Telecom & Cable Regulation

Innovation policy in Arizona

by on June 17, 2021 · 0 comments

I write about telecom and tech policy and have found that lawmakers and regulators are eager to learn about new technologies. That said, I find that good tech policies usually die of neglect as lawmakers and lobbyists get busy patching up or growing “legacy” policy areas, like public pensions, income taxes, Medicare, school financing, and so forth. So it was a pleasant surprise this spring to see Arizona lawmakers prioritize and pass several laws that anticipate and encourage brand-new technologies and industries.

Flying cars, autonomous vehicles, telehealth–legislating in any one of these novel legal areas is noteworthy. New laws in all of these areas, plus other tech areas, as Arizona did in 2021, is a huge achievement and an invitation to entrepreneurs and industry to build in Arizona.

Re: AVs and telehealth, Arizona was already a national leader in autonomous vehicles and Gov. Ducey in 2015 created the first (to my knowledge) statewide AV task force, something that was imitated nationwide. A new law codifies some of those executive orders and establishes safety rules for testing and commercializing AVs. Another law liberalizes and mainstreams telehealth as an alternative to in-person doctor visits. 

A few highlights about new Arizona laws on legal areas I’ve followed more closely:

  1. Urban air mobility and passenger drones

Arizona lawmakers passed a law (HB 2485) creating an Urban Air Mobility study committee. 26 members of public and private representatives are charged with evaluating current regulations that affect and impede the urban air mobility industry and making recommendations to lawmakers. “Urban air mobility” refers to the growing aviation industry devoted to new, small aircraft designs, including eVTOL and passenger drones, for the air taxi industry. Despite the name, urban air mobility includes intra-city (say, central business district to airport) aviation as well as regional aviation between small cities.

The law is well timed. The US Air Force is giving eVTOL aircraft companies access to military airspace and facilities this year, in part to jumpstart the US commercial eVTOL industry, and NASA recently released a new study (PDF) about regional aviation and technology. NASA and the FAA last year also endorsed the idea of urban air mobility corridors and it’s part of the national strategy for new aviation.

The federal government partnering with cities and state DOTs in the next few years to study air taxis and to test the corridor concept. This Arizona study committee might be to identify possible UAM aerial corridors in the state and cargo missions for experimental UAM flights. They could also identify the regulatory and zoning obstacles to, say, constructing or retrofitting a 2-story air taxi vertiport in downtown Phoenix or Tucson.

Several states have drone advisory committees but this law makes Arizona a trailblazer nationally when it comes to urban air mobility. Very few states have made this a legislative priority: In May 2020 Oklahoma law created a task force to examine autonomous vehicle and passenger drones. Texas joined Oklahoma and Arizona on this front–this week Gov. Abbot signed a similar law creating an urban air mobility committee.

  1. Smart corridor and broadband infrastructure construction

Infrastructure companies nationwide are begging state and local officials to allow them to build along roadways. These “smart road” projects include installing 5G antennas, fiber optics, lidar, GPS nodes, and other technologies for broadband or for connected and autonomous vehicles. To respond to that trend, Arizona passed a law (HB 2596) on May 10 that allows the state DOT–solely or via public-private partnership–to construct and lease out roadside passive infrastructure.

In particular, the new law allows the state DOT to construct, manage, and lease out passive “telecommunication facilities”–not simply conduit, which was allowed under existing law. “Telecommunication facilities” is defined broadly:

Any cable, line, fiber, wire, conduit, innerduct, access manhole, handhole, tower, hut, pedestal, pole, box, transmitting equipment, receiving equipment or power equipment or any other equipment, system or device that is used to transmit, receive, produce or distribute by wireless, wireline, electronic or optical signal for communication purposes.

The new Section 28-7383 also allows the state to enter into an agreement with a public or private entity “for the purpose of using, managing or operating” these state-owned assets. Access to all infrastructure must be non-exclusive, in order to promote competition between telecom and smart city providers. Access to the rights-of-way and infrastructure must also be non-discriminatory, which prevents a public-private partner from favoring its affiliated or favored providers. 

Leasing revenues from private companies using the roadside infrastructure are deposited into a new Smart Corridor Trust Fund, which is used to expand the smart corridor network infrastructure. The project also means it’s easier for multiple providers to access the rights-of-way and roadside infrastructure, making it easier to deploy 5G antennas and extend fiber backhaul and Internet connectivity to rural areas.

It’s the most ambitious smart corridor and telecom infrastructure deployment program I’ve seen. There have been some smaller projects involving the competitive leasing of roadside conduit and poles, like in Lincoln, Nebraska and a proposal in Michigan, but I don’t know of any state encouraging this statewide.

For more about this topic of public-private partnerships and open-access smart corridors, you can read my law review article with Prof. Korok Ray: Smart Cities, Dumb Infrastructure.

  1. Legal protections for residents to install broadband infrastructure on their property

Finally, in May, Gov. Ducey signed a law (HB 2711) sponsored by Rep. Nutt that protects that resembles and supplements the FCC’s “over-the-air-reception-device” rules that protect homeowner installations of wireless broadband antennas. Many renters and landowners–especially in rural areas where wireless home Internet makes more sense–want to install wireless broadband antennas on their property, and this Arizona law protects them from local zoning and permitting regulations that would “unreasonably” delay or raise the cost of installation of antennas. (This is sometimes called the “pizza box rule”–the antenna is protected if it’s smaller than 1 meter diameter.) Without this state law and the FCC rules, towns and counties could and would prohibit antennas or fine residents and broadband companies for installing small broadband and TV antennas on the grounds that the antennas are an unpermitted accessory structure or zoning violation.

