“Live by the sword, die by the sword.”

“Play with fire and you might get burned.”

Those are lines that sprung to my mind as I read this FT article noting how Google’s support for ‘net neutrality regulation has transmogrified into a push for “search neutrality.” Such regulation would be aimed directly at Google’s heart throat nuts business model.

(I was the first to discuss “search neutrality” here on TLF. Ignore Adam’s comment.)

But sloganeering is cheap. Let’s take a minute to try and understand why things like this happen to companies like Google.

First, I think, most executives—certainly executives in tech companies—don’t understand Washington at all. They have a gauzy impression that good people work for the betterment of public policy here.

Actually, that’s true. Just about everyone is good. And everyone is working for the betterment of public policy as they see it. The thing is, everybody sees the betterment of public policy as turning it to their own interests. Washington, D.C. is a war of all against all—each trying to grab the most stuff—using politics instead of clubs, knives, and guns.

Next, I think it’s important to recognize the incentives of the people who advise tech executives. They are people with families and mortgages. They want to have and keep a job. So what do they do? They encourage involvement in public policy. The public policy advisor who says “steer clear of Washington” may be giving better advice, but his consulting contract is small and its term is short.

The government relations/lobbying shop in a company like Google is part of a larger business, yes, but it is a small bureaucracy within the business. It doesn’t produce anything subject to competitive pricing, so (accounting practices notwithstanding) there is little way to measure its value. The fallback measure is activity—the more things happening, the more ‘valuable’ the lobbying shop. (Surprise me, Google, so famous for measurement, testing, and rigor in product development. Have you got a way to measure the true value produced by your lobbying shop, law department, accounting group, etc.?)

You see how the dynamics quickly get perverse. A public policy advisor or lobbyist makes him- or herself ‘valuable’ by getting the client into trouble.

Google is not in trouble. The FT story is premature, and it’s overstatement to say that Google has been “hoisted by its own petard.”

But imagine a controlled experiment in which another Google in a parallel universe didn’t draw attention to itself in Washington, D.C., didn’t push for conditions in the 700 MHz spectrum auction, didn’t advocate for ‘net neutrality regulation, and so on. That Google might not have created—or might have delayed—the need for a permanent lobbying/government relations cost center.

Berin Szoka and I just released a short article on the FCC’s proposed follow-up to the failed 700 mhz D Block auction:  a free, nationwide wireless service that would serve public safety users as well as consumers.  It’s attached down below or the PDF can be found here.

What’s Worse Than Rigged Auctions & Internet Censorship? How About Both in One Package!

a PFF Progress Snapshot Release 4.12 June 2008

by Adam Thierer and Berin Szoka

The big spectrum policy debate in town these days continues to be the fight about how to redo the botched D block auction. As we all know, FCC Chairman Kevin Martin’s previous effort to micro-manage that auction failed miserably. Sadly, the follow-up plan isn’t much better, as the Wall Street Journal notes in an editorial today:

You’d think Chairman Martin would have learned from this experience. It’s not the role of regulators to pick winners and losers to achieve their preferred social outcomes. Private competition and the price mechanism can most fairly and efficiently find the best use for scarce spectrum. The FCC’s clumsy attempt at social engineering resulted in a failed auction that has prevented otherwise desirable spectrum from being put to commercial use. Alas, Mr. Martin has now proposed another wireless auction for a separate piece of spectrum. And this time he wants to require the winner to offer free Internet access that filters out pornography–conditions that obviously would decrease the value of the license and turn off potential bidders. It just so happens that Mr. Martin’s proposed auction seems tailor-made for the business plan put forward by M2Z, another politically connected Silicon Valley start-up looking to enter the wireless broadband telecom market.

The declared goal of the new plan is to provide “free” broadband to the masses while also satisfying public safety spectrum needs (though little is understood about how the propose service will support public safety). Supporting legislation introduced by Rep. Anna Eshoo (D-CA), H.R. 5846, the “Wireless Internet Nationwide for Families Act of 2008,” would require the winning bidder to:

offer, at a minimum, always-on wireless broadband services within 2 years from the date of receipt of the license, and complete the construction of such wireless network with a signal covering at least 95 percent of the population of the United States and its territories within 10 years from the initial operation of the network; [and] a data service that is faster than 200 kilobits per second one way for free to consumers and authorized public safety users without subscription, airtime, usage, or other charges.

