Telecom & Cable Regulation

Yesterday, Hillary Clinton’s campaign released a tech and innovation agenda. The document covers many tech subjects, including cybersecurity, copyright, and and tech workforce investments, but I’ll narrow my comments to the areas I have the most expertise in: broadband infrastructure and Internet regulation. These roughly match up, respectively, to the second and fourth sections of the five-section document.

On the whole, the broadband infrastructure and Internet regulation sections list good, useful priorities. The biggest exception is Hillary’s strong endorsement of the Title II rules for the Internet, which, as I explained in the National Review last week, is a heavy-handed regulatory regime that is ripe for abuse and will be enforced by a politicized agency.

Her tech agenda doesn’t mention a Communications Act rewrite but I’d argue it’s implied in her proposed reforms. Further, her statements last year at an event suggest she supports significant telecom reforms. In early 2015, Clinton spoke to tech journalist Kara Swisher (HT Doug Brake) and it was pretty clear Clinton viewed Title II as an imperfect and likely temporary effort to enforce neutrality norms. In fact, Clinton said she prefers “a modern, 21st-century telecom technology act” to replace Title II and the rest of the 1934 Communications Act. Continue reading →

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

In the last few months alone,

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

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

For decades Congress has gradually deregulated communications and media. This poses a significant threat to the FCC’s jurisdiction because it is the primary regulator of communications and media. The current FCC, exhibiting alarming mission creep, has started importing its legacy regulations to the online world, like Title II common carrier regulations for Internet providers. The FCC’s recent proposal to “open up” TV set top boxes is consistent with the FCC’s reinvention as the US Internet regulator, and now the White House has supported that push.

There are a lot of issues with the set top box proposal but I’ll highlight a few. I really don’t even like referring to it as “the set top box proposal” because the proposal is really aimed at the future of TV–video viewing via apps and connected devices. STBs are a sideshow and mostly just provide the FCC a statutory hook to regulate TV apps. Even that “hook” is dubious–the FCC arbitrarily classifies apps and software as “navigation devices” but concludes that actual TV devices like Chromecast, Roku, smartphones, and tablets aren’t navigation devices. And, despite what activists say, this isn’t about “cable” either but all TV distributors (“MVPDs”) like satellite and telephone companies and Google Fiber, most of whom are small TV players. Continue reading →

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

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

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

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

Yesterday, almost exactly one year after the FCC classified Internet service as a common carrier service, Sen. Mike Lee and his Senate cosponsors (including presidential candidates Cruz and Rubio) introduced the Restoring Internet Freedom Act. Sen. Lee also published an op-ed about the motivation for his bill, pointing out the folly of applying a 1930s AT&T Bell monopoly law to the Internet. It’s a short bill, simply declaring that the FCC’s Title II rules shall have no force and it precludes the FCC from enacting similar rules absent an act of Congress.

It’s a shame such a bill even has to be proposed, but then again these are unusual times in politics. The FCC has a history of regulating new industries, like cable TV, without congressional authority. However, enforcing Title II, its most intrusive regulations, on the Internet is something different altogether. Congress was not silent on the issue of Internet regulation, like it was regarding cable TV in the 1960s when the FCC began regulating.

Former Clinton staffer John Podesta said after Clinton signed the 1996 Telecom Act, “Congress simply legislated as if the Net were not there.” That’s a slight overstatement. There is one section of the Telecommunications Act, Section 230, devoted to the Internet and it is completely unhelpful for the FCC’s Open Internet rules. Section 230 declares a US policy of unregulation of the Internet and, in fact, actually encourages what net neutrality proponents seek to prohibit: content filtering by ISPs.

The FCC is filled with telecom lawyers who know existing law doesn’t leave room for much regulation, which is why top FCC officials resisted common carrier regulation until the end. Chairman Wheeler by all accounts wanted to avoid the Title II option until pressured by the President in November 2014. As the Wall Street Journal reported last year, the White House push for Title II “blindsided officials at the FCC” who then had to scramble to construct legal arguments defending this reversal. The piece noted,

The president’s words swept aside more than a decade of light-touch regulation of the Internet and months of work by Mr. Wheeler toward a compromise.