The FCC’s new 2021 rules are broader and protect certain types of outdoor 5G and WiFi antennas that serve multiple households. The Arizona law doesn’t extend to these “one-to-many” antennas but its protections supplement those FCC rules and clearer than FCC rules, which can directly regulate antennas but not town and city officials. Between the FCC rules and the Arizona law, Arizona households and renters have new, substantial freedom to install 5G and other wireless antennas on their rooftops, balconies, and yard poles. In rural areas especially this will help get infrastructure and small broadband antennas installed quickly on private property.

Too often, policy debates by state lawmakers and agencies are dominated by incremental reforms of longstanding issues and established industries. Very few states plant the seeds–via policy and law–for promotion of new industries. Passenger drones, smart corridors, autonomous vehicles, and drone delivery are maturing as technologies. Preparing for those industries signals to companies and their investors that innovation, legal clarity, and investment is a priority for the state. Hopefully other states will take Arizona’s lead and look to encouraging the industries and services of the future.

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5 Tech Policy Topics to Follow in the Biden Administration and 117th Congress

by on November 12, 2020 · 0 comments

In a five-part series at the American Action Forum, I presented prior to the 2020 presidential election the candidates’ positions on a range of tech policy topics including: the race to 5G, Section 230, antitrust, and the sharing economy. Now that the election is over, it is time to examine what topics in tech policy will gain more attention and how the debate around various tech policy issues may change. In no particular order, here are five key tech policy issues to be aware of heading into a new administration and a new Congress. 

The Use of Soft Law for Tech Policy 

In 2021, it is likely America will still have a divided government with Democrats controlling the White House and House of Representatives and Republicans expected to narrowly control the Senate. The result of a divided government, particularly between the two houses of Congress, will likely be that many tech policy proposals face logjams. The result will likely be that many of the questions of tech policy lack the legislation or hard law framework that might be desired. As a result, we are likely to continue to see “soft law”—regulation by various sub-regulatory means such as guidance documents, workshops, and industry consultations—rather than formal action. While it appears we will see more formal regulatory action from the administrative state as well in a Biden Administration, these actions require quite a process through comments and formal or informal rulemaking. As technology continues to accelerate, many agencies turn to soft law to avoid “pacing problems” where policy cannot react as quickly as technology and rules may be outdated by the time they go into effect. 

A soft law approach can be preferable to a hard law approach as it is often able to better adapt to rapidly changing technologies. Policymakers in this new administration, however, should work to ensure that they are using this tool in a way that enables innovation and that appropriate safeguards ensure that these actions do not become a crushing regulatory burden. 

Return of the Net Neutrality Debate 

One key difference between President Trump and President-elect Biden’s stances on tech policy concerns whether the Federal Communication Commission (FCC) should categorize internet service providers (ISPs) as Title II “common carrier services,” thereby enabling regulations such as “net neutrality” that places additional requirements on how these service providers can prioritize data. President-elect Biden has been clear in the past that he favors reinstating net neutrality. 

The imposition of this classification and regulations occurred during the Obama Administration and the FCC removed both the classification under Title II and the additional regulations for “net neutrality” during the Trump Administration. Critics of these changes made many hyperbolic claims at the time such as that Netflix would be interrupted or that ISPs would use the freedom in a world without net neutrality to block abortion resources or pro-feminist groups. These concerns have proven to be misguided. If anything, the COVID-19 pandemic has shown the benefits to building a robust internet infrastructure and expanded investment that a light-touch approach has yielded. 

It is likely that net neutrality will once again be debated. Beyond just the imposition of these restrictions, a repeated change in such a key classification could create additional regulatory uncertainty and deter or delay investment and innovation in this valuable infrastructure. To overcome such concerns, congressional action could help fashion certainty in a bipartisan and balanced way to avoid a back-and-forth of such a dramatic nature. 

Debates Regarding Sharing Economy Providers’ Classification as Independent Contractors 

California voters passed Proposition 22 undoing the misguided reclassification of app-based service drivers as employees rather than independent contractors under AB5; during the campaign, however, President-elect Biden stated that he supports AB5 and called for a similar approach nationwide. Such an approach would make it more difficult on new sharing economy platforms and a wide range of independent workers (such as freelance journalists) at a time when the country is trying to recover economically.  

Changing classifications to make it more difficult to consider service providers as independent contractors makes it less likely that platforms such as Fiverr or TaskRabbit could provide platforms for individuals to offer their skills. This reclassification as employees also misunderstands the ways in which many people choose to engage in gig economy work and the advantages that flexibility has. As my AAF colleague Isabel Soto notes, the national costs of a similar approach found in the Protecting the Right to Organize (PRO) Act “could see between $3.6 billion and $12.1 billion in additional costs to businesses” at a time when many are seeking to recover during the recession. Instead, both parties should look for solutions that continue to allow the benefits of the flexible arrangements that many seek in such work, while allowing for creative solutions and opportunities for businesses that wish to provide additional benefits to workers without risking reclassification. 

Shifting Conversations and Debates Around Section 230 

Section 230 has recently faced most of its criticism from Republicans regarding allegations of anti-conservative bias. President-elect Biden, however, has also called to revoke Section 230 and to set up a taskforce regarding “Online Harassment and Abuse.” While this may seem like a positive step to resolving concerns about online content, it could also open the door to government intervention in speech that is not widely agreed upon and chip away at the liability protection for content moderation. 

For example, even though the Stop Enabling Sex Trafficking Act was targeting the heinous crime of sex trafficking (which was already not subject to Section 230 protection) was aimed at companies such as Backpage where it was known such illegal activity was being conducted, it has resulted in legitimate speech such as Craigslist personal ads being removed  and companies such as Salesforce being subjected to lawsuits for what third parties used their product for. A carveout for hate speech or misinformation would only pose more difficulties for many businesses. These terms to do not have clearly agreed-upon meanings and often require far more nuanced understanding for content moderation decisions. To enforce changes that limit online speech even on distasteful and hateful language in the United States would dramatically change the interpretation of the First Amendment that has ruled such speech is still protected and would result in significant intrusion by the government for it to be truly enforced. For example, in the UK, an average of nine people a day were questioned or arrested over offensive or harassing “trolling” in online posts, messages, or forums under a law targeting online harassment and abuse such as what the taskforce would be expected to consider. 

