The Era of Internet Regulation Begins

by on December 21, 2010 · 10 comments

FCC Chairman Julius Genachowski can now strike “Get Net Neutrality Done” from his 2010 to-do list.

The rules enacted today represent something of a compromise with the industry and are better than the sweeping regulation the FCC proposed last year—if you consider a club to the knee better than a sharp stick in the eye.

The FCC gave the most ground on the so-called “fifth principle,” which, in original form, would have placed strict rules on the way service providers could manage their networks, even if the aim was to make certain applications, particularly video, work for users the way they were intended. The new rules appear to allow wireline ISPs to takes steps that are not “unreasonable.” Wireless networks are pretty much exempt from this rule – good thing, too – as the engineering wireless carriers did to support smartphones such as the iPhone and those using the Droid operating system would likely be immediate neutrality violations under such rules.

And, as the owner of any of these devices can tell you, it’s pretty easy to see that wireless is where broadband access is going. This will present a quandary for the commission a few years down the line as they try to do backflips to rationalize separate sets of rules for data that travels by wires and data that travels by radio. For myself, I was following Cecilia Kang’s tweets from the FCC all morning, and have her Washington Post story open on my phone as I write this. So much for the paucity of access that the FCC seems to think requires neutrality regulations.

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Now back to the National Broadband Plan…

by on December 21, 2010 · 0 comments

I recorded a commentary today  for KQED–NPR in the Bay Area–on the importance of the National Broadband Plan.  In the wake of tumult over net neutrality, Title II, and other regulatory gibberish, the important goals of the NBP, published in March of 2010, have been lost.  That’s unfortunate, because the authors did a great job of setting out ambitious goals essential to maintain U.S. competitiveness.  The plan also relies for funding on private investment and incentives, giving it a realistic chance of success.

While recent polls indicate that few Americans want the government involved in encouraging adoption of broadband, I believe this is one example where intervention–if only of the cheerleading and goal-setting variety–is appropriate.  As I’ve written extensively elsewhere, the Internet’s success is a function of network effects, as succinctly described by Metcalfe’s Law.  The more people who have broadband access, the more valuable the network is for everyone.  And the better the chances for serendipitous new uses and applications to flourish.

Those of us who already have broadband access, in other words, would benefit just as much from getting non-users online as those users themselves.

Perhaps even more.

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Why Online Dating Criminal Background Checks Aren’t As Advertised

by on December 21, 2010 · 6 comments

Recent media attention has resurrected the notion that criminal background checks for online dating sites are helpful and should even be required by law. Sunday’s front page article in the New York Times described how companies selling background checks can “unmask Mr. or Ms. Wrong.” And today’s Good Morning America featured a segment called “Online Dating: Are you Flirting with a Felon?”

I was interviewed by both the Times and Good Morning America to say that these background checks are superficial, create a false sense of security, and that government should never mandate these for online dating sites. First of all, I should say that I’m personally involved in this issue. I met my wife on Match.com. We didn’t screen each other, at least not for a criminal past. I remember doing a simple search on her screen name however, and for a while thinking she could be someone who she wasn’t, though.

But for fun, I did a postmortem background check on myself, just to see what my now wife would have seen. First, I went to Intelius and spent $58 (warning: there’s a constant barrage of confusing upsells) to see criminal, civil judgment, property, name, telephone and social networking data. The result: nothing harmful thankfully! But also nothing particularly helpful, either. And the report included a family member that isn’t, and left out my brother that is. Then I went to MyMatchChecker and ordered the basic level screening (the two most expansive products–“Getting Serious” and “All About Me”–require social security numbers, which I doubt most people will not learn about the other until they actually get married). The site made it easy to not include all relevant info, and I didn’t, so there’s a delay on my check. But let’s assume it’s all good too (ahem).

So would my wife have used the absence of a negative history to assume I was a good person? Well, she shouldn’t have. Although these criminal screenings can help in some situations, they still have some serious shortcomings. They result in false negatives when criminal records don’t appear or may not include felony arrests that were plead down to misdemeanors.

And these sort of criminal screenings are not very inclusive–at all. Continue reading →

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Net Neutrality: A Christmas Gift for Washington Lawyers & Lobbyists

by on December 21, 2010 · 4 comments

Well, there really isn’t anything left to be said about Net Neutrality regulation that hasn’t already been said a million times before.  Yes, it is the most important technology policy battle of our time, but man, I am sick of it!  Anyway, I’ve summarized the “The 5-Part Case against Net Neutrality Regulation” here before, so consult that for details, as well as this paper by Berin Szoka and me, “Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction.”

