On December 13th, I will be participating in an Atlas Network panel on, “Big Tech, Free Speech, and Censorship: The Classical Liberal Approach.” In anticipation of that event, I have also just published a new op-ed for The Hill entitled, “Left and right take aim at Big Tech — and the First Amendment.” In this essay, I expand upon that op-ed and discuss the growing calls from both the Left and the Right for a variety of new content regulations. I then outline the classical liberal approach to concerns about free speech platforms more generally, which ultimately comes down to the proposition that innovation and competition are always superior to government regulation when it comes to content policy.

In the current debates, I am particularly concerned with calls by many conservatives for more comprehensive governmental controls on speech policies enforced by various private platforms, so I will zero in on those efforts in this essay. First, here’s what both the Left and the Right share in common in these debates: Many on both sides of the aisle desire more government control over the editorial decisions made by private platforms. They both advocate more political meddling with the way private firms make decisions about what types of content and communications are allowed on their platforms. In today’s hyper-partisan world,” I argue in my Hill column, “tech platforms have become just another plaything to be dominated by politics and regulation. When the ends justify the means, principles that transcend the battles of the day — like property rights, free speech and editorial independence — become disposable. These are things we take for granted until they’ve been chipped away at and lost.”

Despite a shared objective for greater politicization of media markets, the Left and the Right part ways quickly when it comes to the underlying objectives of expanded government control. As I noted in my Hill op-ed:

there is considerable confusion in the complaints both parties make about “Big Tech.” Democrats want tech companies doing more to limit content they claim is hate speech, misinformation, or that incites violence. Republicans want online operators to do less, because many conservatives believe tech platforms already take down too much of their content.

This makes life very lonely for free speech defenders and classical liberals. Usually in the past, we could count on the Left to be with us in some free speech battles (such as putting an end to “indecency” regulations for broadcast radio and television), while the Right would be with us on others (such as opposition to the “Fairness Doctrine,” or similar mandates). Today, however, it is more common for classical liberals to be fighting with both sides about free speech issues.

My focus is primarily on the Right because, with the rise of Donald Trump and “national conservatism,” there seems to be a lot of soul-searching going on among conservatives about their stance toward private media platforms, and the editorial rights of digital platforms in particular.

In my new  Hill essay and others articles (all of which are listed down below), I argue there is a principled classical liberal approach to these issues that was nicely outlined by President Ronald Reagan in his 1987 veto of Fairness Doctrine legislation, when he said:

History has shown that the dan­gers of an overly timid or biased press cannot be averted through bureaucratic regulation, but only through the freedom and compe­tition that the First Amendment sought to guarantee.

Let’s break that line down. Reagan admits that media bias can be a real thing. Of course it is! Journalists, editors, and even the companies they work for all have specific views. They all favor or disfavor certain types of content. But, at least in the United States, the editorial decisions made by these private actors are protected by the First Amendment. Section 230 is really quite secondary to this debate, even though some Trumpian conservatives wrongly suggest that it’s the real problem here. In reality, national conservatives would need to find a way to work around well-established First Amendment protections if they wanted to impose new restrictions on the editorial rights of private parties.

But why would they want to do that? Returning to the Reagan veto statement, we should remember how he noted that, even if the First Amendment did not protect the editorial discretion of private media platforms, bureaucratic regulation was not the right answer to the problem of “bias.”  Competition and choice were the superior answer. This is the heart and soul of the classical liberal perspective: more innovation is always superior to more regulation.

For the past 30 years, conservatives and classical liberals were generally aligned on that point. But the ascendancy of Donald Trump created a rift in that alliance that now threatens to grow into a chasm as more and more Right-of-center people begin advocating for comprehensive control of media platforms.

The problems with that are numerous beginning with the fact that none of the old rationales for media controls work (and most of them never did). Consider the old arguments justifying widespread regulation of private media:

• “Scarcity” was the oldest justification for media regulation, but we live in the exact opposite world today, in which the most common complaint about media is the abundance of it!
• Conversely, the supposed “pervasiveness” of some media (namely broadcasting) was used as a rationale for government censorship in the past. But that, too, no longer works because in today’s crowded media marketplace and Internet-enabled world, all forms of communications and entertainment are equally pervasive to some extent.
• State ownership and licensing of spectrum was another rationale for control that no longer works. No digital media platforms need federal licenses to operate today. So, that hook is also gone. Moreover, the answer to the problem of government ownership of media is to stop letting the government own and control media assets, including spectrum.
• “Fairness” is another old excuse for control, with some regulatory advocates suggesting that five unelected bureaucrats at the Federal Communications Commission (or some other agency) are well-suited to “balance” the airing of viewpoints on media platforms. Of course, America’s disastrous experience with the Fairness Doctrine proved just how wrong that thinking was. [I summarize all the evidence proving that here.]

That leaves a final, more amorphous rationale for media control: ” gatekeeper” concerns and assertions that private media platforms can essentially become “state actors.” In the wake of Donald Trump’s “de-platorming” from Facebook and Twitter, many of his supporters began adopting this language in defense of more aggressive government control of private media platforms, including the possibility of declaring those platforms common carriers and demanding that some sort of amorphous “neutrality” mandates be imposed on them. But as Berin Szóka and Corbin Barthold of Tech Freedom note:

Where courts have upheld imposing common carriage burdens on communications networks under the First Amendment, it has been because consumers reasonably expected them to operate conduits. Not so for social media platforms. [. . . ] When it comes to the regulation of speech on social media, however, the presumption of content neutrality does not apply. Conservatives present their criticism of content moderation as a desire for “neutrality,” but forcing platforms to carry certain content and viewpoints that they would prefer not to carry constitutes a “content preference” that would trigger strict scrutiny. Under strict scrutiny, any “gatekeeper” power exercised by social media would be just as irrelevant as the monopoly power of local newspapers was in [previous Supreme Court holdings].

Put simply, efforts to stretch extremely narrow and limited common carriage precedents to fit social media just don’t work. We’ve already seen lower courts declare that recently when blocking the enforcement of new conservative-led efforts in Florida and Texas to limit the editorial discretion of private social media platforms. If conservatives really hope to get around these legal barriers to regulation, what would be needed would be a more far-reaching strike at the First Amendment itself. That would entail a jurisprudential revolution at the Supreme Court — reversing about a century of free speech precedents — or an some sort of an effort to amend the First Amendment itself. These things are almost certainly not going to occur.

But, again, this hasn’t stopped some conservatives from pitching extreme solutions in their efforts to regulate digital media at both the state and federal level. I discuss these efforts in previous essays on, “How Conservatives Came to Favor the Fairness Doctrine & Net Neutrality,“ “Sen. Hawley’s Radical, Paternalistic Plan to Remake the Internet,“ and “The White House Social Media Summit and the Return of ‘Regulation by Raised Eyebrow’.“ Perhaps some Trump-aligned conservatives understand that these legislative efforts are unlikely to work, but they continue to push them in an attempt to make life hell for tech platforms, or perhaps just to troll the Left and “own the Libs.”

On the other hand, some conservatives seem to really believe in some of the extreme ideas they are tossing around. What is particular troubling about these efforts is the way — following Trump’s lead — some conservatives, including even more mainstream conservative groups like the Heritage Foundation, are increasingly referring to private media platforms as “the enemy of the people.” That’s the kind of extremist language typically used by totalitarian thugs and Marxist lunatics who so hate private enterprise and freedom of speech that they are willing to adopt a sort of burn-the-village-to-save-it rhetorical approach to media policy.

And speaking of Marxists, here’s what is even more incredible about these efforts by some conservatives to use such rationales in support of comprehensive media regulation: It is all based on the “media access” playbook concocted by radical Leftist scholars a generation ago. As I summarized in my essay on, “The Surprising Ideological Origins of Trump’s Communications Collectivism“:

Media access advocates look to transform the First Amendment into a tool for social change to advance specific political ends or ideological objectives. Media access theory dispenses with both the editorial discretion rights and private property rights of private speech platforms. Private platforms become subject to the political whims of policymakers who dictate “fair” terms of access. We can think of this as communications collectivism.

Media access doctrine is rooted in an arrogant, elitist, anti-property, anti-freedom ethic that suggest the State is a better position to dictate what can and cannot be said on private speech platforms. “It’s astonishing, yet nonetheless true,” I continued on in that essay, “that the ideological roots of Trump’s anti-social media campaign lie in the works of those extreme Leftists and even media Marxists. He has just given media access theory his own unique nationalistic spin and sold this snake oil to conservatives.” Yet, Trump and other national conservatives are embracing this contemptible doctrine because now more than ever the ends apparently justify the means in American politics. Nevermind that all this could come back to haunt them when the Left somehow leverages this regulatory apparatus to control Fox News or other sites and content that conservatives favor! Once media platforms are viewed as just another thing to be controlled by politics, the only question is which politics and how are those politics enforced? Certainly both the Left and the Right cannot both have their way given all that current divides them.

Finally, what is utterly perplexing about all this is how much thanks national conservatives really owe to the major digital platforms they now seek to destroy. As I noted in my new Hill op-ed:

There has never been more opportunity for conservative viewpoints than right now. Each day on Facebook, the top-10 most shared links are dominated by pundits such as Ben Shapiro, Dan Bongino, Dinesh D’Souza and Sean Hannity. Right-leaning content is shared widely on Twitter each day. Websites like Dailywire.com and Foxnews.com get far more traffic than the New York Times or CNN.

Thus, conservatives might be shooting themselves in the foot if they were able to convince more legislatures to adopt the media access regulatory playbook because it could have profound unintended consequences once the Left uses those tools to somehow restrict access to “hate speech” or “misinformation” — and then define it so broadly so as to include much of the top material posted by conservatives on Facebook and Twitter ever day.

Not all conservatives have drank the media access kool-aid. In the wake of Trump’s deplatforming from a few major sites, a wave of new Right-leaning digital services are being planned or have already launched. (Axios and Forbes recently summarized some of these efforts.) I don’t know which will of these efforts will succeed, but more competition and platform-building are certainly superior to current calls by some Trump supporters for government regulation of mainstream social media services.

Again, this is the old Reagan vision at its finest! We can achieve a better media landscape, “only through the freedom and compe­tition that the First Amendment sought to guarantee,” not through bureaucratic regulation. It remains the principled path forward.

Additional Reading :

• “Left and right take aim at Big Tech — and the First Amendment“
• “When It Comes to Fighting Social Media Bias, More Regulation Is Not the Answer“
• “FCC’s O’Rielly on First Amendment & Fairness Doctrine Dangers“
• “Conservatives & Common Carriage: Contradictions & Challenges“
• “The Great Deplatforming of 2021“
• “A Good Time to Re-Read Reagan’s Fairness Doctrine Veto“
• “Sen. Hawley’s Radical, Paternalistic Plan to Remake the Internet“
• “How Conservatives Came to Favor the Fairness Doctrine & Net Neutrality“
• “Sen. Hawley’s Moral Panic Over Social Media“
• “The White House Social Media Summit and the Return of ‘Regulation by Raised Eyebrow’“
• “The Not-So-SMART Act“
• “The Surprising Ideological Origins of Trump’s Communications Collectivism“

Older essays & testimony :

• Adam Thierer, “Why Regulate Broadcasting: Toward a Consistent First Amendment Standard for the Information Age,” Catholic University Law School, 15 CommLaw Conspectus (Summer 2007): 431-482.
• Adam Thierer, Testimony at FCC’s Hearing on “Serving the Public Interest in the Digital Era”, March 3, 2010.
• Adam Thierer, “FCC v. Fox and the Future of the First Amendment in the Information Age,” Federalist Society, Engage (Feb. 2009).