Online speech has provided new ways to connect, and Section 230 keeps the barriers to entry low. It is fair to be concerned about the impact of negative behavior, but policymakers should also recognize the impact that online spaces have had on allowing marginalized communities to connect and be concerned about the unintended consequences changes to Section 230 could have. 

Continued Antitrust Scrutiny of “Big Tech” 

One part of the “techlash” that shows no sign of diminishing in the new administration or new Congress is using antitrust to go after “Big Tech.” While it remains to be seen if the Biden Department of Justice will continue the current case against Google, there are indications that they and congressional Democrats will continue to go after these successful companies with creative theories of harm that do not reflect the current standards in antitrust. 

Instead of assuming a large and popular company automatically merits competition scrutiny  or attempting to utilize antitrust to achieve policy changes for which it is an ill-fitted tool, the next administration should return to the principled approach of the consumer welfare standard. Under such an approach, antitrust is focused on consumers and not competitors. In this regard, companies would need to be shown to be dominant in their market, abusing that dominance in some ways, and harming consumers. This approach also provides an objective standard that lets companies and consumers know how actions will be considered under competition law. With what is publicly known, the proposed cases against the large tech companies fail at least one element of this test. 

There will likely be a shift in some of the claimed harms, but unfortunately scrutiny of large tech companies and calls to change antitrust laws to go after these companies are likely to continue. 

Conclusion 

There are many other technology and innovation issues the next administration and Congress will see. These include not only the issues mentioned above, but emerging technologies like 5G, the Internet of Things, and autonomous vehicles. Other issues such as the digital divide provide an opportunity for policymakers on both sides of the aisle to come together and have a beneficial impact and think of creative and adaptable solutions. Hopefully, the Biden Administration and the new Congress will continue a light-touch approach that allows entrepreneurs to engage with innovative ideas and continues American leadership in the technology sector. 

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Impressions from the DOJ Workshop about Section 230

by on February 26, 2020 · 0 comments

Last week I attended the Section 230 cage match workshop at the DOJ. It was a packed house, likely because AG Bill Barr gave opening remarks. It was fortuitous timing for me: my article with Jennifer Huddleston, The Erosion of Publisher Liability in American Law, Section 230, and the Future of Online Curation, was published 24 hours before the workshop by the Oklahoma Law Review.

These were my impressions of the event:

I thought it was pretty well balanced event and surprisingly civil for such a contentious topic. There were strong Section 230 defenders and strong Section 230 critics, and several who fell in between. There were a couple cheers after a few pointed statements from panelists, but the audience didn’t seem to fall on one side or the other. I’ll add that my friend and co-blogger Neil Chilson gave an impressive presentation about how Section 230 helped make the “long tail” of beneficial Internet-based communities possible.

AG Bob Barr gave the opening remarks, which are available online. A few things jumped out. He suggested that Section 230 had its place but Internet companies are not an infant industry anymore. In his view, the courts have expanded Section 230 beyond drafters’ intent, and the Reno decision “unbalanced” the protections, which were intended to protect minors. The gist of his statement was that the law needs to be “recalibrated.”

Each of these points were disputed by one or more panelists, but the message to the Internet industry was clear: the USDOJ is scrutinizing industry concentration and its relationship to illegal and antisocial online content.

The workshop signals that there is now a large, bipartisan coalition that would like to see Section 230 “recalibrated.” The problem for this coalition is that they don’t agree on what types of content providers should be liable for and they are often at cross-purposes. The problematic content ranges from sex trafficking, to stalkers, to opiate trafficking, to revenge porn, to unfair political ads. For conservatives, social media companies take down too much content, intentionally helping progressives. For progressives, social media companies leave up too much content, unwittingly helping conservatives.

I’ve yet to hear a convincing way to modify Section 230 that (a) satisfies this shaky coalition, (b) would be practical to comply with, and (c) would be constitutional.

Now, Section 230 critics are right: the law blurs the line between publisher and conduit. But this is not unique to Internet companies. The fact is, courts (and federal agencies) blurred the publisher-conduit dichotomy for fifty years for mass media distributors and common carriers as technology and social norms changed. Some cases that illustrate the phenomenon:

In Auvil v. CBS 60 Minutes, a 1991 federal district court decision, some Washington apple growers sued some local CBS affiliates for airing allegedly defamatory programming. The federal district court dismissed the case on the grounds that the affiliates are conduits of CBS programming. Critically, the court recognized that the CBS affiliates “had the power to” exercise editorial control over the broadcast and “in fact occasionally [did] censor programming . . . for one reason or another.” Still, case dismissed. The principle has been cited by other courts. Publishers can be conduits.

Conduits can also be publishers. In 1989, Congress passed a law requiring phone providers to restrict “dial-a-porn” services to minors. Dial-a-porn companies sued. In Information Providers Coalition v. FCC, the 9th Circuit Court of Appeals held that regulated common carriers are “free under the Constitution to terminate service” to providers of indecent content. The Court relied on its decision a few years earlier in Carlin Communications noting that when a common carrier phone company is connecting thousands of subscribers simultaneously to the same content, the “phone company resembles less a common carrier than it does a small radio station.”

Many Section 230 reformers believe Section 230 mangled the common law would like to see the restoration of the publisher-conduit dichotomy. As our research shows, that dichotomy had already been blurred for decades. Until advocates and lawmakers acknowledge these legal trends and plan accordingly, the reformers risk throwing out the baby with the bathwater.