Good luck getting anyone to bid much on that plan! It’s not really clear why anyone would think that a 200 kbps public utility service–even at zero cost–will have all that much appeal to the masses. Today, through server-side data compression, any of us can already squeeze 300 kbps out of our old dial-up lines–a service now free from companies like NetZero and generally costing less than $10/month. Even most existing wireless data plans today provide greater bandwidth. How many people are really going to want to use a “free” wireless network that pumps out far less? After all, you’re not going to be able to download many videos or big files or do anything very data-intensive on the proposed network. While a certain segment of basic smart phone users might be satisfied with such sluggish speeds for rudimentary web uses such as email, blog-reading, calendars and basic locational searches, existing equipment would not be able to connect to the proposed network because of the bands used. So, while such PDA users might seize the opportunity to use slow-but-free municipal wi-fi networks, they could not use the proposed network: an entirely new generation of wireless technologies would have to be equipped to support yet another wireless standard.

So why would any company pony up serious money at an auction to win the right to provide such a lackluster service to a minimum of 95% of the nation, including costly-to-serve low density areas, within two years? You don’t need to be a Harvard Business School grad to see why that plan doesn’t make much sense for most investors. (Never mind the fact that the auction of this much valuable spectrum with so many regulatory encumbrances will yield far less at auction to the U.S. Treasury.)

Of course, the winning bidder will likely have the right to “up-sell” customers to a higher-speed paid service. But we have no idea how well that plan will work out and, even if it did, it would call into question the logic of rigging this auction in the first place: Is the purpose truly to provide free universal broadband access, or just to hand someone a chunk of somewhat cheaper spectrum to let them up-sell customers to higher-speed, paid plans? If it’s the latter, the plan seems a little unfair to the private carriers who are already aggressively competing in the market today, having paid top-dollar for their spectrum and invested heavily in wireless data networks.

Or will the lucky auction winner be expected to rely in part on advertising revenues to pay for the up-front costs of winning the auction, building out the network and providing service–much as M2Z originally planned to do? If so, the provider would doubtless prefer to offer more profitable behaviorally targeted advertising customized for each user. The Federal Trade Commission has wisely chosen not to regulate such advertising, given its complexities and ongoing evolution, and to rely instead on enforcement of existing unfair and deceptive trade laws, while issuing voluntary guidelines for industry. But of course, the FCC would have jurisdiction over the proposed service and would likely face enormous political pressure to include its own regulatory regime for online behavioral advertising while drafting service rules. The controversy over such rules could delay the deployment of the proposed service, while any FCC regulations would inject the FCC into the ongoing debate over how to govern a practice that provides the revenue stream necessary to support a variety of content and services.

But this new spectrum-rigging plan is troubling for an entirely different reason: It demands Internet censorship. The original M2Z plan included a promise to sanitize this little patch of spectrum to make sure it was “kid-friendly.” What better way to win a spot in the heart of legislators and regulators than to promise network-wide Net filtering! After all, many lawmakers have long considered this the Holy Grail of Internet policy. Eshoo’s bill would mandate such filtering by requiring that the licensee “offer such free data service with a technology protection measure or measures that protect underage users from accessing obscene or indecent material through such service.”

It’s surprising that so few people are discussing the dangers of this portion of the proposal. After all, what we are talking about here is a blueprint for widespread, government-mandated censorship of the Internet. Many folks, including the Wall Street Journal in today’s editorial, seem to be under the impression that the mandate is strictly directed at “pornography”–and nothing more. But Rep. Eshoo’s bill clearly requires filtering of “obscene or indecent material.” Defining obscenity is difficult enough. But including “indecent” content will open up a Pandora’s Box of regulatory shenanigans. One need do nothing more than read a few pages of broadcast regulatory history to appreciate the practical challenge that awaits both providers and regulators as they attempt to monitor the network to ensure that everything is “decent” for the masses. (Moreover, is that really what the Internet that the masses want?)

Regardless, the important question is not what will be censored, but how it will be censored–a critical detail that neither Chairman Martin nor Rep. Eshoo have spelled out. But, in all likelihood, we’re talking about something more that just downloadable filters for consumers to install themselves if they so chose–leaving the decision to individuals and parents, where it belongs in a free society. Instead, it seems clear that we are talking about server-side, network-wide filtering that will essentially be forced on all users of the network. Such a technological solution will greatly slow down the already primitive network being proposed under this plan. But, more importantly, we have to wonder what sort of precedent is being established here for other broadband networks and the rest of the Net.

Of course, policymakers will respond by saying that the plan is simply another regulatory quid pro quo: We rig the auctions to drive down the cost, and you, the winning carrier, clean up the Net for us. That’s all easier said than done, and it raises a host of constitutional issues in the process. There are many better ways to protect kids, and there are certainly better ways to run a spectrum auction.

