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Thinking about the Future of Broadband & FCC Reform

by on November 12, 2011 · 2 comments

It was my pleasure this week to host a terrific panel discussion about the future of broadband policy and FCC reform featuring Raymond Gifford, a Partner at the law firm of Wilkinson Barker Knauer, LLP,  Jeffrey Eisenach, a Managing Director and Principal at Navigant Economics and an Adjunct Professor at George Mason University Law School, and Howard Shelanski, Professor of Law at Georgetown Law School who previously served as Chief Economist for the Federal Communications Commission and as a Senior Economist for the President’s Council of Economic Advisers at the White House. We discussed two new papers by Gifford and Eisenach on these issues.

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Net Neutrality and Regulatory Reform

by on November 7, 2011 · 6 comments

The Senate might vote this week on Sen. Hutchison’s resolution of disapproval for the FCC’s net neutrality rules.  If ever there was a regulation that showed why independent regulatory agencies ought to be required to conduct solid regulatory analysis before writing a regulation, net neutrality is it.

For more than three decades, executive orders have required executive branch agencies to prepare a Regulatory Impact Analysis accompanying major regulations.  One of the first things the agency is supposed to do is identify the market failure, government failure, or other systemic problem the regulation is supposed to solve. The agency ought to demonstrate a problem actually exists to show that a regulation is actually necessary.

But the net neutrality rules have virtually no analysis of a systemic problem that actually exists, and no data demonstrating that the problem is real.  Instead, the FCC’s order outlines the incentives Internet providers might face to treat some traffic differently from other traffic, in a discussion heavily freighted with “could’s” and “may’s”.  Then it offers up just four familiar anecdotes that have been used repeatedly to support the claim that non-neutrality is a significant threat  (all four fit in paragraph 35 of the order).  The FCC asserts without support that Internet providers have incentives to do these things even if they lack market power, and indeed in a footnote it dispenses with the need to consider market power: “Because broadband providers have the ability to act as gatekeepers even in the absence of market power with respect to end users, we need not conduct a market power analysis.” (footnote 87)

Thus far, no administration of either party has sought to apply Regulatory Impact Analysis requirements to independent agencies. If administrations won’t, Congress should.

 

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What Does It Mean to Declare Broadband a “Human Right,” and What Are the Costs?

by on October 18, 2011 · 4 comments

Freelance journalist Laurence Cruz was kind enough to call me recently looking for comment on whether broadband should be considered a human right. Well, actually, he probably didn’t have many options. If you do a quick search on the topic, you’ll find an endless stream of essays in favor of the proposition.  Then, somewhere in the mix, you’ll find a few dissenting rants I’ve penned here in the past. So I’m getting used to playing the baddie in this drama.

Cruz’s essay is now up over at “The Network,” which is Cisco’s technology news site. Here’s what I had to say in opposition to the proposition:

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Strengths and Weaknesses in the FCC Chairman’s USF Speech

by on October 6, 2011 · 1 comment

Federal Communications Chairman Genachowski previewed the universal service reform plan the commissioners are discussing in a speech today.

The speech offers a masterful summary of the myriad inefficiencies created by the current universal service subsidies and intercarrier compensation payments. Most of the examples highlight plain old-fashioned waste. The universal service program collects billions of dollars from telephone subscribers, then simply wastes a goodly portion of it by subsidizing telephone competition in places where unsubsidized service from cable or satellite already exists, subsidizing multiple mobile wireless competitors, and subsidizing local phone companies that have little incentive for cost containment because they are still subject to rate-of-return regulation. The intercarrier compensation system uses per-minute charges to collect billions of dollars from telephone subscribers and hands it to phone companies that sometimes charge as little as $8 a month for phone service. There’s also a race to game this system as the companies that benefit seek new ways to inflate the regulated charges they collect, and the companies that pay seek clever ways to avoid paying.

It’s a powerful brief for reform. Never thought I’d live to see the day whan an FCC chairman would say so many things that are substantiated by economic research.

Nevertheless, a few parts of the speech give me cause for concern about the solutions the FCC commissioners may be discussing.

First, the chairman claims that 18 million Americans live in areas without access to broadband — up from the 14 million estimated in the National Broadband Plan.  The size of this figure suggests to me that the FCC is still over-estimating the number of people without access by defining “broadband” as a speed fast enough to exclude 3G wireless, many small rural Wireless Internet Service Providers, and satellite. Absent an adjustment in the definition of broadband, the subsidy program will be larger than it needs to be, and so telephone consumers will pay excessive universal service charges. Continue reading →

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Net Neutrality goes to Court…Again

by on October 4, 2011 · 1 comment

On NPR’s Marketplace this morning, I talk about net neutrality litigation with host John Moe.