But on this day when the Federal Communications Commission (FCC) is enshrining an audacious new regulatory regime for the Internet, I’m going to ignore the shoddy economics behind the effort, the unjustifiable legal basis for it, and the whole stinking undemocratic process leading up to it.  Instead, I just want to focus on the one element of the fight that continues to interest me most, and which, ironically, the one thing that almost all intellectual combatants agree upon: Regulation is prone to excessive special interest influence.  I cannot possibly articulate this concern more succinctly than professors David Farber and Gerald Faulhaber have in this Atlantic op-ed today, “Net Neutrality: No One Will Be Satisfied, Everyone Will Complain.” They note that:

“When the FCC asserts regulatory jurisdiction over an area of telecommunications, the dynamic of the industry changes. No longer are customer needs and desires at the forefront of firms’ competitive strategies; rather firms take their competitive battles to the FCC, hoping for a favorable ruling that will translate into a marketplace advantage. Customer needs take second place; regulatory ‘rent-seeking’ becomes the rule of the day, and a previously innovative and vibrant industry becomes a creature of government rule-making.”

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McDowell: “Long Winter’s Night for Internet Freedom”

by on December 20, 2010 · 2 comments

FCC Commissioner Robert McDowell penned an outstanding piece in today’s Wall Street Journal (subscription) on the commission’s vote tomorrow on neutrality regulation.   The final paragraph is worth a Pulitzer:

On this winter solstice, we will witness jaw-dropping interventionist chutzpah as the FCC bypasses branches of our government in the dogged pursuit of needless and harmful regulation. The darkest day of the year may end up marking the beginning of a long winter’s night for Internet freedom.

Strangely, McDowell’s dire warning is similar to that of Senate Majority Comedian Al Franken, who warned today in the Huffington Post that if the proposed rules are adopted, “the Internet as we know it would cease to exist.”    Of course, his reasoning is a bit different, as he calls for more, rather than less regulation. 

Despite complaints from Franken and others on the Left that the FCC proposal doesn’t interfere enough with the Internet, the betting at the moment is that the FCC will adopt neutrality rules of some type or another tomorrow.   The the real battle begins, on two fronts.  In Congress, GOP members are anxious to use their new House majority (as well as their increased Senate heft)  to take a whack at regulation generally, and neutrality regulation specifically.   Secondly, in the courts, which decimated the FCC’s prior attempt to impose neutrality rules, and will no doubt will look skeptically at these new ones.

Should be an interesting 2011.  (BTW, my own piece on the issue, released on Friday, can be found here.)

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Regulatory Capture: What the Experts Have Found

by on December 19, 2010 · 661 comments

[Note: This post is updated regularly as I discover relevant old or new material.]

“Regulatory capture” occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends.  Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics.  Another term for regulatory capture is “client politics,” which according to James Q. Wilson, “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).”  (James Q. Wilson, Bureaucracy, 1989, at 76).

While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity.  Because regulatory capture theory conflicts mightily with romanticized notions of “independent” regulatory agencies or “scientific” bureaucracy, it often evokes a visceral reaction and a fair bit of denialism.  (See, for example, the reaction of New Republic’s Jonathan Chait to Will Wilkinson’s recent Economist column about the prevalence of corporatism in our modern political system.)  Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.

I thought it might be useful to build a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem.  I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book. [ Note: I have updated this compendium over a dozen times since the original post, so please check back for updates.]

The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…

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Browsers Go After ‘Tracking’

by on December 19, 2010 · 4 comments

Advocates of regulation will credit regulators for the fact that major browser providers Microsoft and Mozilla are going after online “tracking.” In forthcoming versions of their browsers, they will provide controls that protect against unwanted monitoring even better than the controls that now exist.

When consumer advocates cluster in Washington, D.C., asking federal agencies to solve consumer issues, of course, any progress on the issues will be credited to the threat of coercion. But experiments like these have no controls.

Decisions about the qualities of goods and services are made out at the leading edge of consumer demand, where producers work to anticipate developing public interests. Meeting demand after it has been realized is a recipe for business failure because competitors getting there before the others win market share and profits. Laggards are losers.

You can tell when regulators push for something that does not match up with consumer demand as perceived in the business sector. The regulators get nowhere. That would be the FTC’s call a decade ago for a suite of regulations requiring “notice, choice, access, and security.” The current push for “tracking” controls does appear to meet up with consumer demand, and, again, the browser providers are working on it years ahead of what any regulation would have required.

I’ve put “tracking” in scare quotes because the open question is just what anyone means by the word. The report linked above notes a comment from Google, provider of the Chrome browser:

“The idea of ‘Do Not Track’ is interesting, but there doesn’t seem to be consensus on what ‘tracking’ really means, nor how new proposals could be implemented in a way that respects people’s current privacy controls,” said the company…

Maybe Google will be the laggard and loser for not moving on “tracking” as fast as its competitors. That’s one approach, while Microsoft and Mozilla will each take a different tack to the problem. The result will be an experiment that does have controls. The browser provider that meets up with consumer interests, in the consumer-friendliest way, wins. Such would not be the case if a federal regulation—yes, one-size-fits-all—determined what “tracking” was and how browsers or others would provide protection against it.