Relevant research:
Brent Skorup & Jennifer Huddleston, The Erosion of Publisher Liability in American Law, Section 230, and the Future of Online Curation (Oklahoma Law Review).

Brent Skorup & Joe Kane, The FCC and Quasi–Common Carriage: A Case Study of Agency Survival (Minnesota Journal of Law, Science & Technology).

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Locast and deteriorating TV laws

by on October 15, 2019 · 0 comments

In the US there is a tangle of communications laws that were added over decades by Congress as–one-by-one–broadcast, cable, and satellite technologies transformed the TV marketplace. The primary TV laws are from 1976, 1984, and 1992, though Congress creates minor patches when the marketplace changes and commercial negotiations start to unravel.

Congress, to its great credit, largely has left alone Internet-based TV (namely, IPTV and vMVPDs) which has created a novel “problem”–too much TV. Internet-based TV, however, for years has put stress on the kludge-y legacy legal system we have, particularly the impenetrable mix of communications and copyright laws that regulates broadcast TV distribution.

Internet-based TV does two things–it undermines the current system with regulatory arbitrage but also shows how tons of diverse TV programming can be distributed to millions of households without Congress (and the FCC and the Copyright Office) injecting politics into the TV marketplace.

Locast TV is the latest Internet-based TV distributor to threaten to unravel parts the current system. In July, broadcast programmers sued Locast (its founder, David Goodfriend) and in September, Locast filed its own suit against the broadcast programmers.

A portion of US TV regulations.

Many readers will remember the 2014 Aereo decision from the Supreme Court. Much like Aereo, Locast TV captures free broadcast TV signals in the markets it operates and transmits the programming via the Internet to viewers in that market. That said, Locast isn’t Aereo.

Aereo’s position was that it could relay broadcast signals without paying broadcasters because it wasn’t a “cable company” (a critical category in copyright law). The majority of the Supreme Court disagreed; Aereo closed up shop.

Locast has a different position: it says it can relay broadcast signals without paying because it is a nonprofit.

It’s a plausible argument. Federal copyright law has a carveout allowing “nonprofit organizations” to relay broadcast signals without payment so long as the nonprofit operates “without any purpose of direct or indirect commercial advantage.”

The broadcasters are focusing on this latter provision, that any nonprofit taking advantage of the carveout mustn’t have commercial purpose. David Goodfriend, the Locast founder, is a lawyer and professor who, apparently, sought to abide by the law. However, the broadcasters argue, his past employment and commercial ties to pay-TV companies mean that the nonprofit is operating for commercial advantage.

It’s hard to say how a court will rule. Assuming a court takes up the major issues, judges will have to decide what “indirect commercial advantage” means. That’s a fact-intensive inquiry. The broadcasters will likely search for hot docs or other evidence that Locast is not a “real” nonprofit. Whatever the facts are, Locast’s arbitrage of the existing regulations is one that could be replicated.

Nobody likes the existing legacy TV regulation system: Broadcasters dislike being subject to compulsory licenses; Cable and satellite operators dislike being forced to carry some broadcast TV and to pay for a bizarre “retransmission” right. Copyright holders are largely sidelined in these artificial commercial negotiations. Wholesale reform–so that programming negotiations look more like the free-market world of Netflix and Hulu programming–would mean every party has give up something they like improve the overall system.

The Internet’s effect on traditional providers’ market share has been modest to date, but hopefully Congress will anticipate the changing marketplace before regulatory distortions become intolerable.

Additional reading: Adam Thierer & Brent Skorup, Video Marketplace Regulation: A Primer on the History of Television Regulation and Current Legislative Proposals (2014).

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How Conservatives Came to Favor the Fairness Doctrine & Net Neutrality

by on June 19, 2019 · 0 comments

I have been covering telecom and Internet policy for almost 30 years now. During much of that time – which included a nine year stint at the Heritage Foundation — I have interacted with conservatives on various policy issues and often worked very closely with them to advance certain reforms.

If I divided my time in Tech Policy Land into two big chunks of time, I’d say the biggest tech-related policy issue for conservatives during the first 15 years I was in the business (roughly 1990 – 2005) was preventing the resurrection of the so-called Fairness Doctrine. And the biggest issue during the second 15-year period (roughly 2005 – present) was stopping the imposition of “Net neutrality” mandates on the Internet. In both cases, conservatives vociferously blasted the notion that unelected government bureaucrats should sit in judgment of what constituted “fairness” in media or “neutrality” online.

Many conservatives are suddenly changing their tune, however. President Trump and Sen. Ted Cruz, for example, have been increasingly critical of both traditional media and new tech companies in various public statements and suggested an openness to increased regulation. The President has gone after old and new media outlets alike, while Sen. Cruz (along with others like Sen. Lindsay Graham) has suggested during congressional hearings that increased oversight of social media platforms is needed, including potential antitrust action.

Meanwhile, during his short time in office, Sen. Josh Hawley (R-Mo.) has become one of the most vocal Internet critics on the Right. In a shockingly-worded USA Today editorial in late May, Hawley said, “social media wastes our time and resources” and is “a field of little productive value” that have only “given us an addiction economy.” He even referred to these sites as “parasites” and blamed them for a long list of social problems, leading him to suggest that, “we’d be better off if Facebook disappeared” along with various other sites and services.