The ersatz “parallel version of the FCC” in the White House didn’t understand the implications of what they were asking for and put the FCC in a tough spot. The Title II rules and legal justifications required incredible wordsmithing but still created internal tensions and undesirable effects, as pointed out by the Phoenix Center and others. This policy reversal, to go the Title II route per the President’s request, also created First Amendment and Section 230 problems for the FCC. At oral argument the FCC lawyer disclaimed any notion that the FCC would regulate filtered or curated Internet access. This may leave a gaping hole in Title II enforcement since all Internet access is filtered to some degree, and new Internet services, like LTE Broadcast, Free Basics, and zero-rated video, involve curated IP content. As I said at the time, the FCC “is stating outright that ISPs have the option to filter and to avoid the rules.”

Nevertheless, Title II creates a permission slip regime for new Internet services that forces tech and telecom companies to invest in compliance lawyers rather than engineers and designers. Hopefully in the next few months the DC Circuit Court of Appeals will strike down the FCC’s net neutrality efforts for a third time. In any case, it’s great to see that Sen. Lee and his cosponsors have made innovation policy priority and want to continue the light-touch regulation of the Internet.

This article originally appeared at techfreedom.org.

Today, the FCC voted on a Notice of Proposed Rulemaking that would  force pay-tv or multichannel video programming distributors (MVPDs) to change their existing equipment to allow third-party set-top boxes to carry their signals. Currently, MVPD subscribers typically pay $15–20/month to lease set-top boxes from their cable, satellite, or telco video provider. Those set-top boxes allow subscribers to view video programming on their TVs and, in some cases, also provide access to online video distributors (OVDs) such as Netflix and Hulu. However, Chairman Wheeler and some interest groups say those leasing fees are too high, that MVPDs have a stranglehold on video programming, and that the set-top box market must be opened to competition from third parties.

“Regulating set-top boxes may do serious damage to video programmers, especially small ones and those geared to minorities,” said Berin Szoka. “That’s why Congressional Democrats, minority groups and other voices have urged caution. Yet FCC Chairman Tom Wheeler blithely dismisses these concerns, insisting that ‘this is just the beginning of a fact-finding process.’ Do not believe him. If that were true, the FCC would issue a Notice of Inquiry to gather data to inform a regulatory proposal. Instead, the FCC has issued a Notice of Proposed Rulemaking. That means the FCC Chairman has already made up his mind, and that the agency is unlikely to adjust course.”

This is simply the latest example of the FCC abusing the rulemaking process by bypassing the Notice of Inquiry,” concluded Szoka. “Every time the FCC does this, it means the gun is already loaded, and ‘fact-finding’ is a mere formality. It’s high time Congress put a stop to this pretense of objectivity and require the FCC to begin all major rulemakings with an NOI. That key reform was at the heart of an FCC reform bill initially proposed by Republicans in 2013 — but, tellingly, removed at the insistence of Congressional Democrats.”

The FCC’s proposal is based on the recommendations of the Downloadable Security Technology Advisory Committee (“DSTAC”), which was directed to investigate this issue by Congress in the STELA Reauthorization Act of 2014.

The FCC is also abusing the advisory committee process—once again,” argued Tom Struble, Policy Counsel at TechFreedom. “The Commission acts as if the DSTAC unanimously supported the NPRM’s proposal. In fact, the DSTAC recommended two alternative approaches, only one of which was taken up by the FCC. This is only the most recent example of the FCC abusing the advisory committee process, denying broad input from stakeholders and steering the committee to issue recommendations that suit the administration’s policy preferences. The FCC should have used an NOI to seek comment on both the DSTAC recommendations. But at the very least, Chairman Wheeler should drop his absurd pretense that the FCC is merely beginning a fact-finding process.”

This article originally appeared at techfreedom.org.