Over at Discourse magazine I’ve posted my latest essay on how conservatives are increasingly flirting with the idea of greatly expanding regulatory control of private speech platforms via some sort of common carriage regulation or new Fairness Doctrine for the internet. It begins:

Conservatives have traditionally viewed the administrative state with suspicion and worried about their values and policy prescriptions getting a fair shake within regulatory bureaucracies. This makes their newfound embrace of common carriage regulation and media access theory (i.e., the notion that government should act to force access to private media platforms because they provide an essential public service) somewhat confusing. Recent opinions from Supreme Court Justice Clarence Thomas as well as various comments and proposals of Sen. Josh Hawley and former President Trump signal a remarkable openness to greater administrative control of private speech platforms. Given the takedown actions some large tech companies have employed recently against some conservative leaders and viewpoints, the frustration of many on the right is understandable. But why would conservatives think they are going to get a better shake from state-regulated monopolists than they would from today’s constellation of players or, more importantly, from a future market with other players and platforms?

I continue on to explain why conservatives should be skeptical of the administrative state being their friend when it comes to the control of free speech. I end by reminding conservatives what President Ronald Reagan said in his 1987 veto of legislation to reestablish the Fairness Doctrine: “History has shown that the dangers of an overly timid or biased press cannot be averted through bureaucratic regulation, but only through the freedom and competition that the First Amendment sought to guarantee.”

Read more at Discourse, and down below you will find several other recent essays I’ve written on the topic.

• “FCC’s O’Rielly on First Amendment & Fairness Doctrine Dangers“
• “A Good Time to Re-Read Reagan’s Fairness Doctrine Veto“
• “Sen. Hawley’s Radical, Paternalistic Plan to Remake the Internet“
• “How Conservatives Came to Favor the Fairness Doctrine & Net Neutrality“
• “Sen. Hawley’s Moral Panic Over Social Media“
• “The White House Social Media Summit and the Return of ‘Regulation by Raised Eyebrow’“
• “The Not-So-SMART Act“
• “The Surprising Ideological Origins of Trump’s Communications Collectivism“

Section 230 is in trouble. Both presidential candidates have made its elimination a priority. In January, Joe Biden told the New York Times that the liability protections for social media companies should be revoked “immediately.” This week, President Trump called for revoking Section 230 as well. Most notably, after a few years of threatening action, the President issued an Executive Order about Section 230, its liability protections, and free speech online. (My article with Jennifer Huddleston about Section 230, its free speech benefits, and the common law precedents for Section 230 was published in the Oklahoma Law Review earlier this year.) 

There have been thousands of reactions to and news stories about the Executive Order and a lot of hyperbole. No, the Order doesn’t eliminate tech companies’ Section 230 protection and make it easier for conservatives to sue. No, the Order isn’t “plainly illegal.”

It’s fairly modest in reach actually. The Executive Order can’t change the deregulatory posture and specific protections of Section 230 but the President has broad authority to interpret the unclear meanings of statutes. Some of the thoughtful responses that stuck out are from Adam Thierer, Jennifer Huddleston, Patrick Hedger, and Adam White. I won’t reiterate what they’ve said but will focus on what the Order does and what the FCC can do.

Election Year Jawboning

The Order is a political document. For the baseball fans, it’s the political equivalent of a brushback pitch to tech companies–the pitcher throws an inside fastball intended to scare the batter without hitting him. (Enjoy 4 minutes of brushback pitches on YouTube.) Most of the time, a pitcher won’t get ejected by the umpire for throwing a brushback pitch. Likewise, here, I don’t see much chance of the Order being struck down by judges. The Order was wordsmithed, even in the last 24 hours before release, in a way to avoid legal troubles.

As Jesse Blumenthal points out in Slate, the Order is just the latest example of the long tradition of politicians using informal means and publicity to pressure media outlets. The political threats to TV and radio broadcasters during the Nixon, LBJ, and Kennedy years were extreme examples and are pretty well-documented.

More recently, there was a huge amount of jawboning of media companies in the runup to the 2004 election. Newspaper condemnation and legal threats forced a documentary critical of John Kerry off the air nationwide. Stations either pulled the documentary or only ran a few minutes of it because activists’ threatened to challenge TV station licenses for years at the FCC if stations ran the documentary. Many people remember the Citizens United case, which derived from the FEC’s censorship of an anti-John Kerry documentary in 2004 and an anti-Hillary Clinton documentary in 2008. Less remembered is that the conservative group started creating political documentaries only after the FEC rejected its complaint to get a Michael Moore’s anti-Bush documentary, Fahrenheit 9/11, off the air before the 2004 election.

The Title II net neutrality regulations were, per advocates close to the Obama White House, imposed largely to rally the base after Democrats’ 2014 midterm losses.

Implementation of the Executive Order

The timing of the Order–a few months before the election–seems intended to accomplish two things:

1. Rally the Trump base by publicly threatening tech companies’ liability protections and provoking tech companies’ ire.
2. Focus public and media scrutiny on tech companies so they think twice before suspending, demonetizing, or banning conservatives online.

The legal effect in the short term is negligible. Unless the relevant agencies (DOJ, FTC, NTIA, FCC) patched something together hastily, the Order won’t have an effect on tech companies and their susceptibility to lawsuits in the near term. The most immediate practical effect of the Order is the instructions to the NTIA. The agency is directed to petition the FCC to clarify what some unclear provisions of Sec. 230 mean, particularly the “good faith” requirement and how (c)(2) in the statute interacts with (c)(1).

It’s not clear why the Order makes this roundabout instruction to the NTIA and FCC. (The FCC is an independent agency and can refuse instructions from the White House.) “Good faith” is a term of art in contract law. It seems to me that referring this to the DOJ’s Office of Legal Counsel, not the FCC, would be the natural place for an administration to turn to to interpret legal terms of art and how provisions in federal statutes interact with each other. 

One reason the White House might use the roundabout method is because the administration knows the downsides of weakening Section 230 and isn’t actually intending to make material changes to existing interpretations of Sec. 230. The roundabout request to the FCC allows the White House to do something on the issue without upsetting established interpretations. And if the FCC refuses to take it up, the White House can tell supporters they tried but it was out of their hands.

Alternatively it could be that this was referred to the FCC because Section 230 is within the Communications Act and the FCC has more expertise and jurisdiction in communications law. The FCC has interpreted Section 230 before and has also interpreted what “good faith” means because Congress requires good faith negotiations between cable TV and broadcast TV operators.

If they took it up, I suspect FCC review would be perfunctory. The NTIA petition need not even get decided at the commission level. The FCC can delegate issues to bureau chiefs or other FCC staff. Bureaus can respond to a petition with an enforcement advisory or, after notice-and-comment, a declaratory ruling regarding the interpretative issues. It would take months to complete, but the full commission could also consider and rule on the NTIA petition.

But I suspect the commissioners don’t want to get dragged into election-year controversies. (As I mentioned above, White House staff may have even sent this to the FCC in order to let the issue die quietly.) The FCC is busy with pressing issues like spectrum auctions and rural broadband. Further, the NTIA-FCC relationship, while cordial, is not particularly good at the moment. Finally, the commissioners know the agency’s history of mission creep and media regulation. The Republican majority has consistently tried to untangle itself from legacy media regulations. An FCC inquiry into what “good faith” means in the statute and how (c)(2) in the statute interacts with (c)(1)–while an intriguing academic and legal interpretation exercise–would be a small but significant step towards FCC oversight of Internet services.

Section 230 is in Trouble

The fact is, Section 230 is in trouble. Courts have applied it reluctantly since its inception because of its broad protections. As Prof. Eric Goldman has meticulously documented, in recent years, courts have undermined Section 230 precedent and protection.

At some level the President and his advisors know that opening the door to regulation of the Internet will end badly for right-of-center and free speech. This was the foundation of the President’s opposition to Title II net neutrality rules. As he’s stated on Twitter:

Obama’s attack  on the internet is another top down power grab. Net neutrality is the Fairness Doctrine. Will target conservative media.

The Executive Order, while it doesn’t allow the FCC to regulate online media like Title II net neutrality did, is the Administration playing with fire. It’s essentially a bet that the Trump administration can get a short-term political win without unleashing long-term problems for conservatives and free speech online.

The Trump team may be right. But the Order, by inviting FCC involvement, represents a small step to regulation of Internet services. More significantly, there’s a reason prominent Democrats are calling for the elimination of Section 230. The trial bar, law school clinics, and advocacy nonprofits would like nothing more than to make it expensive for tech companies to defend their hosting and disseminating conservative publications and provocateurs.

Prominent Democrats are calling for the elimination of Sec. 230 and replacing it with a Fairness Doctrine for the Internet. If things go Democrats’ way, the Executive Order could give regulators, much of the legal establishment, and the left a foothold they’ve sought for years to regulate Internet services and online speech. Be careful what you wish for.

Last week the Federalist Society’s Regulatory Transparency Project released a podcast Adam and I recorded with FCC Chairman Pai:

Tech Roundup 9 – COVID-19 and the Internet: A Conversation with Ajit Pai

A few highlights: Chairman Pai’s legacy is still being written, but I suspect one of his lasting marks on the agency will be his integrating more economics and engineering in the FCC’s work.

He points out that that in recent decades, the FCC’s work has focused on the legal and policy aspects of telecommunications. My take: much of the dysfunctional legalism and regulatory arcana that’s built up in communications law is because Congress refuses to give the FCC a clean slate. Instead, communications laws have piled on to communications laws for 80 years. The regulatory thicket gives attorneys and insiders undue power in telecom policy. With the creation of the Office of Economics and Analytics and Engineering Honors program, Chairman Pai is creating institutions within the FCC to shift some expertise and resources to the economists and engineers.

We also discussed Marc Andreessen’s It’s Time to Build essay. A thought-provoking polemic (Adam has a response) that offers a challenge:

[T]o everyone around us, we should be asking the question, what are you building? What are you building directly, or helping other people to build, or teaching other people to build, or taking care of people who are building? If the work you’re doing isn’t either leading to something being built or taking care of people directly, we’ve failed you, and we need to get you into a position, an occupation, a career where you can contribute to building.

As we discuss in the podcast, the FCC has outperformed most public institutions on this front. The FCC in the past few years has untangled itself from the nonstop legal trench warfare of net neutrality regulation–an immense waste of time–to focus on making it faster and easier to build networks. As a result, the US is seeing impressive increases in network investment, coverage, and capacity relative to peer countries.

The COVID-19 crisis has been a stress test for the FCC and the broadband industry, and we’re grateful the Chairman took the time to discuss the agency, industry trends, and more with us.

Last month, Senator and presidential candidate Elizabeth Warren released a campaign document, Plan for Rural America. The lion’s share of the plan proposed government-funded and -operated health care and broadband. The broadband section of the plan proposes raising $85 billion (from taxes?) to fund rural broadband grants to governments and nonprofits. The Senator then placed a Washington Post op-ed to decrying the state of rural telecommunications in America. 

While it’s commendable she has a plan, it doesn’t materially improve upon existing, flawed rural telecom subsidy programs, which receive only brief mention. In particular, the Plan places an unwarranted faith in the power of government telecom subsidies, despite red flags about their efficacy. The op-ed misdiagnoses rural broadband problems and somehow lays decades of real and perceived failure of government policy at the feet of the current Trump FCC, and Chairman Pai in particular.

As a result, the proposals–more public money, more government telecom programs–are the wrong treatment. The Senator’s plan to wire every household is undermined by “the 2% problem”–the cost to build infrastructure to the most remote homes is massive. 

Other candidates (and perhaps President Trump) will come out with rural broadband plans so it’s worth diving into the issue. Doubling down on a 20 year old government policy–more subsidies to more providers–will mostly just entrench the current costly system.

How dire is the problem?