Hawley’s moral panic over social media has now bubbled over into a regulatory crusade that would unleash federal bureaucrats on the Internet in an attempt to dictate “fair” speech on the Internet. He has introduced an astonishing piece of legislation aimed at undoing the liability protections that Internet providers rely upon to provide open platforms for speech and commerce. If Hawley’s absurdly misnamed new “Ending Support for Internet Censorship Act” is implemented, it would essentially combine the core elements of the Fairness Doctrine and Net Neutrality to create a massive new regulatory regime for the Internet. Continue reading →

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Here’s why state net neutrality laws may encourage ISP filtering

by on August 28, 2018 · 0 comments

A few states have passed Internet regulations because the Trump FCC, citing a 20 year US policy of leaving the Internet “unfettered by Federal or State regulation,” decided to reverse the Obama FCC’s 2015 decision to regulate the Internet with telephone laws.

Those state laws regulating Internet traffic management practices–which supporters call “net neutrality”–are unlikely to survive lawsuits because the Internet and Internet services are clearly interstate communications and FCC authority dominates. (The California bill also likely violates federal law concerning E-Rate-funded Internet access.) 

However, litigation can take years. In the meantime ISP operators will find they face fewer regulatory headaches if they do exactly what net neutrality supporters believe the laws prohibit: block Internet content. Net neutrality laws in the US don’t apply to ISPs that “edit the Internet.”

The problem for net neutrality supporters is that Internet service providers, like cable TV providers, are protected by the First Amendment. In fact, Internet regulations with a nexus to content are subject to “strict scrutiny,” which typically means regulations are struck down. Even leading net neutrality proponents, like the ACLU and EFF, endorse the view that ISP curation is expressive activity protected by First Amendment.

As I’ve pointed out, these First Amendment concerns were raised during the 2016 litigation and compelled the Obama FCC to clarify that its 2015 “net neutrality” Order allows ISPs to block content. As a pro-net neutrality journalist recently wrote in TechCrunch about the 2015 rules, 

[A] tiny ISP in Texas called Alamo . . . wanted to offer a “family-friendly” edited subset of the internet to its customers.

Funnily enough, this is permitted! And by publicly stating that it has no intention of providing access to “substantially all Internet endpoints,” Alamo would exempt itself from the net neutrality rules! Yes, you read that correctly — an ISP can opt out of the rules by changing its business model. They are . . . essentially voluntary.

The author wrote this to ridicule Judge Kavanaugh, but the joke is clearly not on Kavanuagh.

In fact, under the 2015 Order, filtered Internet service was less regulated than conventional Internet service. Note that the rules were “essentially voluntary”–ISPs could opt out of regulation by filtering content. The perverse incentive of this regulatory asymmetry, whereby the FCC would regulate conventional broadband heavily but not regulate filtered Internet at all, was cited by the Trump FCC as a reason to eliminate the 2015 rules. 

State net neutrality laws basically copy and paste from the 2015 FCC regulations and will have the same problem: Any ISP that forthrightly blocks content it doesn’t wish to transmit–like adult content–and edits the Internet is unregulated.

This looks bad for net neutrality proponents leading the charge, so they often respond that the Internet regulations cover the “functional equivalent” of conventional (heavily regulated) Internet access. Therefore, the story goes, regulators can stop an ISP from filtering because an edited Internet is the functional equivalent of an unedited Internet.

Curiously, the Obama FCC didn’t make this argument in court. The reason the Obama FCC didn’t endorse this “functional equivalent” response is obvious. Let’s play this out: An ISP markets and offers a discounted “clean Internet” package because it knows that many consumers would appreciate it. To bring the ISP back into the regulated category, regulators sue, drag the ISP operators into court, and tell judges that state law compels the operator to transmit adult content.

This argument would receive a chilly reception in court. More likely is that state regulators, in order to preserve some authority to regulate the Internet, will simply concede that filtered Internet drops out of regulation, like the Obama FCC did.

As one telecom scholar wrote in a Harvard Law publication years ago, “net neutrality” is dead in the US unless there’s a legal revolution in the courts. Section 230 of the Telecom Act encourages ISPs to filter content and the First Amendment protects ISP curation of the Internet. State law can’t change that. The open Internet has been a net positive for society. However, state net neutrality laws may have the unintended effect of encouraging ISPs to filter. This is not news if you follow the debate closely, but rank-and-file net neutrality advocates have no idea. The top fear of leading net neutrality advocates is not ISP filtering, it’s the prospect that the Internet–the most powerful media distributor in history–will escape the regulatory state.

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“Tech Vouchers”: Putting consumers in control of the FCC’s $4.5 billion rural telecom fund

by on August 27, 2018 · 0 comments

The US government has spent about $100 billion on rural telecommunications in the last 20 years. (That figure doesn’t include the billions of dollars in private investment and state subsidies.) It doesn’t feel like it in many rural areas.

The lion’s share of rural telecom subsidies come from the FCC’s “high-cost” fund, which is part of the Universal Service Fund. The high-cost fund currently disburses about $4.5 billion per year to rural carriers and large carriers serving rural areas. 

Excess in the high-cost program

Bill drafters in Congress and the CBO, after the passage of the 1996 Telecom Act creating the Fund, expected the USF program subsidies to decrease over time. That hasn’t happened. The high-cost fund has increased from $800 million in 1997 to $4.5 billion today.

The GAO and independent scholars find evidence of waste in the rural fund, which traditionally funded rural telephone (voice) service. For instance, former FCC chief economist Prof. Tom Hazlett and Scott Wallsten estimate that “each additional household is added to voice networks at an annual USF cost of about $25,000.” There are at least seven high-cost programs and each has its own complex nomenclature and disbursement mechanisms.

These programs violate many best practices for public finance. Shelanski and Hausman point out, for instance, that a huge distortion for decades has been US regulators’ choice to tax (demand-elastic) long-distance phone services to fund the (demand-inelastic) local phone services. The rural fund disbursement mechanisms also tempt providers to overinvest in goldplated services or, alternatively, inflate operational costs. Wallsten found that about 59 cent for every dollar of rural subsidy goes to carriers’ overhead.