Twenty years ago today, President Clinton signed the Telecommunications Act of 1996. John Podesta, his chief of staff immediately saw the problem: “Aside from hooking up schools and libraries, and with the rather major exception of censorship, Congress simply legislated as if the Net were not there.”

Here’s our take on what Congress got right (some key things), what it got wrong (most things), and what an update to the key laws that regulate the Internet should look like. The short version is:

  • End FCC censorship of “indecency”
  • Focus on promoting competition
  • Focus regulation on consumers rather than arbitrary technological silos or political whim
  • Get the FCC out of the business of helping government surveillance

Trying, and Failing, to Censor the Net

Good: The Act is most famous for Section 230, which made Facebook and Twitter possible. Without 230, such platforms would have been held liable for the speech of their users — just as newspapers are liable for letters to the editor. Trying to screen user content would simply have been impossible. Sharing user-generated content (UGC) on sites like YouTube and social networks would’ve been tightly controlled or simply might never have taken off. Without Section 230, we might all still be locked in to AOL!

Bad: Still, the Act was very much driven by a technopanic over “protecting the children.”

  • Internet Censorship. 230 was married to a draconian crackdown on Internet indecency. Aimed at keeping pornography away from minors, the rest of the Communications Decency Act — rolled into the Telecom Act — would have required age verification of all users, not just on porn sites, but probably any UGC site, too. Fortunately, the Supreme Court struck this down as a ban on anonymous speech online.
  • Broadcast Censorship. Unfortunately, the FCC is still in the censorship business for traditional broadcasting. The 1996 Act did nothing to check the agency’s broad powers to decide how long a glimpse of a butt or a nipple is too much for Americans’ sensitive eyes.

Unleashing Competition—Slowly

Good: Congress unleashed over $1.3 trillion in private broadband investment, pitting telephone companies and cable companies against each other in a race to serve consumers — for voice, video andbroadband service.

  • Legalizing Telco Video. In 1984, Congress had (mostly) prohibited telcos from providing video service — largely on the assumption that it was a monopoly. Congress reversed that, which eventually meant telcos had the incentive to invest in networks that could carry video — and super-fast broadband.
  • Breaking Local Monopolies. Congress also barred localities from blocking new entry by denying a video “franchise.”
  • Encouraging Cable Investment. The 1992 Cable Act had briefly imposed price regulation on basic cable packages. This proved so disastrous that the Democratic FCC retreated — but only after killing a cycle of investment and upgrades, delaying cable modem service by years. In 1996, Congress finally put a stake through the heart of such rate regulation, removing investment-killing uncertainty.

Bad: While the Act laid the foundations for what became facilities-based network competition, its immediate focus was pathetically short-sighted: trying to engineer artificial competition for telephone service.

  • Unbundling Mandates. The Act created an elaborate set of requirements that telephone companies “unbundle” parts of their networks so that resellers could use them, at sweetheart prices, to provide “competitive” service. The FCC then spent the next nine years fighting over how to set these rates.
  • Failure of Vision. Meanwhile, competing networks provided fierce competition: cable providers gained over half the telephony market with a VoIP service, and 47% of customers have simply cut the cord — switching entirely to wireless. Though the FCC refuses to recognize it, broadband is becoming more competitive, too: 2014 saw telcos invest in massive upgrades, bringing 25–75 Mbps speeds to more than half the country by pushing fiber closer to homes. The cable-telco horse race is fiercer than ever — and Google Fiber has expanded its deployment of a third pipe to the home, while cable companies are upgrading to provide gigabit-plus speeds and wireless broadband has become a real alternative for rural America.
  • Delaying Fiber. The greatest cost of the FCC’s unbundling shenanigans was delaying the major investments telcos needed to keep up with cable. Not until 2003 did the FCC make clear that it would not impose unbundling mandates on fiber — which pushed Verizon to begin planning its FiOS fiber-to-the-home network. The other crucial step came in 2006, when the Commission finally clamped down on localities that demanded lavish ransoms for allowing the deployment of new networks, which stifled competition.