Somewhere around 6% of Americans (about 20 million people) are unserved by a 25 Mbps landline connection. But that means around 94% of Americans have access to 25 Mbps landline broadband. (Millions more have access if you include broadband from cellular and WISP providers.)

Further, rural buildout has been improving for years, despite the high costs. From 2013 to 2017, under Obama and Trump FCCs, landline broadband providers covered around 3 or 4 million new rural customers annually. This growth in coverage seems to be driven by unsubsidized carriers because, as I found in Montana, FCC-subsidized telecom companies in rural areas are losing subscribers, even as universal service subsidies increased.

This rural buildout is more impressive when you consider that most people who don’t subscribe today simply don’t want Internet access. Somewhere between 55% to 80% of nonadopters don’t want it, according to Department of Commerce and Pew surveys. The fact is, millions of rural homes are connected annually despite the fact that most nonadopters today don’t want the service.

These are the core problems for rural telecom: (1) poorly-designed, overlapping, and expensive programs and (2) millions of consumers who are uninterested in subscribing to broadband.

Tens of billions for government-operated networks

The proposed new $85 billion rural broadband fund gets most of the headlines. It resembles the current universal service programs–the fund would disburse grants to providers, except the grants would be restricted to nonprofit and government operators of networks. Most significant: Senator Warren promises in her Plan for Rural America that, as President, she will “make sure every home in America has a fiber broadband connection.” 

Every home?

This fiber-to-every-farm idea had advocates 10 years ago. The idea has failed to gain traction because it runs into the punishing economics of building networks.

Costs rise non-linearly for the last few percent of households and $85 billion would bring fiber only to a small sliver of US households. According to estimates from the Obama FCC, it would cost $40 billion to build fiber to the final 2% of households. Further, the network serving those 2% of households would require an annual subsidy of $2 billion simply to maintain those networks since revenues are never expected to cover ongoing costs. 

Recent history suggests rapidly diminishing returns and that $85 billion of taxpayer money will be misspent. If the economics wasn’t difficult enough, real-world politics and government inefficiency also degrade lofty government broadband plans. For example, Australia’s construction of a nationwide publicly-owned fiber network–the nation’s largest-ever infrastructure project–is billions over budget and years behind schedule. The RUS broadband grant debacle in the US only supports the case that $85 billion simply won’t go that far. As Will Rinehart says, profit motive is not the cause of rural broadband problems. Government funding doesn’t fix the economics and government efficacy.

Studies will probably be come out saying it can be done more cheaply but America has been running a similar experiment for 20 years. Since 1998, as economists Scott Wallsten and Lucía Gamboa point out, the US government has spent around $100 billion on rural telecommunications. What does that $100 billion get? Mostly maintenance of existing rural networks and about a 2% increase of phone adoption.

Would the Plan improve or repurpose the current programs and funding? We don’t know. The op-ed from Sen. Warren complains that:

the federal government has shoveled more than a billion in taxpayer dollars per year to private ISPs to expand broadband to remote areas, but these providers have done the bare minimum with these resources.

This understates the problem. The federal government “shovels” not $1 billion, but about $5 billion, annually to providers in rural areas, mostly from the Universal Service Fund Congress established in 1996.

As for the “public option for broadband”–extensive construction of publicly-run broadband networks–I’m skeptical. Broadband is not like a traditional utility. Unlike electricity, water, or sewer, a city or utility network doesn’t have a captive customer base. There are private operators out there.

As a result, public operation of networks is a risky way to spend public funds. Public and public-private operation of networks often leads to financial distress and bankruptcy, as residents in Provo, Lake County, Kentucky, and Australia can attest.

Rural Telecom Reform

I’m glad Sen. Warren raised the issue of rural broadband, but the Plan’s drafters seem uninterested in digging into the extent of the problem and in solutions aside from throwing good money after bad. Lawmakers should focus on fixing the multi-billion dollar programs already in existence at the FCC and Ag Department, which are inexplicably complex, expensive to administer, and unequal towards ostensible beneficiaries. 

Why, for instance, did rural telecom subsidies break down to about $11 per rural household in Sen. Warren’s Massachusetts in 2016 when it was about $2000 per rural household in Alaska? 

Alabama and Mississippi have similar geographies and rural populations. So why did rural households in Alabama receive only about 20% of what rural Mississippi households receive? 

Why have administrative costs as a percentage of the Universal Service Fund more than doubled since 1998? It costs $200 million annually to administer the USF programs today. (Compare to the FCC’s $333 million total budget request to Congress in FY 2019 for everything else the FCC does.)

I’ve written about reforms under existing law, like OTARD rule reform–letting consumers freely install small, outdoor antennas to bring broadband to rural areas–and transforming the current program funds into rural broadband vouchers. There’s also a role for cities and counties to help buildout by constructing long-lasting infrastructure like poles, towers, and fiber conduit. These assets could be leased out a low cost to providers.

Conclusion

After years of planning, the FCC reformed some of the rural telecom program in 2017. However, the reforms are partial and it’s too early to evaluate the results. The foundational problem is with the structure of existing programs. Fixing that structure should be a priority for any Senator or President concerned about rural broadband. Broadband vouchers for rural households would fix many of the problems, but lawmakers first need to question the universal service framework established over 20 years ago. There are many signs it’s not fit for purpose.

One year ago, the FCC majority passed the 2017 Restoring Internet Freedom Order, largely overturning the 2015 Open Internet Order. I consider the 2017 Order the most significant FCC action in a generation. The FCC did a rare thing for an agency—it voluntarily narrowed its authority to regulate a powerful and massive industry.

In addition to returning authority to the Federal Trade Commission and state attorneys general, the 2017 Order restored common-sense regulatory humility, despite the court’s blessing the Obama FCC’s unconvincing, expansive interpretation of FCC authority. National policy, codified in law, is that the Internet and Internet services should be “unfettered by Federal or State regulation,” which, if it means anything, means Internet services cannot be regulated as common carriers.

Net neutrality is dead

Net neutrality advocates who want the FCC to have common carriage powers over Internet applications and networking practices were outraged by the approval of the 2017 Order. Joe Kane at R Street has a good roundup of some of the death-of-the-Internet hyperbole from the political class and advocates. Some disturbed net neutrality supporters took it too far, including threats to the lives and families of the Republican commissioners, especially Chairman Pai.

But the 2017 Order hadn’t killed net neutrality. It was already dead. A few hours after the passage of the Restoring Internet Freedom Order, I was on a net neutrality panel in DC for an event about the First Amendment and the Internet. (One of my co-panelists dropped out out of caution because of the credible bomb threat at the FCC that day.) I pointed out at that event that while you wouldn’t know it from the news coverage, the Obama FCC had already killed net neutrality’s core principle—the prohibition against content blocking. The 2015 “net neutrality” Order allowed ISPs to block content. Attributing things to the 2015 Order that it simply doesn’t do is what Commissioner Carr has called the “Title II head fake.” The 2017 Order simply freed ISPs and app companies to invest and innovate without fear of plodding scrutiny and inconclusive findings from a far-off FCC bureau.

Long live net neutrality

The net neutrality movement will live on, however. The main net neutrality proponents aren’t that concerned with ISP content blocking; they want FCC regulation of the Internet companies and new media. It’s no coincidence that most of the prominent net neutrality advocates come out of the media access movement, which urged the FCC’s Fairness Doctrine, equal time laws, and programming mandates for TV and radio broadcasts.

The newer net neutrality coalition, as then-FCC Chairman Wheeler conceded frankly, doesn’t know precisely what Internet regulation would look like. What they do know is that ISPs and Internet companies are operating with inadequate public supervision and government design. 

As Public Knowledge CEO Gene Kimmelman has said, the 2015 Order was about threatening the industry with vague but severe rules: “Legal risk and some ambiguity around what practices will be deemed ‘unreasonably discriminatory’ have been effective tools to instill fear for the last 20 years” for the telecom industry. Title II functions, per Kimmelman, as a “way[] to keep the shadow and the fear of ‘going too far’ hanging over the dominant ISPs.” Internet regulation advocates, he said at the time, “have to have fight after fight over every claim of discrimination, of new service or not.”

So it’s Internet regulation, not strict net neutrality, that is driving the movement. As former Obama administration and FCC adviser Kevin Werbach said last year, “It’s not just broadband providers that are fundamental public utilities, at some level Google is, at some level Facebook is, at some level Amazon is.” 

Fortunately, because of the Restoring Internet Freedom Order, IP networks and apps companies have a few years of regulatory reprieve at a critical time. Net neutrality was invented in 2003 and draws on common carriage principles that cannot be applied sensibly to the various services carried on IP networks. Unlike the “single app” phone network regulated with common carriage, these networks transmit thousands of services and apps–like VoIP, gaming, conferencing, OTT video, IPTV, VoLTE, messaging, and Web–that require various technologies, changing topologies, and different quality-of-service requirements. 5G wireless will only accelerate the service differentiation that is at severe tension with net neutrality norms.

Rather than distract agency staff and the Internet industry with metaphysical debates about “reasonable network” practices, the Trump FCC has prioritized network investment, spectrum access, and rural broadband. Hopefully the next year is like the last.

Addendum: The net neutrality reprieve has not only freed up FCC staff to work on more pressing matters, it’s freed  up my time to write about tech policy areas that the public will benefit from. In November I published a Mercatus working paper and a Wall Street Journal op-ed about flying car policy.

Congress is considering reforming television laws and solicited comment from the public last month. On Friday, I submitted a letter encouraging the reform effort. I attached the paper Adam and I wrote last year about the current state of video regulations and the need for eliminating the complex rules for television providers.

As I say in the letter, excerpted below, pay TV (cable, satellite, and telco-provided) is quite competitive, as this chart of pay TV market share illustrates. In addition to pay TV there is broadcast, Netflix, Sling, and other providers. Consumers have many choices and the old industrial policy for mass media encourages rent-seeking and prevents markets from evolving.

Dear Chairman Upton and Chairman Walden:

Thank you for the opportunity to respond to the Committee’s December 2014 questions on video regulation.

…The labyrinthine communications and copyright laws governing video distribution are now distorting the market and therefore should be made rational. Congress should avoid favoring some distributors at the expense of free competition. Instead, policy should encourage new entrants and consumer choice.

The focus of the committee’s white paper on how to “foster” various television distributors, while understandable, was nonetheless misguided. Such an inquiry will likely lead to harmful rules that favor some companies and programmers over others, based on political whims. Congress and the FCC should get out of “fostering” the video distribution markets completely. A light-touch regulatory approach will prevent the damaging effects of lobbying for privilege and will ensure the primacy of consumer choice.

Some of the white paper’s questions may actually lead policy astray. Question 4, for instance, asks how we should “balance consumer welfare and the rights of content creators” in video markets. Congress should not pursue this line of inquiry too far. Just consider an analogous question: how do we balance consumer welfare and the interests of content creators in literature and written content? The answer is plain: we don’t. It’s bizarre to even contemplate.

Congress does not currently regulate the distribution markets of literature and written news and entertainment. Congress simply gives content producers copyright protection, which is generally applicable. The content gets aggregated and distributed on various platforms through private ordering via contract. Congress does not, as in video, attempt to keep competitive parity between competing distributors of written material: the Internet, paperback publishers, magazine publishers, books on tape, newsstands, and the like. Likewise, Congress should forego any attempt at “balancing” in video content markets. Instead, eliminate top-down communications laws in favor of generally applicable copyright laws, antitrust laws, and consumer protection laws.

As our paper shows, the video distribution marketplace has changed drastically. From the 1950s to the 1990s, cable was essentially consumers’ only option for pay TV. Those days are long gone, and consumers now have several television distributors and substitutes to choose from. From close to 100 percent market share of the pay TV market in the early 1990s, cable now has about 50 percent of the market. Consumers can choose popular alternatives like satellite- and telco-provided television as well as smaller players like wireless carriers, online video distributors (such as Netflix and Sling), wireless Internet service providers (WISPs), and multichannel video and data distribution service (MVDDS or “wireless cable”). As many consumers find Internet over-the-top television adequate, and pay TV an unnecessary expense, “free” broadcast television is also finding new life as a distributor.