To that end, the high-cost program appears to be supporting fewer households despite the program’s increasing costs. I found in Montana, for instance, that from 1999 to 2009 subsidies to carriers rose 40 percent even while the number of subsidized rural lines fell 30 percent. The FCC’s administrative costs for the four USF programs also seem high. According to the FCC’s most recent report, administrative costs are about $172 million annually, which is more than what 45 states received in high-cost funds in 2016.

A proposal: give consumers tech vouchers

A much more transparent and, I suspect, more effective way of satisfying Congress’ requirement that rural customers have “reasonably comparable” rates to urban customers’s rates for telecom services is to give “tech vouchers.” Vouchers are used in housing, heating, and food purchases in the US, and the UK is using them for rural broadband.

My colleague Trace Mitchell and I are using Census and FCC data to calculate about how much rural households could receive if the program were voucher-ized. Assuming all high-cost funds disbursed to states in 2016 were converted into broadband vouchers, these are our estimates.

If vouchers were distributed equally among rural households today, every rural household in the US (about 20% of US households) would receive about $15 per month to spend on the broadband provider and service of their choice. Low-income rural households could tack on the $9.25 USF Lifeline subsidy and any state subsidies they’re eligible for.

Perfect equality probably isn’t the best way to subsidize rural broadband. The cost of rural service is driven primarily by the housing density, and providing telecom to a rural household in the American West and Great Plains is typically more expensive than providing telecom to a rural household in the denser Northeast, and this is borne out in the FCC’s current high-cost disbursements. For instance, Vermont and Idaho have about the same number of rural households but rural carriers in Idaho receive about 2x as much as rural carriers in Vermont.

However, some disparities are hard to explain. For example, despite South Carolina’s flatter geography than and similar rural population as North Carolina, North Carolina carriers receive, on a per-household basis, only about 40% what South Carolina carriers receive. Alabama and Mississippi have similar geographies and rural populations but Alabama carriers receive only about 20% of what Mississippi carriers receive.

A tiered system of telecom vouchers smooths the disparities, empowers consumers, and simplifies the program. We’ve sorted the states into six tiers based on how much the state received on a per-household basis in 2016. This ranking puts large, Western states in the top tier and denser, Northeastern states in the bottom tier.

In our plan, every rural household in five hardest-to-serve Tier 1 states (Alaska, Kansas, Montana, North Dakota, and South Dakota) would receive a $45 monthly discount on the Internet service of their choice, whether DSL, cable, fixed wireless, LTE, or satellite. As they do in the UK, eligible rural households would enter a coupon code when they receive their telecom services bill and the carrier would reduce the price of service accordingly.

Similarly, every rural household in:

Tier 2 states (ten states) would receive a $30 monthly discount.

Tier 3 states (ten states) would receive a $19 monthly discount.

Tier 4 states (ten states) would receive a $13 monthly discount.

Tier 5 states (ten states) would receive a $6 monthly discount.

Tier 6 states (five states) would receive a $3 monthly discount.

$3 per month per rural household doesn’t sound like much but, for each of these states (Connecticut, Delaware, Massachusetts, New Jersey, Rhode Island), this is more than the state currently receives in rural funds. In Connecticut, for instance, the current high-cost funding amounts to about 25 cents per rural household per month.

Under this (tentative) scheme, the US government would actually save $25 million per year from the current disbursements. And these are conservative numbers since they assume 100% participation from every rural household in the US. It’s hard to know what participation would look like but consider Lifeline, which is essentially a phone and broadband voucher program for low-income households. At $9.25 per month, 28% of those eligible for Lifeline participate. This is just a starting point and needs more analysis (see link below for spreadsheet), but it seems conceivable that the FCC could increase the rural voucher amounts above, expect 50% participation, and still save the program money.

Conclusion

As Jerry Hausman and Howard Shelanski have said, “It is well established that targeted subsidies paid from general income tax revenues are often the most efficient way to fund specific activities.” Current law doesn’t allow allow for tech vouchers from general income taxes, but the FCC could allow states to convert their current high-cost funds into tech vouchers for rural households. Vouchers would be more tech-neutral, less costly to administer, and, I suspect, more effective and popular.

 

Excel spreadsheet of tech vouchers by state (Dropbox): link.

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On cable operators’ junior varsity First Amendment rights

by on August 16, 2018 · 0 comments

For decades, cities, the FCC, and Congress have mandated that cable TV operators carry certain types of TV programming, including public access channels, local broadcast channels, local public television, and children’s programming. These carriage mandates have generated several First Amendment lawsuits but cable operators have generally lost. Cable operators have junior varsity First Amendment rights and the content they distribute is more regulated than, say, newspapers, Internet service providers, search engines, and Netflix. I submitted public interest comments (with JP Mohler) to the FCC this week explaining why cable operators would likely win today if they litigated these cable carriage regulations.

Regulations requiring newspapers, book publishers, or Internet service providers to carry the government’s preferred types of content are subject to strict scrutiny, which means such regulations typically don’t survive. However, cable is different, the Supreme Court held in the 1994 Turner case. The Supreme Court said regulations about what cable operators must carry are subject to intermediate–not strict–scrutiny because cable operators (in 1994) possessed about 95% of the subscription TV market and nearly every household had a single choice for subscription TV–their local cable monopoly. In the words of the Supreme Court, cable’s content regulations “are justified by the special characteristics of the cable medium: the bottleneck monopoly power exercised by cable operators.”

As a result, the FCC enforces “leased access” regulations that require cable operators to leave blank certain TV channels and give non-affiliated programmers a chance to use that channel capacity and gain viewership. Cable operators in the 1990s sued the FCC for enforcing these regulations in a 1996 case called Time Warner v. FCC. The DC Circuit relied on the 1994 Turner case and upheld the leased access rules.