Nearly a year after the FCC passed controversial new “Open Internet” rules by a 3-2 vote, the White House finally gave approval for the rules to be published last week, unleashing lawsuits from both supporters and detractors.

The supporters don’t have any hope or expectation of getting a court to make the rules more comprehensive.  So why sue?  When lawsuits challenging federal regulations are filed in multiple appellate courts, a lottery determines which court hears a consolidated appeal.

So lawsuits by net neutrality supporters are a procedural gimmick, an effort to take cases challenging the FCC’s authority out of the D.C. Circuit Court of Appeals, which has already made clear the FCC has no legal basis here.

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iPhone, Android and the Rest: at the Mercy of Local Zoning Boards

by on September 8, 2011 · 2 comments

For CNET this morning, I have a long article reviewing the sad recent history of how local governments determine the quality of mobile services.

As it  turns out, the correlation is deeply negative.  In places with the highest level of user complaints (San Francisco, Washington, D.C.), it turns out that endless delays or outright denials for applications to add towers and other sites as well as new and upgraded equipment is also high.  Who’d have thought?

Despite a late 2009 ruling by the FCC that put a modest “shot clock” on local governments to approve or deny applications, data from CTIA and PCIA included in recent comments on the FCC’s Broadband Acceleration NOI suggests the clock has had little to no effect.  This is in part because the few courts that have been asked to enforce it have demurred or refused.

Much of the dithering by local zoning boards is unprincipled and pointless, a sign not so much of legitimate concerns over safety and aesthetics but of incompetence, corruption, and the insidious influence of  outside “consultants” whose fees are often levied against the applicant, adding insult to injury. Continue reading →

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Let me say something good about DOJ’s AT&T/T-Mobile decision …

by on August 31, 2011 · 5 comments

I can’t help but think that there might be  a big advantage of having the AT&T-T-Mobile merger go to court.  For once, the high-profile action everyone pays attention to will occur in an antitrust forum where the decision criterion is the effects of the merger on consumer welfare, period.   Regardless of what one thinks about the merger, it’s nice to see that we’ll finally have a knock-down, drag-out fight based on whether a big telecommunications merger harms consumers and competition.  That’s the antitrust standard the Department of Justice has to satisfy in order to prevent the merger. 

This will be a refreshing change from the Federal Communications Commission’s “public interest” standard, which allows the commission to object on grounds other than consumer welfare and demand all manner of concessions that have nothing to do with remedying anticompetitive effects of a deal. Case in point: Comcast must now offer broadband service for $9.95 per month to low-income households as a condition for getting approval to buy 51 percent of NBCUniversal. Now, I’m all for seeing low-income households get access to broadband, but subsidizing one subset of customers has little to do with mitigating any possible anticompetitive effects of allowing a cable company to own NBCUniversal. As FCC Commissioners McDowell and Baker said in their statement on that transaction, “Any proposed remedies should be narrow and transaction specific, tailored to address particular anti-competitive harms. License transfer approvals should not serve as vehicles to extract from petitioners far-reaching and non-merger specific policy concessions that are best left to broader rulemaking or legislative processes.” 

In short, if AT&T wins in court, the FCC should approve the merger promptly without additional conditions.

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Latest Industry USF Proposal

by on August 1, 2011 · 10 comments

A couple days before Congress announced a debt deal, half a dozen telecommunications companies filed a plan on July 29 with the Federal Communications Commission that attempts to resolve a much longer-running set of negotiations over big bucks.  The “America’s Broadband Connectivity” Plan seeks to replace Universal Service Fund subsidies for telephone service in rural areas with subsidies for broadband in rural areas.

Like the federal budget negotiations, the never-ending negotiations over USF get bogged down in arguments over distribution: who gets what.  Indeed, it’s almost exclusively an argument over which companies get what. But federal telecommunications policy is supposed to advance the overall public interest, not just haggle over what corporate interest gets what piece of my pie. Here is a quick take on the biggest strengths and weaknesses of the plan in terms of advancing overall consumer welfare. By “consumer welfare,” I mean not just the welfare of the folks receiving subsidized services, but also the welfare of the majority who are paying a 15 percent charge on interstate phone services to fund the USF.

BIGGEST STRENGTHS

Fixed-term commitment: Rural phone subsidies have become a perpetual entitlement with no definition of when the subsidies can end because the problem is considered solved.  The ABC plan proposes a 10-year commitment to rural broadband subsidies.  By 2022 the FCC should assess whether any further high-cost universal service program is needed. This idea remedies a significant deficiency in the current high-cost subsidy program, which doesn’t even have outcome goals or measures. (That’s why I like to sing the final verse from “And the Money Kept Rolling In” from Evita when I talk about universal service.  Free State Foundation President Randy May asked me for an encore of this at the end of the foundation’s July 13 program on universal service, available here.)