The New York Times reported this month that “[t]elevision executives said they could not remember a time when the competition for breakthrough concepts and creative talent was fiercer” (“Aiming to Break Out in a Crowded TV Landscape,” January 11, 2015). As media critics will attest, we are living in the golden age of television. Content is abundant and Congress should quietly exit the “fostering competition” game. Whether this competition in television markets came about because of FCC policy or in spite of it (likely both), the future of television looks bright, and the old classifications no longer apply. In fact, the old “silo” classifications stand in the way of new business models and consumer choice.

Therefore, Congress should (1) merge the FCC’s responsibilities with the Federal Trade Commission or (2) abolish the FCC’s authority over video markets entirely and rely on antitrust agencies and consumer protection laws in television markets. New Zealand, the Netherlands, Denmark, and other countries have merged competition and telecommunications regulators. Agency merger streamlines competition analyses and prevents duplicative oversight.

Finally, instead of fostering favored distribution channels, Congress’ efforts are better spent on reforms that make it easier for new entrants to build distribution infrastructure. Such reforms increase jobs, increase competition, expand consumer choice, and lower consumer prices.

Thank you for initiating the discussion about updating the Communications Act. Reform can give America’s innovative telecommunications and mass-media sectors a predictable and technology neutral legal framework. When Congress replaces industrial planning in video with market forces, consumers will be the primary beneficiaries.

Sincerely,

Brent Skorup Research Fellow, Technology Policy Program Mercatus Center at George Mason University

Many readers will recall the telecom soap opera featuring the GPS industry and LightSquared and the subsequent bankruptcy of LightSquared. Economist Thomas W. Hazlett (who is now at Clemson, after a long tenure at the GMU School of Law) and I wrote an article published in the Duke Law & Technology Review titled Tragedy of the Regulatory Commons: Lightsquared and the Missing Spectrum Rights. The piece documents LightSquared’s ambitions and dramatic collapse. Contrary to popular reporting on this story, this was not a failure of technology. We make the case that, instead, the FCC’s method of rights assignment led to the demise of LightSquared and deprived American consumers of a new nationwide wireless network. Our analysis has important implications as the FCC and Congress seek to make wide swaths of spectrum available for unlicensed devices. Namely, our paper suggests that the top-down administrative planning model is increasingly harming consumers and delaying new technologies.

Read commentary from the GPS community about LightSquared and you’ll get the impression LightSquared is run by rapacious financiers (namely CEO Phil Falcone) who were willing to flaunt FCC rules and endanger thousands of American lives with their proposed LTE network. LightSquared filings, on the other hand, paint the GPS community as defense-backed dinosaurs who abused the political process to protect their deficient devices from an innovative entrant. As is often the case, it’s more complicated than these morality plays. We don’t find villains in this tale–simply destructive rent-seeking triggered by poor FCC spectrum policy.

We avoid assigning fault to either LightSquared or GPS, but we stipulate that there were serious interference problems between LightSquared’s network and GPS devices. Interference is not an intractable problem, however. Interference is resolved everyday in other circumstances. The problem here was intractable because GPS users are dispersed and unlicensed (including government users), and could not coordinate and bargain with LightSquared when problems arose. There is no feasible way for GPS companies to track down and compel users to use more efficient devices, for instance, if LightSquared compensated them for the hassle. Knowing that GPS mitigation was unfeasible, LightSquared’s only recourse after GPS users objected to the new LTE network was through the political and regulatory process, a fight LightSquared lost badly. The biggest losers, however, were consumers, who were deprived of another wireless broadband network because FCC spectrum assignment prevented win-win bargaining between licensees.

Our paper provides critical background to this dispute. Around 2004, because satellite phone spectrum was underused, the FCC permitted satellite phone licensees flexibility to repurpose some of their spectrum for use in traditional cellular phone networks. (Many people are appalled to learn that spectrum policy still largely resembles Soviet-style command-and-control. The FCC tells the wireless industry, essentially: “You can operate satellite phones only in band X. You can operate satellite TV in band Y. You can operate broadcast TV in band Z.” and assigns spectrum to industry players accordingly.) Seeing this underused satellite phone spectrum, LightSquared acquired some of this flexible satellite spectrum so that LightSquared could deploy a nationwide cellular phone network in competition with Verizon Wireless and AT&T Mobility. LightSquared had spent $4 billion in developing its network and reportedly had plans to spend $10 billion more when things ground to a halt.

In early 2012, the Department of Commerce objected to LightSquared’s network on the grounds that the network would interfere with GPS units (including, reportedly, DOD and FAA instruments). Immediately, the FCC suspended LightSquared’s authorization to deploy a cellular network and backtracked on the 2004 rules permitting cellular phones in that band. Three months later, LightSquared declared bankruptcy. This was a non-market failure, not a market failure. This regulatory failure obtains because virtually any interference to existing wireless operations is prohibited even if the social benefits of a new wireless network are vast.

This analysis is not simply scholarly theory about the nature of regulation and property rights. We provide real-world evidence that supports our notion that, had the FCC assigned flexible, de facto property rights to GPS licensees like the FCC does in some other bands, rather than fragmented unlicensed users, LightSquared might be in operation today serving millions with wireless broadband. Our evidence comes, in fact, from LightSquared’s deals with non-GPS parties. Namely, LightSquared had interference problems with another satellite licensee on adjacent spectrum–Inmarsat.

Inmarsat provides public safety, aviation, and national security applications and hundreds of thousands of devices to government and commercial users. The LightSquared-Inmarsat interference problems were unavoidable but because Inmarsat had de facto property rights to its spectrum, it could internalize financial gains and coordinate with LightSquared. The result was classic Coasian bargaining. The two companies swapped spectrum and activated an agreement in 2010 in which LightSquared would pay Inmarsat over $300 million. Flush with cash and spectrum, Inmarsat could rationalize its spectrum and replace devices that wouldn’t play nicely with LightSquared LTE operations.

These trades avoided the non-market failure the FCC produced by giving GPS users fragmented, non-exclusive property rights. When de facto property rights are assigned to licensees, contentious spectrum border disputes typically give way to private ordering. The result is regular spectrum swaps and sales between competitors. Wireless licensees like Verizon, AT&T, Sprint, and T-Mobile deal with local interference and unauthorized operations daily because they have enforceable, exclusive rights to their spectrum. The FCC, unfortunately, never assigned these kinds of spectrum rights to the GPS industry.

The evaporation of billions of dollars of LightSquared funds was a non-market failure, not a market failure and not a technology failure. The economic loss to consumers was even greater than LightSquared’s. Different FCC rules could have permitted welfare-enhancing coordination between LightSquared and GPS. The FCC’s error was the nature of rights the agency assigned for GPS use. By authorizing the use of millions of unlicensed devices adjacent to LightSquared’s spectrum, the FCC virtually ensured that future attempts to reallocate spectrum in these bands would prove contentious. Going forward, the FCC should think far less about which technologies they want to promote and more about the nature of spectrum rights assigned. For tech entrepreneurs and policy entrepreneurs to create innovative new wireless products, they need well-functioning spectrum markets. The GPS experience shows vividly what to avoid.

As 2014 draws to a close, we take a look back at the most-read posts from the past year at The Technology Liberation Front. Thank you for reading, and enjoy.

10. New York’s financial regulator releases a draft of ‘BitLicense’ for Bitcoin businesses. Here are my initial thoughts.

In July, Jerry Brito wrote about New York’s proposed framework for regulating digital currencies like Bitcoin.

My initial reaction to the rules is that they are a step in the right direction. Whether one likes it or not, states will want to license and regulate Bitcoin-related businesses, so it’s good to see that New York engaged in a thoughtful process, and that the rules they have proposed are not out of the ordinary.

9. Google Fiber: The Uber of Broadband

In February, I noted some of the parallels between Google Fiber and ride-sharing, in that new entrants are upending the competitive and regulatory status quo to the benefit of consumers.

The taxi registration systems and the cable franchise agreements were major regulatory mistakes. Local regulators should reduce regulations for all similarly-situated competitors and resist the temptation to remedy past errors with more distortions.

8. The Debate over the Sharing Economy: Talking Points & Recommended Reading

In September, Adam Thierer appeared on Fox Business Network’s Stossel show to talk about the sharing economy. In a TLF post, he expands upon his televised commentary and highlights five main points.

7. CES 2014 Report: The Internet of Things Arrives, but Will Washington Welcome It?

After attending the 2014 Consumer Electronics Show in January, Adam wrote a prescient post about the promise of the Internet of Things and the regulatory risks ahead.

When every device has a sensor, a chip, and some sort of networking capability, amazing opportunities become available to consumers…. But those same capabilities are exactly what raise the blood pressure of many policymakers and policy activists who fear the safety, security, or privacy-related problems that might creep up in a world filled with such technologies.

6. Defining “Technology”

Earlier this year, Adam compiled examples of how technologists and experts define “technology,” with entries ranging from the Oxford Dictionary to Peter Thiel. It’s a slippery exercise, but

if you are going to make an attempt to either study or critique a particular technology or technological practice or development, then you probably should take the time to tell us how broadly or narrowly you are defining the term “technology” or “technological process.”

5. The Problem with “Pessimism Porn”

Adam highlights the tendency of tech press, academics, and activists to mislead the public about technology policy by sensationalizing technology risks.

The problem with all this, of course, is that it perpetuates societal fears and distrust. It also sometimes leads to misguided policies based on hypothetical worst-case thinking…. [I]f we spend all our time living in constant fear of worst-case scenarios—and premising public policy upon them—it means that best-case scenarios will never come about.

4. Mark T. Williams predicted Bitcoin’s price would be under $10 by now; it’s over $600

Professor Mark T. Williams predicted in December 2013 that by mid-2014, Bitcoin’s price would fall to below $10. In mid-2014, Jerry commends Prof. Williams for providing, unlike most Bitcoin watchers, a bold and falsifiable prediction about Bitcoin’s value. However, as Jerry points out, that prediction was erroneous: Bitcoin’s 2014 collapse never happened and the digital currency’s value exceeded $600.

3. What Vox Doesn’t Get About the “Battle for the Future of the Internet”

In May, Tim Lee wrote a Vox piece about net neutrality and the Netflix-Comcast interconnection fight. Eli Dourado posted a widely-read and useful corrective to some of the handwringing in the Vox piece about interconnection, ISP market power, and the future of the Internet.

I think the article doesn’t really consider how interconnection has worked in the last few years, and consequently, it makes a big deal out of something that is pretty harmless…. There is nothing unseemly about Netflix making … payments to Comcast, whether indirectly through Cogent or directly, nor is there anything about this arrangement that harms “the little guy” (like me!).

2. Muddling Through: How We Learn to Cope with Technological Change

The second most-read TLF post of 2014 is also the longest and most philosophical in this top-10 list. Adam wrote a popular and in-depth post about the social effects of technological change and notes that technology advances are largely for consumers’ benefit, yet “[m]odern thinking and scholarship on the impact of technological change on societies has been largely dominated by skeptics and critics.” The nature of human resilience, Adam explains, should encourage a cautiously optimistic view of technological change.

1. Help me answer Senate committee’s questions about Bitcoin

Two days into 2014, Jerry wrote the most-read TLF piece of the past year. Jerry had testified before the Senate Homeland Security and Governmental Affairs Committee in 2013 as an expert on Bitcoin. The Committee requested more information about Bitcoin post-hearing and Jerry solicited comment from our readers.