Recently, however, the FCC asked whether First Amendment interests or TV competition requires giving these regulations another look. In our public interest comment, JP and I say that these rules have outlived their usefulness and cable operators would likely win a First Amendment lawsuit against the FCC today.

Two things have changed. First, cable operators have lost their “bottleneck monopoly power” that justified, in the eyes of the Supreme Court in 1994, giving cable operators weakened First Amendment protection.

Unlike in the 1990s, cable operators face significant competition in most local markets from satellite and telco TV providers. Over 99 percent of US households have at least three pay-TV options, and cable has lost over 15 million subscriber households since 2002. In 1997, when Turner II was decided, cable had over 90 percent of the pay-TV market. Cable operators’ market share has shrunk nearly every year since, and in 2015 cable had around 54 percent market share.

This competitive marketplace has stimulated massive investment and choice in TV programming. The typical household has access to far more channels than in the past. Independent researchers found that a typical US household in 1999 received about 50 TV channels. By 2014, the typical household received over 200 TV channels. In 2018, there will be an estimated 520 scripted TV series available, which is up nearly 50 percent from just five years ago.

This emergence of TV competition and its beneficial effects in programming and consumer choice undermines the justification for upholding cable content regulations like leased access.

Second, courts are more likely to view the Supreme Court’s Denver decision about leased access regulations in a new light.  In Denver, the Supreme Court divided into concurrences as to the proper First Amendment category of cable operators, and whether intermediate or strict scrutiny should apply to the leased access laws at issue. The “Marks test” is the test lower courts use for determining the holding of a Supreme Court decision where there is no majority supporting the rationale of any opinion. Viewed through the lens of the prevailing Marks test, cable operators are entitled to “bookstore owner” status for First Amendment purposes:

Given that four justices in Denver concur that one of the potential bases for deciding cable’s First Amendment status is the classification of cable operators as bookstores and three justices concur that this classification is the definitive justification for the judgment, the narrowest grounds for resolving the issue is simply this latter justification. Under the prevailing Marks test, then, lower courts will apply strict scrutiny to the leased access rules in light of the Denver decision.

For these reasons, and the need to conserve agency resources for more pressing matters, like rural broadband deployment and spectrum auctions, we encourage the FCC to discontinue these regulations.

You can read our public interest comment about the leased access regulations at the Mercatus Center website.

Leased Access Mandates Infringe on the First Amendment Rights of Cable Operators, and the FCC Should Decline to Enforce the Regulations

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The FCC can increase 5G deployment by empowering homeowners

by on July 26, 2018 · 0 comments

The move to small cells and fixed wireless broadband means states, cities, and the FCC are changing their regulatory approaches. For decades, wireless providers have competed primarily on coverage, which meant building large cell towers all over the country, each one serving hundreds of people. That’s changing. As Commissioner Carr noted,

5G networks will look very different from today’s 4G deployments. 5G will involve the addition of hundreds of thousands of new, small-scale facilities with antennas no larger than a small backpack.

Currently, wireless companies don’t have many good options when it comes to placing these lower-power, higher-bandwidth “small cells.” They typically install small cells and 5G transmitters on public rights-of-way and on utility poles, but there may not be room on poles and attachment fees might be high. 

One thing the FCC might consider to stimulate 5G and small cell investment is to dust off its 20 year-old over-the-air-reception-device (OTARD) rules. These little-known rules protect homeowners and renters from unwarranted regulation of TV and broadband antennas placed on their property. If liberalized, the OTARD rules would open up tens of millions of other potential small cell sites–on rooftops, on balconies, and in open fields and backyards around the country. 

Background

In the early 1990s, cities and homeowner associations would sometimes prohibit, charge for, or regulate satellite dishes that homeowners or renters installed on their rooftops or balconies. Lawmakers saw a problem and wanted to jumpstart competition in television (cities had authorized cable TV monopolies for decades and cable had over 95% of the pay-TV market).

In the 1996 Telecom Act, then, Congress instructed the FCC to increase TV competition by regulating the regulators. Congress said that state, local, and HOA restrictions cannot impose restrictions that

impair a viewer’s ability to receive video programming services through devices designed for over-the-air reception of television broadcast signals, multichannel multipoint distribution service [MMDS], or direct broadcast satellite services.

With these congressional instructions, the FCC created its OTARD rules, informally known as the “pizza box rule.” Briefly stated, if your TV antenna, satellite TV receiver, or “fixed wireless” antenna is smaller than a large pizza (1 meter diameter–no cell towers in front yards), you are free to install the necessary equipment on property you control, like a yard or balcony. (There are some exceptions for safety issues and historical buildings.) The 1996 law expressly protects MMDS (now called “broadband radio service”), which includes spectrum in the 2.1 GHz, 2.5 GHz, 2.6 GHz, 28 GHz, 29 GHz, and 31 GHz bands. The Clinton FCC expanded the rules to protect, broadly, any antennas that “receive or transmit fixed wireless signals.” You can even install a mast with an antenna that extends up to 12 feet above your roofline. 

OTARD reform

The rules protect fixed wireless antennas and could see new life in the 5G world. Carriers are building small cells and fixed wireless primarily to provide faster broadband and “mobile TV” services. Millions of Americans now view their cable and Netflix content on mobile devices and carriers are starting to test mobile-focused pay-TV services. AT&T has Watch TV, T-Mobile is expected to deploy a mobile TV service soon because of its Layer3 acquisition, and reporting suggests that Verizon is approaching YouTube TV and Apple to supply TV for its 5G service. 