Regulation

Good: With the notable exception of unbundling mandates, the Act was broadly deregulatory.

  • General thrust. Congress could hardly have been more clear: “It is the policy of the United States… to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.”
  • Ongoing Review & Deregulation. Congress gave the FCC broad discretion to ratchet down regulation to promote competition.

Bad: The Clinton Administration realized that technological change was rapidly erasing the lines separating different markets, and had proposed a more technology-neutral approach in 1993. But Congress rejected that approach. The Act continued to regulate by dividing technologies into silos: broadcasting (Title III), telephone (Title II) and cable (Title VI). Title I became a catch-all for everything else. Crucially, Congress didn’t draw a clear line between Title I and Title II, setting in motion a high-stakes fight that continues today.

  • Away from Regulatory Silos. Bill Kennard, Clinton’s FCC Chairman, quickly saw just how obsolete the Act was. His 1999 Strategic Plan remains a roadmap for FCC reform.
  • Away from Title II. Kennard also indicated that he favored placing all broadband in Title I — mainly because he understood that Title II was designed for a monopoly and would tend to perpetuate it. Vibrant competition between telcos and cable companies could happen only under Title I. But it was the Bush FCC that made this official, classifying cable modem as Title I in 2002 and telco DSL in 2005.
  • Net Neutrality Confusion. The FCC spent a decade trying to figure out how to regulate net neutrality, losing in court twice, distracting the agency from higher priorities — like promoting broadband deployment and adoption — and making telecom policy, once an area of non-partisan pragmatism, a fiercely partisan ideological cesspool.
  • Back to Title II. In 2015, the FCC reclassified broadband under Title II — not because it didn’t have other legal options for regulating net neutrality, but because President Obama said it should. He made the issue part of his re-assertion of authority after Democrats lost the 2014 midterm elections. Net neutrality and Title II became synonymous, even though they have little to do with each other. Now, the FCC’s back in court for the third time.
  • Inventing a New Act. Unless the courts stop it, the FCC will exploit the ambiguities of the ‘96 Act to essentially write a new Act out of thin air: regulating way up with Title II, using its forbearance powers to temporarily suspend politically toxic parts of the Act (like unbundling), and inventing wholly new rules that give the FCC maximum discretion—while claiming the power to do anything that somehow promotes broadband. The FCC calls this all “modernization” but it’s really a staggering power grab that allows the FCC to control the Internet in the murkiest way possible.
  • Bottom line: The 1996 Act gives the FCC broad authority to regulate in the “public interest,” without effectively requiring the FCC to gauge the competitive effects of what it does. The agency’s stuck in a kind of Groundhog Day of over-regulation, constantly over-doing it without ever learning from its mistakes.

Time for a #CommActUpdate

Censorship. The FCC continues to censor dirty words and even brief glimpses of skin on television because of a 1978 decision that assumes parents are helpless to control their kids’ media consumption. Today, parental control tools make this assumption obsolete: parents can easily block programming marked as inappropriate. Congress should require the FCC to focus on outright obscenity — and let parents choose for themselves.

Competition. If the 1996 Act served to allow two competing networks, a rewrite should focus on driving even fiercer cable-telco competition, encouraging Google Fiber and others to build a third pipe to the home, and making wireless an even stronger competitor.

  • Title II. If you wanted to protect cable companies from competition, you couldn’t find a better way to do it than Title II. Closing that Pandora’s Box forever will encourage companies like Google Fiber to enter the market. But Congress needs to finish what the 1996 Act started: it’s not enough to stop localities from denying franchises video service (and thus broadband, too).
  • Local Barriers. Congress should crack down on the moronic local practices that have made deployment of new networks prohibitive — learning from the success of Google Fiber cities, which have cut red tape, lowered fees and generally gotten out of the way. Pending bipartisan legislationwould make these changes for federal assets, and require federal highway projects to include Dig Once conduits to make fiber deployment easier. That’s particularly helpful for rural areas, which the FCC has ignored, but making deployment easier inside cities will require making municipal rights of way easier to use. Instead of rushing to build their own broadband networks, localities should have to first at least try to stimulate private deployment.