Thank you to our loyal readers for continuing to visit The Technology Liberation Front. It was busy year for tech and telecom policy and 2015 promises to be similarly exciting. Have a happy and safe New Years!

The FCC is currently considering ways to make municipal broadband projects easier to deploy, an exercise that has drawn substantial criticism from Republicans, who passed a bill to prevent FCC preemption of state laws. Today the Mercatus Center released a policy analysis of municipal broadband projects, titled Community Broadband, Community Benefits? An Economic Analysis of Local Government Broadband Initiatives. The researcher is Brian Deignan, an alumnus of the Mercatus Center MA Fellowship. Brian wrote an excellent, empirical paper about the economic effects of publicly-funded broadband.

It’s remarkable how little empirical research there is on municipal broadband investment, despite years of federal data and billions of dollars in federal investment (notably, the American Recovery and Reinvestment Act). This dearth of research is in part because muni broadband proponents, as Brian points out, expressly downplay the relevance of economic evidence and suggest that the primary social benefits of muni broadband cannot be measured using traditional metrics. The current “research” about muni broadband, pro- and anti-, tends to be unfalsifiable generalizations based on extrapolations of cherry-picked examples. (There are several successes and failures, depending on your point of view.)

Brian’s paper provides researchers a great starting point when they attempt to answer an increasingly important policy question: What is the economic impact of publicly-funded broadband? Brian uses 23 years of BLS data from 80 cities that have deployed broadband and analyzes muni broadband’s effect on 1) quantity of businesses; 2) employee wages; and 3) employment.

In short, the economic effects of muni broadband appear to be modest. Brian’s economic models show that municipal broadband is associated with a 3 percent increase in the number of business establishments in a city. However, there is a small, negative effect on employee wages (perhaps as firms substitute technology for employee hours?). There is no effect on private employment but the existence of a public broadband network increases local government employment by about 6 percent.

In a research area filled with advocacy, this is a much-needed rigorous analysis and a great update to the research that does exist. The muni broadband fights will continue, but hopefully both sides will make use of the economic data out there. Given the amount of direct federal investment, some positive effects were inevitable and Brian’s paper suggests where those effects show up (quantity of businesses and local government employment). Still, it seems that there are more cost-effective ways of improving local business development and jobs.

I suspect, and the research suggests, that the detrimental effect on private investment (and taxpayers) likely outweighs these ambiguous economic effects. Unlike city-provided utilities, like water and sewer, broadband infrastructure requires regular network upgrades, and consumers often prefer broadband bundled with TV and phone, which cities have a harder time providing. But on this subject, as scholars like to say on difficult issues, more research is needed.

Last week, I participated in a program co-sponsored by the Progressive Policy Institute, the Lisbon Council, and the Georgetown Center for Business and Public Policy on “Growing the Transatlantic Digital Economy.”

The complete program, including keynote remarks from EU VP Neelie Kroes and U.S. Under Secretary of State Catherine A. Novelli, is available below.

My remarks reviewed worrying signs of old-style interventionist trade practices creeping into the digital economy in new guises, and urged traditional governments to stay the course (or correct it) on leaving the Internet ecosystem largely to its own organic forms of regulation and market correctives:

Vice President Kroes’s comments underscore an important reality about innovation and regulation. Innovation, thanks to exponential technological trends including Moore’s Law and Metcalfe’s Law, gets faster and more disruptive all the time, a phenomenon my co-author and I have coined “Big Bang Disruption.” Regulation, on the other hand, happens at the same pace (at best). Even the most well-intentioned regulators, and I certainly include Vice President Kroes in that list, find in retrospect that interventions aimed at heading off possible competitive problems and potential consumer harms rarely achieve their objectives, and, indeed, generate more harmful unintended consequences. This is not a failure of government. The clock speeds of innovation and regulation are simply different, and diverging faster all the time. The Internet economy has been governed from its inception by the engineering-driven multistakeholder process embodied in the task forces and standards groups that operate under the umbrella of the Internet Society.   Innovation, for better or for worse, is regulated more by Moore’s Law than traditional law. I happen to think the answer is “for better,” but I am not one of those who take that to the extreme in arguing that there is no place for traditional governments in the digital economy. Governments have and continue to play an essential part in laying the legal foundations for the remarkable growth of that economy and in providing incentives if not funding for basic research that might not otherwise find investors. And when genuine market failures appear, traditional regulators can and should step in to correct them as efficiently and narrowly as they can. Sometimes this has happened. Sometimes it has not. Where in particular I think regulatory intervention is least effective and most dangerous is in regulating ahead of problems—in enacting what the FCC calls “prophylactic rules.” The effort to create legally sound Open Internet regulations in the U.S. has faltered repeatedly, yet in the interim investment in both infrastructure and applications continues at a rapid pace—far outstripping the rest of the world. The results speak for themselves. U.S. companies dominate the digital economy, and, as Prof. Christopher Yoo has definitively demonstrated, U.S. consumers overall enjoy the best wired and mobile infrastructure in the world at competitive prices. At the same time, those who continue to pursue interventionist regulation in this area often have hidden agendas. Let me give three examples: 1.  As we saw earlier this month at the Internet Governance Forum, which I attended along with Vice President Kroes and 2,500 other delegates, representatives of the developing world were told by so-called consumer advocates from the U.S. and the EU that they must reject so-called “zero rated” services, in which mobile network operators partner with service providers including Facebook, Twitter and Wikimedia to provide their popular services to new Internet users without use applying to data costs. Zero rating is an extremely popular tool for helping the 2/3 of the world’s population not currently on the Internet get connected and, likely, from these services to many others. But such services violate the “principle” of neutrality that has mutated from an engineering concept to a nearly-religious conviction. And so zero rating must be sacrificed, along with users who are too poor to otherwise join the digital economy. 2.  Closer to home, we see the wildly successful Netflix service making a play to hijack the Open Internet debate into one about back-end interconnection, peering, and transit—engineering features that work so well that 99% of the agreements involved between networks, according to the OECD, aren’t even written down. 3.  And in Europe, there are other efforts to turn the neutrality principle on its head, using it as a hammer not to regulate ISPs but to slow the progress of leading content and service providers, including Apple, Amazon and Google, who have what the French Digital Council and others refer to as non-neutral “platform monopolies” which must be broken. To me, these are in fact new faces on very old strategies—colonialism, rent-seeking, and protectionist trade warfare respectively. My hope is that Internet users—an increasingly powerful and independent source of regulatory discipline in the Internet economy—will see these efforts for what they truly are…and reject them resoundingly. The more we trust (but also verify) the engineers, the faster the Internet economy will grow, both in the U.S. and Europe, and the greater our trade in digital goods and services will strengthen the ties between our traditional economies. It’s worked brilliantly for almost two decades. The alternatives, not so much.

There are several “flavors” of net neutrality–Eli Noam at Columbia University estimates there are seven distinct meanings of the term–but most net neutrality proponents agree that reinterpreting the 1934 Communications Act and “classifying” Internet service providers as Title II “telecommunications” companies is the best way forward. Proponents argue that ISPs are common carriers and therefore should be regulated much like common carrier telephone companies. Last week I filed a public interest comment about net neutrality and pointed out why the Title II option is unwise and possibly illegal.

For one, courts have defined “common carriers” in such a way that ISPs don’t look much like common carriers. It’s also unlikely that ISPs can be classified as telecommunications providers because Congress defines “telecommunications” as the transmission of information “between or among points specified by the user.” Phone calls are telecommunications because callers are selecting the endpoint–a person associated with the known phone number. Even simple web browsing, however, requires substantial processing by an ISP that often coordinates several networks, servers, and routers to bring the user the correct information, say, a Wikipedia article or Netflix video. Under normal circumstances, this process is completely mysterious to a user. By classifying ISPs as common carriers and telecommunications providers, therefore, the FCC invites immense legal risk.

As I’ve noted before, prioritized data can provide consumer benefits and stringent net neutrality rules would harm the development of new services on the horizon. Title II–in making the Internet more “neutral”–is anti-progress and is akin to putting the toothpaste back in the tube. The Internet has never been neutral, as computer scientist David Clark and others point out, and it’s getting less neutral all the time. VoIP phone service is already prioritized for millions of households. VoLTE will do the same for wireless phone customers.

It’s a largely unreported story that many of the most informed net neutrality proponents, including President Obama’s former chief technology officer, are fine with so-called “fast lanes”–particularly if it’s the user, not the ISP, selecting the services to be prioritized. There is general agreement that prioritized services are demanded by consumers, but Title II would have a predictable chilling effect on new services because of the regulatory burdens.

MetroPCS, for example, a small wireless carrier with about 3% market share attempted selling a purportedly non-neutral phone plan that allowed unlimited YouTube viewing and was pilloried for it by net neutrality proponents. MetroPCS, chastened, dropped the plan. With Title II, a small ISP or wireless carrier wouldn’t dream of attempting such a thing.

In the comment, I note other undesirable effects of Title II, including that it undermines the position the US has held publicly for years that the Internet is different than traditional communications.

If the FCC further intermingles traditional telecommunications with broadband, it may increase the probability of the [International Telecommunications Union] extending sender-pays or other tariffing and tax rules to the exchange of Internet traffic. Several countries proposed instituting sender-pays at a contentious 2012 ITU forum and the United States representatives vigorously fought sender-pays for the Internet. Many developing countries, particularly, would welcome such a change in regulations, because, as Mercatus scholar Eli Dourado found, sender-pays rules “allow governments to export some of their statutory tax burden.” New foreign tariffing rules would function essentially as a transfer of wealth from popular US-based companies like Facebook and Google to corrupt foreign governments and telephone cartels.

Finally, I note that classifying ISPs as common carriers weakens the enforcement of antitrust and consumer protection laws. Generally, it is difficult to bring antitrust lawsuits in extensively regulated industries. After filing my comment, I learned that the FTC also filed a comment noting, similarly, that its Section 5 authority would be limited if the FCC goes the Title II route. Brian Fung and others have since written about this interesting political and legal development. This detrimental effect on antitrust enforcement should weigh against Title II regulation.

There are substantial drawbacks to Title II regulation of ISPs and the FCC should exercise regulatory humility and its traditional hands-off approach to the Internet. In the end, Title II would harm investment in nascent technologies and network upgrades. The harms to consumers and small carriers, particularly, would be immense. It almost makes one think that comedy sketches and “death of the Internet” reporting don’t lead to good public policy.

More Information

See my presentation (36 minutes) on net neutrality and “fast lanes” on the Mercatus website.

If there are two general principles that unify my recent work on technology policy and innovation issues, they would be as follows. To the maximum extent possible:

1. We should avoid preemptive and precautionary-based regulatory regimes for new innovation. Instead, our policy default should be innovation allowed (or “permissionless innovation”) and innovators should be considered “innocent until proven guilty” (unless, that is, a thorough benefit-cost analysis has been conducted that documents the clear need for immediate preemptive restraints).
2. We should avoid rigid, “top-down” technology-specific or sector-specific regulatory regimes and/or regulatory agencies and instead opt for a broader array of more flexible, “bottom-up” solutions (education, empowerment, social norms, self-regulation, public pressure, etc.) as well as reliance on existing legal systems and standards (torts, product liability, contracts, property rights, etc.).

I was very interested, therefore, to come across two new essays that make opposing arguments and proposals. The first is this recent Slate oped by John Frank Weaver, “We Need to Pass Legislation on Artificial Intelligence Early and Often.” The second is Ryan Calo’s new Brookings Institution white paper, “The Case for a Federal Robotics Commission.”

Weaver argues that new robot technology “is going to develop fast, almost certainly faster than we can legislate it. That’s why we need to get ahead of it now.” In order to preemptively address concerns about new technologies such as driverless cars or commercial drones, “we need to legislate early and often,” Weaver says. Stated differently, Weaver is proposing “precautionary principle”-based regulation of these technologies. The precautionary principle generally refers to the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harms to individuals, groups, specific entities, cultural norms, or various existing laws, norms, or traditions.