Chairman Martin and his FCC colleagues testified today before the House Energy and Commerce Telecommunications and the Internet Subcommittee on the just-completed 700 MHz spectrum auction. At the top of the agenda was the failed D Block auction. According to Martin, all options are on the table. According to the WSJ, however, some have definite ideas for the block:

Some Republican members on the committee said they believed the 10 megahertz of spectrum should be sold off to the commercial wireless industry, and part of the proceeds then given to public safety so they could solve their communications shortcomings on their own. Those who advocate this solution have argued that public safety entities already control more than enough spectrum allocated to them by Congress over the years, but that it is being used ineffectively.

Those “some republicans” seem to include ranking member Joe Barton.

This is a bad idea. While I’m sympathetic to the argument that “public safety entities already control more than enough spectrum allocated to them by Congress over the years, but that it is being used ineffectively,” throwing more money at the problem isn’t going to fix it, either. Bringing commercial providers into the public safety sphere can help begin to break down the collective action problem that is the cause of the ineffective use of spectrum. If a commercial solution is successful, maybe then Congress can take a second look at all the spectrum public safety now holds and do something akin to the DTV transition: auction the spectrum while moving public safety to better, more efficient technologies.

Better late than never, here are my thoughts on the FCC’s auction for the D Block public safety band. There was only one bid for the block, Frontline Wireless to shut down, and some are even suggesting improprieties. Sadly, we’ve got a long way to go before we have an operating public safety network. Why did the D Block auction fail? I think at root the problem is that the FCC simply placed too many restrictions on the would-be licensee, and that’s something the FCC should keep in mind as it considers what to do next.

Under the D Block’s service rules the commercial licensee must come to an agreement with the Public Safety Spectrum Trust (which is the licensee for the adjacent public safety spectrum) about the details of the network to be built. If it doesn’t come to an agreement, the FCC can impose whatever requirements it sees fit on the licensee, and if the licensee surrenders its license or has it taken away, they must pay a forfeiture penalty that can run into the millions. Because there are no similar penalties for the non-profit PSST to come to agreement, this allows the PSST to basically dictate the terms of the network. Why would anyone bid for the privilege to be a part of that deal?

Sadly, Chairman Martin doesn’t seem to get this. He recently lamented the fate of the D Block:

“Did we get everything perfect in it? Obviously not because no one was willing to end up taking on that burden,” Martin conceded. “So, do I wish that someone was willing to take on that burden? Yes. And do we need to restructure it in such a way that someone is willing to take on that burden? Absolutely. But absent somebody else coming up with some idea to solve this, this is the only way to solve what’s really a public-safety crisis.”

Instead of expecting some selfless corporation to “take on the burden” of such a thankless deal, why not try instead to create a license aligned with the interests of both the private sector (profit) and public safety (cheap and interoperable communications solutions)? Here’s my recipe:

1. Get rid of the PSST, a bureaucracy more than prone to capture that will do nothing but hold a commercial licensee hostage.
2. Take the spectrum now held by the PSST and combine it with the D Block. Create two national licenses on the combined spectrum so as to inject competition and avoid a monopoly provider.
3. Place public safety obligations on each of those licenses but allow the licensees to lease excess capacity. What sort of obligations? Obviously public safety should have priority, and leased access would only be secondary. Beyond that, the FCC could include minimum performance standards in the licenses to ensure that the networks are built to public safety standards without having to prescribe specific technologies or methods.
4. Auction the licenses without reserve prices.

There are no doubt more than a few hurdles for such a plan to overcome, but I think it makes sense to allow market forces develop public safety networks. I’d love to hear any critiques of this idea. No doubt I’ll be submitting a comment to the inevitable rulemaking on this issue and it would help me to figure out the weaknesses of this scheme.

In an interesting post today, Glenn Fleishman explores what AT&T’s purchase of 700 MHz spectrum from Aloha Partners today means for Verizon. While my conspiracy theory radar tingles a bit, I had this same thought earlier today. No point in paraphrasing; enter the blockquote.

AT&T spends $2.5b for 12 MHz across 200m people in the 700 MHz band: Let’s talk two-steps-ahead. In the terms for the C Block licenses that Google wanted very open and Verizon and AT&T wanted to have cell-spectrum-like restrictions, AT&T did a volte-face and said it would agree to most of the openness that Google wanted. Huh, I said, I wonder what made them do that? Well, it’s gamesmanship. AT&T was obviously already in a position to acquire Aloha Partners’s licenses. This means that AT&T is reverse-encumbering the other band. While the C Block involves more bandwidth and greater coverage, Verizon is now in a worse position because of the lack of device and application lock-in if they choose to bid in 700 MHz as AT&T will already have holdings. AT&T can have the flexibility to deploy different services in the different 700 MHz blocks. I think.

AT&T can now focus on bidding on the A and B blocks, which can compliment their Aloha acquisition and which don’t come with open-access restrictions. So did AT&T pull off a Machiavellian ploy to saddle Verizon with an open access mandate?