Intercarrier compensation: “Intercarrier compensation” refers to the per-minute charges communications companies pay when they hand off phone traffic to each other. The plan proposes to ramp down all intercarrier charges to a uniform rate of $0.0007/minute.  Economists who study telecommunications have pointed out for decades that high per-minute charges reduce consumer welfare by discouraging consumers from communicating as much as they otherwise would.  MIT economist Jerry Hausman, in a paper prepared for the filing, estimates that low, uniform intercarrier charges would increase consumer welfare by about  $9 billion annually.

Legacy obligations: Public utility regulation traditionally forced regulated companies to offer certain services or serve certain markets at a loss, then charge profitable customers higher prices to cover the losses. Judge Richard Posner referred to this opaque practice as “Taxation by Regulation“: the customers paying inflated prices get “taxed” to accomplish a public purpose, but they don’t know it.  Some of these obligations continue today as federal requirements applied to “Eligible Telecommunications Carriers” or state “Carrier of Last Resort” obligations.  The plan would remove these obligations for companies that are not receiving USF subsidies.

BIGGEST WEAKNESSES

Definition of broadband: The plan would continue to inflate the cost of rural broadband subsidies by defining “broadband” as 4 megabytes per second download and 768 kilobytes per second upload.  This means 3G wireless, satellite, and some wireless Internet service providers do not count as “broadband.” This decision more than doubles the number of households considered “unserved” and rules out some lower-cost technologies.  Jerry Brito and I have written extensively about both the economics and the legality of this.  Interestingly, the ABC coalition’s legal white paper arguing that the commission has legal authority to adopt the plan makes no effort to show that the commission has authority to subsidize 4 mbps broadband; it only shows the commission has authority to subsidize some form of broadband.

Alternative cost technology threshold: The plan includes an “alternative cost technology” threshold that allows substitution of satellite broadband for customers who would cost more than $256/month to serve.  Inclusion of a threshold is actually a strength. But the $256/month figure is way too high.  Satellite broadband with speeds of 1-2 mbps is now available for $60 – $110 per month.  Consumers who pay a 15 percent surcharge on their local phone bills to fund USF should not be expected to provide a subsidy of more than $200 per month.

Mobility: The plan appears to advocate subsidies for mobile broadband service in places where it is not currently available.  So now the rural entitlement expands to include not just basic broadband service in the home to stay connected, but also a mobile service that a lot of Americans don’t even buy unless their employers pay for it! I question whether mobile broadband satisfies the 1996 Telecommunications Act’s criteria for universal service subsidies, such as “essential” (not just nice) for education or public safety, or subscribed to by a “substantial majority” of households. These questions should be thoroughly examined before anyone receives subsidies for mobile broadband. At a minimum, households should be eligible for only one broadband subsidy — wireline or mobile — but not both.

 

 

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Net neutrality: the disaster that keeps on giving

by on July 29, 2011 · 7 comments

On CNET this morning, I argue that delay in approving FCC authority for voluntary incentive auctions is largely the fault of last year’s embarrassing net neutrality rulemaking.

While most of the public advocates and many of the industry participants have moved on to other proxy battles (which for most was all net neutrality ever was), Congress has remained steadfast in expressing its great displeasure with the Commission and how it conducted itself for most of 2010.

In the teeth of strong and often bi-partisan opposition, the Commission granted itself new jurisdiction over broadband Internet on Christmas Eve last year.  Understandably, many in Congress are outraged by Chairman Julius Genachowski’s chutzpah.

So now the equation is simple:  while the Open Internet rules remain on the books, Congress is unlikely to give the Chairman any new powers.

House Oversight Committee Chairman Darrell Issa has made the connection explicit, telling reporters in April that incentive auction authority will not come while net neutrality hangs in the air.  There’s plenty of indirect evidence as well.

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Brown v EMA and net neutrality?

by on June 28, 2011 · 1 comment

John Perry Barlow famously said that in cyberspace, the First Amendment is just a local ordinance.  That’s still true, of course, and worth remembering.  But at least today there is good news in the shire.  The local ordinance still applies with full force, if only locally.

As I write in CNET this evening (see “Video Games Given Full First Amendment Protection“), the U.S. Supreme Court issued a strong and clear opinion today nullifying California’s 2005 law prohibiting the sale or rental to minors of what the state deemed “violent video games.” Continue reading →

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