Calo argues that we need “the establishment of a new federal agency to deal with the novel experiences and harms robotics enables” since there exists “distinct but related challenges that would benefit from being examined and treated together.” These issues, he says, “require special expertise to understand and may require investment and coordination to thrive.

I’ll address both Weaver and Calo’s proposals in turn.

Problems with Precautionary Regulation

Let’s begin with Weaver proposed approach to regulating robotics and autonomous systems.

What Weaver seems to ignore—and which I discuss at greater length in my latest book—is that “precautionary” policy-making typically results in technological stasis and lost opportunities for economic and social progress. As I noted in my book, if we spend all our time living in constant fear of worst-case scenarios—and premising public policy upon such fears—it means that best-case scenarios will never come about. Wisdom and progress are born from experience, including experiences that involve risk and the possibility of occasional mistakes and failures. As the old adage goes, “nothing ventured, nothing gained.”

More concretely, the problem with “permissioning” innovation is that traditional regulatory policies and systems tend to be overly-rigid, bureaucratic, costly, and slow to adapt to new realities. Precautionary-based policies and regulatory systems focus on preemptive remedies that aim to predict the future, and future hypothetical problems that may not ever come about. As a result, preemptive bans or highly restrictive regulatory prescriptions can limit innovations that yield new and better ways of doing things.

Weaver doesn’t bother addressing these issues. He instead advocates regulating “early and often” without stopping to think through the potential costs of doing so. Yet, all regulation has trade-offs and opportunity costs. Before we rush to adopt rules based on knee-jerk negative reactions to new technology, we should conduct comprehensive benefit-cost analysis of the proposals and think carefully about what alternative approaches exist to address whatever problems we have identified.

Incidentally, Weaver also does not acknowledge the contradiction inherent in his thinking when he says robotic technology “is going to develop fast, almost certainly faster than we can legislate it. That’s why we need to get ahead of it now.” Well, if robotic technology is truly developing “faster than we can legislate it,” then “getting out ahead of it” would be seemingly impossible! Unless, that is, he envisions regulating robotic technologies so stringently as to effectively bring new innovation to a grinding halt (or banning altogether).

To be clear, my criticisms should not be read to suggest that zero regulation is the best option. There are plenty of thorny issues that deserve serious policy consideration and perhaps even some preemptive rules. But how potential harms are addressed matters deeply. We should exhaust all other potential nonregulatory remedies first — education, empowerment, transparency, etc. — before resorting to preemptive controls on new forms of innovation. In other words, ex post (or after the fact) solutions should generally trump ex ante (preemptive) controls.

I’ll say more on this point in the conclusion since my response addresses general failings in Ryan Calo’s Federal Robotics Commission proposal, to which we now turn.

Problems with a Federal Robotics Commission

Moving on to Calo, it is important to clarify what he is proposing because he is careful not to overstate his case in favor of a new agency for robotics. He elaborates as follows:

“The institution I have in mind would not “regulate” robotics in the sense of fashioning rules regarding their use, at least not in any initial incarnation. Rather, the agency would advise on issues at all levels—state and federal, domestic and foreign, civil and criminal—that touch upon the unique aspects of robotics and artificial intelligence and the novel human experiences these technologies generate. The alternative, I fear, is that we will continue to address robotics policy questions piecemeal, perhaps indefinitely, with increasingly poor outcomes and slow accrual of knowledge. Meanwhile, other nations that are investing more heavily in robotics and, specifically, in developing a legal and policy infrastructure for emerging technology, will leapfrog the U.S. in innovation for the first time since the creation of steam power.”

Here are some of my concerns with Calo’s proposed Federal Robotics Commission.

Will It Really Just Be an Advisory Body?

First, Calo claims he doesn’t want a formal regulatory agency, but something more akin to a super-advisory body. He does, however, sneak in that disclaimer that he doesn’t envision it to be regulatory “at least not in any initial incarnation.” Perhaps, then, he is suggesting that more formal regulatory controls would be in the cards down the road. It remains unclear.

Regardless, I think it is a bit disingenuous to propose the formation of a new governmental body like this and pretend that it will not someday very soon come to possess sweeping regulatory powers over these technologies. Now, you may well feel that that is a good thing. But I fear that Calo is playing a bit of game here by asking the reader to imagine his new creation would merely stick to an advisory role.

Regulatory creep is real. There just aren’t too many examples of agencies being created solely for their advisory expertise and then not also getting into the business of regulating the technology or topic that is included in that agency’s name. And in light of some of Calo’s past writing and advocacy, I can’t help but think he is actually hoping that the agency comes to take on a greater regulatory role over time. Regardless, I think we can bank on that happening and I that there are reasons to worry about it for reasons noted above and which I will elaborate on below.

Incidentally, if Calo is really more interested in furthering just this expert advisory capacity, there are plenty of other entities (including non-governmental bodies) that could play that role. How about the National Science Foundation, for example? Or how about a multi-stakeholder body consisting of many different experts and institutions? I could go on, but you get the point. A single point of action is also a single point of failure. I don’t want just one big robotics bureaucracy making policy or even advising. I’d prefer a more decentralized approach, and one that doesn’t carry a (potential) big regulatory club in its hand.

Public Choice / Regulatory Capture Problems

Second, Calo underestimates the public choice problems of creating a sector-specific or technology-specific agency just for robotics. To his credit, he does admit that, “agencies have their problems, of course. They can be inefficient and are subject to capture by those they regulate or other special interests.” He also notes he has criticized other agencies for various failings. But he does not say anything more on this point.

Let’s be clear. There exists a long and lamentable history of sector-specific regulators being “captured” by the entities they regulate. To read the ugly reality, see my compendium, “Regulatory Capture: What the Experts Have Found.” That piece documents what leading academics of all political stripes have had to say about this problem over the past century. No one ever summarized the nature and gravity of this problem better than the great Alfred Kahn in his masterpiece, The Economics of Regulation: Principles and Institutions (1971):

“When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition. [. . . ] Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.” (pgs. 12, 46)

The history of the Federal Communications Commission (FCC) is highly instructive in this regard and was documented in a 66-page law review article I penned with Brent Skorup entitled, “A History of Cronyism and Capture in the Information Technology Sector,” (Journal of Technology Law & Policy, Vol. 18, 2013). Again, it doesn’t make for pleasant reading. Time and time again, instead of serving the “public interest,” the FCC served private interests. The entire history of video marketplace regulation is one of the most sickening examples to consider since there have almost eight decades worth of case studies of the broadcast industry using regulation as a club to beat back new entry, competition, and innovation. [Skorup and I have another paper discussing that specific history and how to go about reversing it.] This history is important because, in the early days of the Commission, many proponents thought the FCC would be exactly the sort of “expert” independent agency that Calo envisions his Federal Robotics Commission would be. Needless to say, things did not turn out so well.

But the FCC isn’t the only guilty offender in this regard. Go read the history about how airlines so effectively cartelized their industry following World War II with the help of the Civil Aeronautics Board. Thankfully, President Jimmy Carter appointed Alfred Kahn to clean things up in the 1970s. Kahn, a life-long Democrat, came to realize that the problem of capture was so insidious and inescapable that abolition of the agency was the only realistic solution to make sure consumer welfare would improve. As a result, he and various other Democrats in the Carter Administration and in Congress worked together to sunset the agency and its hideously protectionist, anti-consumer policies. (Also, please read this amazing 1973 law review article on “Economic Regulation vs. Competition,” by Mark Green and Ralph Nader if you need even more proof of why this is a such a problem.)

In other words, the problem of regulatory capture is not something one can casually dismiss. The problem is still very real and deserves more consideration before we casually propose creating new agencies, even “advisory” agencies. At a minimum, when proposing new agencies, you need to get serious about what sort of institutional constraints you might consider putting in place to make sure that history does not repeat itself. Because if you don’t, various large, well-heeled, and politically-connected robotics companies could come to capture any new “Federal Robotics Commission” in very short order.

Can We Clean Up Old Messes Before Building More Bureaucracies?

Third, speaking of agencies, if it is the case that the alphabet soup collection of regulatory agencies we already have in place are not capable of handling “robotics policy” right now, can we talk about reforming them (or perhaps even getting rid of a few of them) first? Why must we just pile yet another sector-specific or technology-specific regulator on top of the many that already exist? That’s just a recipe for more red tape and potential regulatory capture. Unless you believe there is value in creating bureaucracy for the sake of creating bureaucracy, there is no excuse for not phasing out agencies that failed in their original mission, or whose mission is now obsolete, for whatever reason. This is a fundamental “good government” issue that politicians and academics of all stripes should agree on.

Calo indirectly addresses this point by noting that “we have agencies devoted to technologies already and it would be odd and anomalous to think we are done creating them.” Curiously, however, he spends no time talking about those agencies or asking whether they have done a good job. Again, the heart of Calo’s argument comes down the assertion that another specialized, technology-specific “expert” agency is needed because there are “novel” issues associated with robotics. Well, if it is true, as Calo suggests, that we have been down this path before (and we have), and if you believe our economy or society has been made better off for it, then you need to prove it. Because the objection to creating another regulatory bureaucracy is not simply based on distaste for Big Government; it comes down to the simple questions: (1) Do these things work; and (2) Is there a better alternative?

This is where Calo’s proposal falls short. There is no effort to prove that technocratic or “scientific” bureaucracies, on net, are worth their expense (to taxpayers) or cost (to society, innovation, etc.) when compared to alternatives. Of course, I suspect this is where Calo and I might part ways regarding what metrics we would use to gauge success. I’ll save that discussion for another day and shift to what I regard as the far more serious deficiency of Calo’s proposal.

Do We Become Global Innovation Leaders Through Bureaucratic Direction?

Fourth, and most importantly, Calo does not offer any evidence to prove his contention that we need a sector-specific or technology-specific agency for robotics in order to develop or maintain America’s competitive edge in this field. Moreover, he does not acknowledge how his proposal might have the exact opposite result. Let me spend some time on this point because this is what I find most problematic about his proposal.

In his latest Brookings essay and his earlier writing about robotics, Calo keeps suggesting that we need a specialized federal agency for robotics to avoid “poor outcomes” due to the lack of “a legal and policy infrastructure for emerging technology.” He even warns us that other countries who are looking into robotics policy and regulation more seriously “will leapfrog the U.S. in innovation for the first time since the creation of steam power.”

Well, on that point, I must ask: Did America need a Federal Steam Agency to become a leader in that field? Because unless I missed something in history class, steam power developed fairly rapidly in this country without any centralized bureaucratic direction. Or how about a more recent example: Did America need a Federal Computer Commission or Federal Internet Commission to obtain or maintain a global edge in computing, the Internet, or the Digital Economy?

To the contrary, we took the EXACT OPPOSITE approach. It’s not just that no new agencies were formed to guide the development of computing or the Internet in this country. It’s that our government made a clear policy choice to break with the past by rejecting top-down, command-and-control regulation by unelected bureaucrats in some shadowy Beltway agency.

Incidentally, it was Democrats who accomplished this. While many Republicans today love to crack wise-ass comments about Al Gore and the Internet while simultaneously imagining themselves to be the great defenders of Internet freedom, the reality is that we have the Clinton Administration and one its most liberal members—Ira Magaziner—to thank for the most blessedly “light-touch,” market-oriented innovation policy that the world has ever seen.