The FCC’s current interpretation of its OTARD rules doesn’t help 5G and small cell deployment all that much, even though the antennas are small and they transmit TV services. The actual rules don’t say this but the FCC’s interpretation is that their OTARD protections don’t protect antenna “hubs” (one-to-many transmitters like small cells). The FCC liberalized this interpretation in its Massport proceeding and allowed hub one-to-many transmitters [Correction, via Connor at the FCC: the FCC liberalized to say that one-to-many transmitters are permitted, not hub antennas.] but did not extend this interpretation for homeowners’ antennas. In short, under the current interpretation, cities and HOAs can regulate, charge for, and prohibit the installation of 5G and small cells on private property.

The FCC should consider expanding its rules to protect the installation of (low power) 5G and small cell hubs on private property. This would directly improve, per the statute, “viewers’ ability to receive video programming services” via wireless. It would have the ancillary effect of improving other wireless services. The prospect of installing small cells on private property, even temporarily, should temper the fees carriers are charged to use the public rights-of-way and poles.

In rural areas, the FCC might also consider modifying the rules to allow masts that extend beyond 12 feet above the roofline. Transmitters even a few feet taller would improve wireless backhaul and coverage to nearby homes, thus increasing rural broadband deployment and IP-based television services.

Wireless trends

OTARD reform is especially timely today because the Wheeler and Pai FCCs have freed up several bands of spectrum and fixed wireless is surging. Fixed wireless and mesh network providers using CBRS and other spectrum bands could benefit from more installation sites, particularly in rural areas. C Spire, for instance, is creating “hub homes” for fixed wireless, and Starry and Rise Broadband are expanding their service areas. CableLabs is working on upgrading cable networks for mobile and 5G backhaul and cable operators might benefit from OTARD reform and more outside infrastructure.

Modifying the OTARD rules might be controversial but modification directly gives consumers and homeowners more control over improving broadband service in their neighborhood, just as the rules improved TV competition in the past. Courts are pretty deferential when agencies change an interpretation of an existing rule. Further, as the agency said years ago:

The Federal Communications Commission has consistently maintained that it has the ultimate responsibility to determine whether the public interest would be served by construction of any specific antenna tower.

The future of wireless services is densification–putting fiber and small cells all over downtowns and neighborhoods in order to increase broadband capacity for cutting-edge services, like smart glasses for the blind and remote-controlled passenger cars. The OTARD rules and the FCC’s authority over wireless antennas provides another tool to improve wireless coverage and TV services.

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Who cares about utility poles? Broadband users should.

by on July 19, 2018 · 0 comments

Though ubiquitous in urban and rural landscapes, most people barely notice utility poles. Nevertheless, utility poles play a large role in national broadband policy. Improving pole access won’t generate the headlines like billion-dollar spectrum auctions and repeal of Title II Internet regulations, but it’s just as important for improving broadband competition and investment. To that end, the FCC is proposing to create “one-touch-make-ready” rules for FCC-regulated utility poles across the country. I was pleased to see that the FCC will likely implement this and other policy recommendations from the FCC’s Broadband Deployment Advisory Committee.*

“Access regulations”–like must-carry of broadcast TV, net neutrality, and telecom network unbundling–are always controversial and frequently fail. However, in my view, one-touch-make-ready is an example of useful access regulation and I think it’s likely to succeed at its aims–more broadband competition and investment. Pole access appears to be, using former FCC chief economist Jerry Faulhaber’s phrase, an efficient market boundary. FCC pole access mandates are feasible because the “interface”–physical wires and poles–is relatively simple and regulatory compliance–did the entrant damage existing users? did they provide notice?–is pretty easy to ascertain. Typically, visual inspection will reveal damage and the liable party is usually obvious.

As the FCC says in the proposed order, these proposed modifications and one-touch-make-ready,

put[] the parties most interested in efficient broadband deployment—new attachers—in a position to control the survey and make-ready processes.

Reasonable people (even on the free-market side) will disagree about how to regulate utility pole access. One-touch-make-ready was a controversial proposal and commercial operators have been divided on the issue. In the end, it was not unanimous but the BDAC reached large consensus on the issue. In my view, the FCC struck the right balance in protecting existing companies’ equipment and promoting infrastructure construction and competitive entry.

Some utility pole basics: Utility poles are often owned by a phone company, a utility company, or a city. At the top of utility poles are electric lines. (The FCC is not talking about doing work near the electric lines on top, which is trickier and more dangerous for obvious reasons.) The rule changes here affect the “communications space,” which is midway up the poles and typically has one or several copper, coaxial, or fiber lines strung across.

For decades, the “market” for communications space access was highly regulated but stable. National and local policy encouraged monopoly phone service and cable TV provision and, therefore, entrants rarely sought access to string up lines on utility poles. In the 1990s, however, phone and cable was deregulated and competition became national policy. In the last ten years, as the price of fiber broadband provision has fallen and consumer demand for competitive broadband options has increased, new companies–notably Google Fiber–have needed access to utility poles. The FCC notes in its proposed order that, going forward, “small cell” and 5G deployments will benefit from competitive, lower-cost fiber providers.

The pre-2018 approach to pole attachments, wherein many parties had effective veto rights over new entrants, was creating too many backlogs and discouraging competitive providers from making the investments necessary. The FCC’s proposed rules streamline the process by creating tighter deadlines for other parties to respond to new entrants. The rules also give new entrants new privileges and greater control in constructing new lines and equipment, so long as they notify existing users and don’t damage existing lines.

I’m pleased to see that the Broadband Deployment Advisory Committee’s recommendations are proving useful to the agency. It’s encouraging that this FCC, by taking a weed-whacker to legacy policies regarding spectrum, pole access, and net neutrality, is taking steps to improve broadband in America.

 

*I’m the vice chair of the Competitive Access working group.

Related research and commentary:

The Importance of Spectrum Access to the Future of Innovation (pdf)

A Truly ‘Open Internet’ Would Be Free of Burdensome FCC Regulation (NRO)

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