Marketplace competition will do better than any other known method for determining what “tracking” means to consumers and what to do about it. There is no privacy advocate, there is no technologist, no advocacy group, nor academic who knows what to do here.

The one thing I recommend is that do-not-track efforts should control the content of the header and the domains the browser communicates with. Simply putting a “do-not-track” signal in the header would punt the problem back to regulators and the cadre that surrounds them. This group would come up with something that satisfies itself, the regulatory community, but that does not digest and reconcile actual consumers’ competing interests in privacy, convenience, access to content, and so on.

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What Happens When Privacy Regs Force Developers to Monetize via Paywalls?

by on December 18, 2010 · 5 comments

This week saw the release of another major government privacy report, this one from the Department of Commerce.  The report called for expanded oversight and a new Privacy Policy Office within the Commerce Department. [Good summary of the report is here, and make sure to see Braden’s post about it here.]  The Commerce Dept. green paper follows a report from the Federal Trade Commission (FTC) just a few weeks ago. The FTC report also endorsed a new regulatory framework, including a so-called “Do Not Track” mechanism to allow easier consumer opt-outs of online data collection and advertising.

Commenting on the gradual move toward a mandatory opt-in world for online advertising / data collection, Corey Kronengold of Digiday makes an argument that Berin Szoka and I have tried to develop here in the past.  Namely, if government regulation “breaks” the implicit online quid pro quo currently governing online sites and services — i.e., that you get lots of free stuff in exchange for tolerating ads and data collection — then something must give.  In all likelihood, that means paywalls will go up and prices will increase from zero to something higher.  In his essay, “Taking Issue: The Value of Privacy,” Kronengold argues:

The value chain of online publishing is increasingly complex. And most consumers don’t have any interest in understanding the mechanics of targeting, data collection and re-selling, and ad revenue sharing. If continued access to free web content is what consumers are after, this has to change. Not participating in the value exchange is not an option. Yet we continue to struggle to explain. We need to do a better job of explaining the options and the consequences of those choices. When we can more clearly explain the benefits of allowing third party data to be bought and sold, users, and our government, are much more likely to allow us to continue to do so.

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Commerce Department’s “Dynamic Policy” Privacy Approach – Likes & Concerns

by on December 16, 2010 · 1 comment

Earlier today the Commerce Department’s Internet Policy Task Force issued its expected privacy report. Commerce waded into shark-filled privacy waters and produced a report that overall is thoughtful, comprehensive and has lots of meat for strengthening the nation’s privacy framework. Of course, we have our quibbles too. On first read, here’s what I like and what concerns me:

Like:

  • “Dynamic policies”. The report appropriately proposes what it calls “dynamic policies.” We agree that technology and information flows are constantly changing, so a privacy policy regulatory framework should not be static, nor should it be proscriptive.
  • Privacy Policy Office. Because it would be located within Commerce, the office would be a vital advocate for online companies doing business overseas. It could help outreach with European regulators and coordinate certification procedures to enable cross-border data flows.
  • Transparency through purpose specification and use limitation (NOT collection limitation and data minimization). The report proposes consumer assurances principles that would require data collectors to specify all the reasons for collecting personal information and then specify limits on the use of that information. This is a flexible approach compared to proscriptive regulations limiting data collection and requiring data minimization.
  • Encourage Global Interoperability. In our comments, NetChoice advocated strongly for international privacy reciprocation, and where appropriate, harmonization.
  • ECPA Review. We like how the report calls for a review of the Electronic Communications Privacy Act (ECPA). The law is outdated and doesn’t do a good job of clarifying the roles of online companies when responding to law enforcement requests.

Concerns: Continue reading →

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Cloud Users and Providers Win Big Privacy Victory – U.S. v. Warshak

by on December 16, 2010 · 0 comments

The Sixth Circuit ruled on Tuesday that criminal investigators must obtain a warrant to seize user data from cloud providers, voiding parts of the notorious Stored Communication Act.  The SCA allowed investigators to demand providers turn over user data under certain circumstances (e.g., data stored more than 180 days) without obtaining a warrant supported by probable cause.

I have a very long piece analyzing the decision, published on CNET this evening.  See “Search Warrants and Online Data:  Getting Real.” (I also wrote extensively about digital search and seizure in “The Laws of Disruption.”)  The opinion is from the erudite and highly-readable Judge Danny Boggs.    The case is notable if for no other reason than its detailed and lurid description of the business model for Enzyte, a supplement that promises to, well, you know what it promises to do…. Continue reading →

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