What did Magaziner and the Clinton Administration do? They crafted the amazing 1997 Framework for Global Electronic Commerce, a statement of the Administration’s principles and policy objectives toward the Internet and the emerging digital economy. It recommended reliance upon civil society, contractual negotiations, voluntary agreements, and ongoing marketplace experiments to solve information age problems. First, “the private sector should lead. The Internet should develop as a market driven arena not a regulated industry,” the Framework recommended. “Even where collective action is necessary, governments should encourage industry self-regulation and private sector leadership where possible.” Second, “governments should avoid undue restrictions on electronic commerce” and “parties should be able to enter into legitimate agreements to buy and sell products and services across the Internet with minimal government involvement or intervention.”

I’ve argued elsewhere that the Clinton Administration’s Framework, “remains the most succinct articulation of a pro-freedom, innovation-oriented vision for cyberspace ever penned.” Of course, this followed the Administration’s earlier move to allow the full commercialization of the Internet, which was even more important. The policy disposition they established with these decisions resulted in an unambiguous green light for a rising generation of creative minds who were eager to explore this new frontier for commerce and communications. And to reiterate,they did it without any new bureaucracy.

If You Regulate “Robotics,” You End Up Regulating Computing & Networking

Incidentally, I do not see how we could create a new Federal Robotics Commission without it also becoming a de facto Federal Computing Commission. Robotics and the many technologies and industries it already includes — driverless cars, commercial drones, Internet of Things, etc. — is becoming a hot policy topic, and proposals for regulation are already flying. These robotic technologies are developing on top of the building blocks of the Information Revolution: microprocessors, wireless networks, sensors, “big data,” etc.

Thus, I share Cory Doctorow’s skepticism about how one could logically separate “robotics” from these other technologies and sectors for regulatory purposes:

I am skeptical that “robot law” can be effectively separated from software law in general. … For the life of me, I can’t figure out a legal principle that would apply to the robot that wouldn’t be useful for the computer (and vice versa).

In his Brookings paper, Calo responded to Doctorow’s concern as follows:

the difference between a computer and a robot has largely to do with the latter’s embodiment. Robots do not just sense, process, and relay data. Robots are organized to act upon the world physically, or at least directly. This turns out to have strong repercussions at law, and to pose unique challenges to law and to legal institutions that computers and the Internet did not.

I find this fairly unconvincing. Just because robotic technologies have a physical embodiment does not mean their impact on society is all that more profound than computing, the Internet, and digital technologies. Consider all the hand-wringing going on today in cybersecurity circles about how hacking, malware, or various other types of digital attacks could take down entire systems or economies. I’m not saying I buy all that “technopanic” talk (and here are about three dozens of my essays arguing the contrary), but the theoretical ramifications are nonetheless on par with dystopian scenarios about robotics.

The Alternative Approach

Of course, it certainly may be the case that some worst-case scenarios are worth worrying about in both cases—for robotics and computing, that is. Still, is a Federal Robotics Commission or a Federal Computing Commission really the sensible way to address those issues?

To the contrary, this is why we have a Legislative Branch! So many of the problems of our modern era of dysfunctional government are rooted in an unwise delegation of authority to administrative agencies. Far too often, congressional lawmakers delegate broad, ambiguous authority to agencies instead of facing up to the hard issues themselves. This results in waste, bloat, inefficiencies, and an endless passing of the buck.

There may very well be some serious issues raised by robotics and AI that we cannot ignore, and which may even require a little preemptive, precautionary policy. And the same goes for general computing and the Internet. But that is not a good reason to just create new bureaucracies in the hope that some set of mythical technocratic philosopher kings will ride in to save the day with their supposed greater “expertise” about these matters. Either you believe in democracy or you don’t. Running around calling for agencies and unelected bureaucrats to make all the hard choices means that “the people” have even less of a say in these matters.

Moreover, there are many other methods of dealing with robotics and the potential problems robotics might create than through the creation of new bureaucracy. The common law already handles many of the problems that both Calo and Weaver are worried about. To the extent robotic systems are involved in accidents that harm individuals or their property, product liability law will kick in.

On this point, I strongly recommend another new Brookings publication. John Villasenor’s outstanding April white paper, “Products Liability and Driverless Cars: Issues and Guiding Principles for Legislation,” correctly argues that,

“when confronted with new, often complex, questions involving products liability, courts have generally gotten things right. … Products liability law has been highly adaptive to the many new technologies that have emerged in recent decades, and it will be quite capable of adapting to emerging autonomous vehicle technologies as the need arises.”

Thus, instead of trying to micro-manage the development of robotic technologies in an attempt to plan for every hypothetical risk scenario, policymakers should be patient while the common law evolves and liability norms adjust. Traditionally, the common law has dealt with products liability and accident compensation in an evolutionary way through a variety of mechanisms, including strict liability, negligence, design defects law, failure to warn, breach of warranty, and so on. There is no reason to think the common law will not adapt to new technological realities, including robotic technologies. (I address these and other “bottom-up” solutions in my new book.)

In the meantime, let’s exercise some humility and restraint here and avoid heavy-handed precautionary regulatory regimes or the creation of new technocratic bureaucracies. And let’s not forget that many solutions to the problems created by new robotic technologies will develop spontaneously and organically over time as individuals and institutions learn to cope and “muddle through,” as they have many times before.

Additional Reading

• Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom (2014)
• Muddling Through: How We Learn to Cope with Technological Change, June 30, 2014
• New Paper: “Removing Roadblocks to Intelligent Vehicles and Driverless Cars,” September 17, 2014
• Slide Presentation: Policy Issues Surrounding the Internet of Things & Wearable Technology, September 12, 2014
• [Video] Cap Hill Briefing on Emerging Tech Policy Issues (June 2014)
• The Growing Conflict of Visions over the Internet of Things & Privacy, January 14, 2012
• Can We Adapt to the Internet of Things? IAPP Privacy Perspectives, June 19, 2013
• My Filing to the FTC in its ‘Internet of Things’ Proceeding, May 31, 2013

There’s a small but influential number of tech reporters and scholars who seem to delight in making the US sound like a broadband and technology backwater. A new Mercatus working paper by Roslyn Layton, a PhD fellow at a research center at Aalborg University, and Michael Horney a researcher at the Free State Foundation, counter that narrative and highlight data from several studies that show the US is at or near the top in important broadband categories.

For example, per Pew and ITU data, the vast majority of Americans use the Internet and the US is second in the world in data consumption per capita, trailing only South Korea. Pew reveals that for those who are not online the leading reasons are lack of usability and the Internet’s perceived lack of benefits. High cost, notably, is not the primary reason for infrequent use.

I’ve noted before some of the methodological problems in studies claiming the US has unusually high broadband prices. In what I consider their biggest contribution to the literature, Layton and Horney highlight another broadband cost frequently omitted in international comparisons: the mandatory media license fees many nations impose on broadband and television subscribers.

These fees can add as much as $44 to the monthly cost of broadband. When these fees are included in comparisons, American prices are frequently an even better value. In two-thirds of European countries and half of Asian countries, households pay a media license fee on top of the subscription fees to use devices such as connected computers and TVs. …When calculating the real cost of international broadband prices, one needs to take into account media license fees, taxation, and subsidies. …[T]hese inputs can materially affect the cost of broadband, especially in countries where broadband is subject to value-added taxes as high as 27 percent, not to mention media license fees of hundreds of dollars per year.

US broadband providers, the authors point out, have priced broadband relatively efficiently for heterogenous uses–there are low-cost, low-bandwidth connections available as well as more expensive, higher-quality connections for intensive users.

Further, the US is well-positioned for future broadband use. Unlike many wealthy countries, Americans typically have access, at least, to broadband from telephone companies (like AT&T DSL or UVerse) as well as from a local cable provider. Competition between ISPs has meant steady investment in network upgrades, despite the 2008 global recession. The story is very different in much of Europe, where broadband investment, as a percentage of the global total, has fallen noticeably in recent years. US wireless broadband is also a bright spot: 97% of Americans can subscribe to 4G LTE while only 26% in the EU have access (which partially explains, by the way, why Europeans often pay less for mobile subscriptions–they’re using an inferior product).

There’s a lot to praise in the study and it’s necessary reading for anyone looking to understand how US broadband policy compares to other nations’. The fashionable arguments that the US is at risk of falling behind technologically were never convincing–the US is THE place to be if you’re a tech company or startup, for one–but Layton and Horney show the vulnerability of that narrative with data and rigor.

Congressional debates about STELA reauthorization have resurrected the notion that TV stations “must provide a free service” because they “are using public spectrum.” This notion, which is rooted in 1930s government policy, has long been used to justify the imposition of unique “public interest” regulations on TV stations. But outdated policy decisions don’t dictate future rights in perpetuity, and policymakers abandoned the “public spectrum” rationale long ago.

All wireless services use the public spectrum, yet none of them are required to provide a free commercial service except broadcasters. Satellite television operators, mobile service providers, wireless Internet service providers, and countless other commercial spectrum users are free to charge subscription fees for their services.

There is nothing intrinsic in the particular frequencies used by broadcasters that justifies their discriminatory treatment. Mobile services use spectrum once allocated to broadcast television, but aren’t treated like broadcasters.

The fact that broadcast licenses were once issued without holding an auction is similarly irrelevant.  All spectrum licenses were granted for free before the mid-1990s. For example, cable and satellite television operators received spectrum licenses for free, but are not required to offer their video services for free.

If the idea is to prevent companies who were granted free licenses from receiving a “windfall”, it’s too late. As Jeffrey A. Eisenach has demonstrated, “the vast majority of current television broadcast licensees [92%] have paid for their licenses through station transactions.”

The irrelevance of the free spectrum argument is particularly obvious when considering the differential treatment of broadcast and satellite spectrum. Spectrum licenses for broadcast TV stations are now subject to competitive bidding at auction while satellite television licenses are not. If either service should be required to provide a free service on the basis of spectrum policy, it should be  satellite television.

Although TV stations were loaned an extra channel during the DTV transition, the DTV transition is over. Those channels have been returned and were auctioned for approximately $19 billion in 2008. There is no reason to hold TV stations accountable in perpetuity for a temporary loan.

Even if there were, the loan was  not free. Though TV stations did not pay lease fees for the use of those channels, they nevertheless paid a heavy price. TV stations were required to invest substantial sums in HDTV technology and to broadcast signals in that format long before it was profitable. The FCC required “rapid construction of digital facilities by network-affiliated stations in the top markets, in order to expose a significant number of households, as early as possible, to the benefits of DTV.” TV stations were thus forced to “bear the risks of introducing digital television” for the benefit of consumers, television manufacturers, MVPDs, and other digital media.

The FCC did not impose comparable “loss leader” requirements on MVPDs. They are free to wait until consumer demand for digital and HDTV content justifies upgrading their systems — and they are still lagging TV stations by a significant margin. According to the FCC, only about half of the collective footprints of the top eight cable MVPDs had been transitioned to all-digital channels at the end of 2012. By comparison, the DTV transition was completed in 2009.

There simply is no satisfactory rationale for requiring broadcasters to provide a free service based on their use of spectrum or the details of past spectrum licensing decisions. If the applicability of a free service requirement turned on such issues, cable and satellite television subscribers wouldn’t be paying subscription fees.

The outrage over the FCC’s attempt to write new open Internet rules has caught many by surprise, and probably Chairman Wheeler as well. The rumored possibility of the FCC authorizing broadband “fast lanes” draws most complaints and animus. Gus Hurwitz points out that the FCC’s actions this week have nothing to do with fast lanes and Larry Downes reminds us that this week’s rules don’t authorize anything. There’s a tremendous amount of misinformation because few understand how administrative law works. Yet many net neutrality proponents fear the worst from the proposed rules because Wheeler takes the consensus position that broadband provision is a two-sided market and prioritized traffic could be pro-consumer.

