ve heard a lot of things said about open-source software that we don’t agree with, and some things that are just plain wrong.

The reasons for this are obvious.  There are a lot of folks who have an interest in talking down open-source CMS solutions—namely because they sell proprietary, closed-source systems.  But, there are non-interested parties out there who have given rave reviews to open-source solutions.  For example, Drupal and WordPress have consistently won CNET’s Webware Awards. The White House now runs on Drupal, the New York Times runs its blogs on WordPress, and sites that we have built, including those for CEI, the Mercatus Center, America’s Future Foundation, Stimulus Watch, and OpenRegs.com, are built using open source tools, and they have been very successful. Bottom line, one can’t say that using open-source software is never the answer.

So how do you decide what to use? What you have to consider are the relative merits of each approach.  Some web projects may be so unique that you’ll want to have a developer build a custom solution for you. You might also find a proprietary solutions that fits your needs perfectly. However, most public policy groups have very similar needs—publishing and promoting papers and press releases, creating profiles of their experts, highlighting past and future events, etc. For these cases, it’s very likely that there is an open-source solution available at a no cost, and with a large pool of independent developers who can implement it for you. And it’s certainly the case that open-source solutions can be infinitely customized to meet unique needs.

The main difference we want to point out, however, is that when you choose a proprietary solution, you’re not just tied to that solution, but to a vendor as well. Look carefully at their contracts, it will be quite clear that they own the software that runs your website. If you need to change or add functionality to your site, you need to go to that particular vendor. With an open-source solution, there are hundreds of developers you can turn to. You can keep your site exactly as it is, and simply change your contractor. Your platform is not tied to any vendor.

Continue reading →

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A tisket, a tasket, no Internet casket

by on October 27, 2009 · 4 comments

Polvo Somos...
Creative Commons License photo credit: Gonzalo Fernández

Die-hard Halloween fans can find a hearse-load of ghoulish party supplies on the Internet, from Freddie Krueger window silhouettes to a severed arm that hangs from a car trunk. You could even order a casket; maybe use it as a beer cooler. 

One casket hawker on eBay named morbid611 boasted, “Will make a great Halloween prop and even keep it around the house and have fun with it when you have company over [!]  When your neighbors have their cardboard caskets or home made bulky looking box caskets they won’t be able to compare to your real casket.” (Emphasis added. In case you’re curious, the winning bid was $285.)

Unfortunately, in my home state of Virginia, it’s questionable whether I can order one via the Internet. That’s because Virginia is one of  a handful of states that prohibit anyone other than licensed funeral directors from selling caskets. I’m not sure how strictly this prohibition is enforced, though. Some online casket sellers claim they will ship anywhere, but Costco’s casket supplier won’t ship to Virginia.

The evidence is mixed on whether these restrictions increase overall funeral prices. In a 2008 study published in the Journal of Law & Economics, Judith Chevalier and Fiona Scott Morton found that funeral directors who face competition from independent casket retailers simply lower their casket prices and increase their prices for other services by about the same amount.  But the funeral directors’ casket prices still don’t match online prices.  The authors calculate that a simple funeral with a wooden casket would cost about $360 less if the customer purchased the casket online.

Dan Sutter, in an article published in the Journal of Law, Economics, and Policy in 2007, reached similarly mixed conclusions. He found that casket sales restrictions do not affect average receipts per death in the funeral industry (one measure of funeral prices). However, three states that had their casket sales restrictions invalidated by federal courts saw receipts per death fall more rapidly between 1997 and 2002 than states where these regulations remained in effect. In a 2005 study published in the Journal of Private Enterprise, Sutter found that Oklahoma funeral homes charged an average of 68 percent more than an Oklahoma-based Internet retailer charged for the same caskets.

It’s clear that consumers could save money by buying caskets online. Since not many consumers do, researchers have not found that the online competition has reduced funeral directors’ overall revenues in states where this competition is legal.

But this may change over time. Personally, I plan to haunt my family mercilessly if they end up drinking cheap booze at my wake because they overpaid for my casket!

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No wine from Amazon for now

by on October 27, 2009 · 0 comments

A recent article by Lisa Carley in the New York Wine Examiner reports that Amazon is suspending plans that would have allowed wine producers to sell direct to consumers.  The culprit? State regulations:

One of the main reasons why this program has been put on hold is the complexity of wine-shipping laws within the United States, and that fact that the major wholesalers spend millions of dollars on the state level to keep it difficult for the consumer to have access to wine they want at good prices.

About 35 states permit some form of direct shipment to consumers, but laws vary greatly. In Virginia, consumers can order wine from any winery or retailer licensed in any state, as long as the seller registers with the state of Virginia and collects taxes. In Maryland, direct shipment of wine to consumers is still a felony. Montana limits the total amount of wine any consumer can order to 12 cases per year, which means most wineries won’t ship there because an individual winery has no way of knowing how much wine the consumer has ordered from other sellers. I’m not making this stuff up; check the Wine Institute’s compendium of state laws.

In several studies, Alan Wiseman and I found that consumers can enjoy significant savings on higher-priced wines if they order online.  (The savings disappear for wines priced under $20 per bottle because of shipping costs.) The Internet also gives consumers access to wines that they might not find by simply walking into a store.   

It would be a shame to see Amazon’s idea die. Currently, a winery or retailer that wants to ship directly to consumers has to figure out and comply with each state’s laws. It makes a lot of sense that a single retail sales portal could consolidate and continuously update this information, then set up a system that lets any seller market its wine direct to consumers in states where that’s legal, in compliance with all state laws.

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