Regulation. Technological silos made little sense in 1993. Today, they’re completely obsolete.

  • Unchecked Discretion. The FCC’s right about one thing: rigid rules don’t make sense either, given how fast technology is changing. But giving the FCC sweeping discretion is even more dangerous: it makes regulating the Internet inherently political, subject to presidential whim and highly sensitive to elections.
  • The Fix. There’s a simple solution: write clear standards that let the FCC work across all communications technologies, but that require the FCC to prove that its tinkering actually makes consumers better off. As long as the FCC can do whatever it claims is in the “public interest,” the Internet will never be safe.
  • Rethinking the FCC. Indeed, Congress should seriously consider breaking up the FCC, transferring its consumer protection functions to the Federal Trade Commission and its spectrum functions to the Commerce Department.

Encryption. Since 1994, the FCC has had the power to require “telecommunications services” to be wiretap-ready — and the discretion to decide how to interpret that term. Today, the FBI is pushing for a ban on end-to-end encryption — so law enforcement can get backdoor access into services like Snapchat. Unfortunately, foreign governments and malicious hackers could use those backdoors, too. Congress is stalling, but the FCC could give law enforcement exactly what it wants — using the same legal arguments it used to reclassify mobile broadband under Title II. Law enforcement is probably already using this possibility to pressure Internet companies against adopting secure encryption. Congress should stop the FCC from requiring back doors.

With great fanfare, FCC Chairman Thomas Wheeler is calling for sweeping changes to the way cable TV set-top boxes work.

In an essay published Jan. 27 by Re/Code, Wheeler began by citing the high prices consumers pay for set-top box rentals, and bemoans the fact that alternatives are not easily available. Yet for all the talk and tweets about pricing and consumer lock-in, Wheeler did not propose an inquiry into set-top box profit margins, nor whether the supply chain is unduly controlled by the cable companies. Neither did Wheeler propose an investigation into the complaints consumers have made about cable companies’ hassles around CableCards, which under FCC mandate cable companies must provide to customers who buy their own set-top boxes.

In fact, he dropped the pricing issue halfway through and began discussing access to streaming content:

To receive streaming Internet video, it is necessary to have a smart TV, or to watch it on a tablet or laptop computer that, similarly, do not have access to the channels and content that pay-TV subscribers pay for. The result is multiple devices and controllers, constrained program choice and higher costs.

This statement seems intentionally misleading. Roku, Apple TV and Amazon Fire sell boxes that connect to TVs and allow a huge amount of streaming content to play. True, the devices are still independent of the set-top cable box but there is no evidence that this lack of integration is a competitive barrier.

Continue reading →

People are excited about online TV getting big in 2016. Alon Maor of Qwilt predicts in Multichannel News that this will be “the year of the skinny bundle.” Wired echoes that sentiment. The Wall Street Journal’s Geoffrey A. Fowler said, “it’s no longer the technology that holds back cable cutting–it’s the lawyers.”

Well, I’m here to say, lawyers can’t take all the blame. In my experience, it’s the technology, too. Some of the problem is that most discussion about the future of online TV and cable cutting fails to distinguish streaming video-on-demand (SVOD) and streaming linear TV (“linear” means continuous pre-programmed and live “channels”, often with commercials, much like traditional cable). Continue reading →

For tech policy progressives, 2015 was a great year. After a decade of campaigning, network neutrality advocates finally got the Federal Communications Commission to codify regulations that require Internet service providers to treat all traffic the same as it crosses the network and is delivered to customers.

Yet the rapid way broadband business models, always tenuous to begin with, are being overhauled, may throw some damp linens on their party. More powerful smart phones, the huge uptick in Internet streaming and improved WiFi technology are just three factors driving this shift.

As regulatory mechanisms lag market trends in general, they can’t help but be upended along with the industry they aim to govern. Looking ahead to the coming year, the consequences of 2015’s regulatory activism will create some difficult situations for the FCC.

Continue reading →