Fast lanes have been permitted by the FCC for years and they can benefit consumers. Some broadband services–like video and voice over Internet protocol (VoIP)–need to be transmitted faster or with better quality than static webpages, email, and file syncs. Don’t take my word for it. The 2010 Open Internet NPRM, which led to the recently struck-down rules, stated,

As rapid innovation in Internet-related services continues, we recognize that there are and will continue to be Internet-Protocol-based offerings (including voice and subscription video services, and certain business services provided to enterprise customers), often provided over the same networks used for broadband Internet access service, that have not been classified by the Commission. We use the term “managed” or “specialized” services to describe these types of offerings. The existence of these services may provide consumer benefits, including greater competition among voice and subscription video providers, and may lead to increased deployment of broadband networks.

I have no special knowledge about what ISPs will or won’t do. I wouldn’t predict in the short term the widespread development of prioritized traffic under even minimal regulation. I think the carriers haven’t looked too closely at additional services because net neutrality regulations have precariously hung over them for a decade. But some of net neutrality proponents’ talking points (like insinuating or predicting ISPs will block political speech they disagree with) are not based in reality.

We run a serious risk of derailing research and development into broadband services if the FCC is cowed by uninformed and extreme net neutrality views. As Adam eloquently said, “Living in constant fear of hypothetical worst-case scenarios — and premising public policy upon them — means that best-case scenarios will never come about.” Many net neutrality proponents would like to smear all priority traffic as unjust and exploitative. This is unfortunate and a bit ironic because one of the most transformative communications developments, cable VoIP, is a prioritized IP service.

There are other IP services that are only economically feasible if jitter, latency, and slow speed are minimized. Prioritized traffic takes several forms, but it could enhance these services:

VoIP. This prioritized service has actually been around for several years and has completely revolutionized the phone industry. Something unthinkable for decades–facilities-based local telephone service–became commonplace in the last few years and undermined much of the careful industrial planning in the 1996 Telecom Act. If you subscribe to voice service from your cable provider, you are benefiting from fast lane treatment. Your “phone” service is carried over your broadband cable, segregated from your television and Internet streams. Smaller ISPs could conceivably make their phone service more attractive by pairing up with a Skype- or Vonage-type voice provider, and there are other possibilities that make local phone service more competitive.

Cloud-hosted virtual desktops. This is not a new idea, but it’s possible to have most or all of your computing done in a secure cloud, not on your PC, via a prioritized data stream. With a virtual desktop, your laptop or desktop PC functions mainly as a dumb portal. No more annoying software updates. Fewer security risks. IT and security departments everywhere would rejoice. Google Chromebooks are a stripped-down version of this but truly functional virtual desktops would be valued by corporations, reporters, or government agencies that don’t want sensitive data saved on a bunch of laptops in their organization that they can’t constantly monitor. Virtual desktops could also transform the device market, putting the focus on a great cloud and (priority) broadband service and less on the power and speed of the device. Unfortunately, at present, virtual desktops are not in widespread use because even small lag frustrates users.

TV. The future of TV is IP-based and the distinction between “TV” and “the Internet” is increasingly blurring, with Netflix leading the way. In a fast lane future, you could imagine ISPs launching pared-down TV bundles–say, Netflix, HBO Go, and some sports channels–over a broadband connection. Most ISPs wouldn’t do it, but an over-the-top package might interest smaller ISPs who find acquiring TV content and bundling their own cable packages time-consuming and expensive.

Gaming. Computer gamers hate jitter and latency. (My experience with a roommate who had unprintable outbursts when Diablo III or World of Warcraft lagged is not uncommon.) Game lag means you die quite frequently because of your data connection and this depresses your interest in a game. There might be gaming companies out there who would like to partner with ISPs and other network operators to ensure smooth gameplay. Priority gaming services could also lead the way to more realistic, beautiful, and graphics-intensive games.

Teleconferencing, telemedicine, teleteaching, etc. Any real-time, video-based service could reach critical mass of subscribers and become economical with priority treatment. Any lag absolutely kills consumer interest in these video-based applications. By favoring applications like telemedicine, providing remote services could become attractive to enough people for ISPS to offer stand-alone broadband products.

This is just a sampling of the possible consumer benefits of pay-for-priority IP services we possibly sacrifice in the name of strict neutrality enforcement. There are other services we can’t even conceive of yet that will never develop. Generally, net neutrality proponents don’t admit these possible benefits and are trying to poison the well against all priority deals, including many of these services.

Most troubling, net neutrality turns the regulatory process on its head. Rather than identify a market failure and then take steps to correct the failure, the FCC may prevent commercial agreements that would be unobjectionable in nearly any other industry. The FCC has many experts who are familiar with the possible benefits of broadband fast lanes, which is why the FCC has consistently blessed priority treatment in some circumstances.

Unfortunately, the orchestrated reaction in recent weeks might leave us with onerous rules, delaying or making impossible new broadband services. Hopefully, in the ensuing months, reason wins out and FCC staff are persuaded by competitive analysis and possible innovations, not t-shirt slogans.

Adam and I recently published a Mercatus research paper titled Video Marketplace Regulation: A Primer on the History of Television Regulation And Current Legislative Proposals, now available on SSRN. I presented the paper at a Silicon Flatirons academic conference last week.

We wrote the paper for a policy audience and students who want succinct information and history about the complex world of television regulation. Television programming is delivered to consumers in several ways, including via cable, satellite, broadcast, IPTV (like Verizon FiOS), and, increasingly, over-the-top broadband services (like Netflix and Amazon Instant Video). Despite their obvious similarities–transmitting movies and shows to a screen–each distribution platform is regulated differently.

The television industry is in the news frequently because of problems exacerbated by the disparate regulatory treatment. The Time Warner Cable-CBS dispute last fall (and TWC’s ensuing loss of customers), the Aereo lawsuit, and the Comcast-TWC proposed merger were each caused at least indirectly by some of the ill-conceived and antiquated TV regulations we describe. Further, TV regulation is a “thicket of regulations,” as the Copyright Office has said, which benefits industry insiders at the expense of most everyone else.

We contend that overregulation of television resulted primarily because past FCCs, and Congress to a lesser extent, wanted to promote several social objectives through a nationwide system of local broadcasters:

1) Localism 2) Universal Service 3) Free (that is, ad-based) television; and 4) Competition

These objectives can’t be accomplished simultaneously without substantial regulatory mandates. Further, these social goals may even contradict each other in some respects.

For decades, public policies constrained TV competitors to accomplish those goals. We recommend instead a reliance on markets and consumer choice through comprehensive reform of television laws, including repeal of compulsory copyright laws, must-carry, retransmission consent, and media concentration rules.

At the very least, our historical review of TV regulations provides an illustrative case study of how regulations accumulate haphazardly over time, demand additional “correction,” and damage dynamic industries. Congress and the FCC focused on attaining particular competitive outcomes through industrial policy, unfortunately. Our paper provides support for market-based competition and regulations that put consumer choice at the forefront.

The FCC is set to vote later this month on rules for the incentive auction of spectrum licenses in the broadcast television band. These licenses would ordinarily be won by the highest bidders, but not in this auction. The FCC plans to ensure that Sprint and T-Mobile win licenses in the incentive auction even if they aren’t willing to pay the highest price, because it believes that Sprint and T-Mobile will expand their networks to cover rural areas if it sells them licenses at a substantial discount.

This theory is fundamentally flawed. Sprint and T-Mobile won’t substantially expand their footprints into rural areas even if the FCC were to give them spectrum licenses for free. There simply isn’t enough additional revenue potential in rural areas to justify covering them with four or more networks no matter what spectrum is used or how much it costs. It is far more likely that Sprint and T-Mobile will focus their efforts on more profitable urban areas while continuing to rely on FCC roaming rights to use networks built by other carriers in rural areas.

The television band spectrum the FCC plans to auction is at relatively low frequencies that are capable of covering larger areas at lower costs than higher frequency mobile spectrum, which makes the spectrum particularly useful in rural areas. The FCC theorizes that, if Sprint and T-Mobile could obtain additional low frequency spectrum with a substantial government discount, they will pass that discount on to consumers by expanding their wireless coverage in rural areas.

The flaw in this theory is that it considers costs without considering revenue. Sprint and T-Mobile won’t expand coverage in rural areas unless the potential for additional revenue exceeds the costs of providing rural coverage.

A study authored by Anna-Maria Kovacs, a scholar at Georgetown University, demonstrates that the potential revenue in rural areas is insufficient to justify substantial rural deployment by Sprint and T-Mobile even at lower frequencies. The study concludes that the revenue potential per square mile in areas that are currently covered by 4 wireless carriers is $41,832. The potential revenue drops to $13,632 per square mile in areas covered by 3 carriers and to $6,219 in areas covered by 2 carriers. The potential revenue in areas covered by 4 carriers is thus approximately 3.5 times greater than in areas covered by 3 carriers and nearly 8 times greater than in areas covered by 2 carriers. It is unlikely that propagation differences between even the lowest and the highest frequency mobile spectrum could reduce costs by a factor greater than three due to path loss and barriers to optimal antenna placement.

Even assuming the low frequency spectrum could lower costs by a factor greater than three, the revenue data in the Kovacs report indicates that additional low frequency spectrum would, at best, support only 1 additional carrier in areas currently covered by 3 carriers. Low frequency spectrum wouldn’t support even one additional carrier in areas that are already covered by 1 or 2 carriers: It would be uneconomic for additional carriers to deploy in those areas at any frequency.

The challenging economics of rural wireless coverage are the primary reason the FCC gave Sprint and T-Mobile a roaming right to use the wireless networks built by Verizon and AT&T even in areas where Sprint and T-Mobile already hold low frequency spectrum.

When the FCC created the automatic roaming right, it exempted carriers from the duty to provide roaming in markets where the requesting carrier already has spectrum rights. (2007 Roaming Order at ¶ 48) The FCC found that, “if a carrier is allowed to ‘piggy-back’ on the network coverage of a competing carrier in the same market, then both carriers lose the incentive to buildout into high cost areas in order to achieve superior network coverage.” (Id. at ¶ 49). The FCC subsequently repealed this spectrum exemption at the urging of Sprint and T-Mobile, because “building another network may be economically infeasible or unrealistic in some geographic portions of [their] licensed service areas.” (2010 Roaming Order at ¶ 23)

As a result, Sprint and T-Mobile have chosen to rely primarily on roaming agreements to provide service in rural areas, because it is cheaper than building their own networks. The most notorious example is Sprint, who actually reduced its rural coverage to cut costs after the FCC eliminated the spectrum exemption to the automatic roaming right. This decision was not driven by Sprint’s lack of access to low frequency spectrum — Sprint has held low frequency spectrum on a nationwide basis for years.

The limited revenue potential offered by rural areas and the superior economic alternative to rural deployment provided by FCC’s automatic roaming right indicate that Sprint and T-Mobile won’t expand their rural footprints at any frequency. Ensuring that Sprint and T-Mobile win low frequency spectrum at a substantial government discount would benefit their bottom lines, but it won’t benefit rural Americans.

Some recent tech news provides insight into the trajectory of broadband and television markets. These stories also indicate a poor prognosis for a net neutrality. Political and ISP opposition to new rules aside (which is substantial), even net neutrality proponents point out that “neutrality” is difficult to define and even harder to implement. Now that the line between “Internet video” and “television” delivered via Internet Protocol (IP) is increasingly blurring, net neutrality goals are suffering from mission creep.

First, there was the announcement that Netflix, like many large content companies, was entering into a paid peering agreement with Comcast, prompting a complaint from Netflix CEO Reed Hastings who argued that ISPs have too much leverage in negotiating these interconnection deals.

Second, Comcast and Apple discussed a possible partnership whereby Comcast customers would receive prioritized access to Apple’s new video service. Apple’s TV offering would be a “managed service” exempt from net neutrality obligations.

Interconnection and managed services are generally not considered net neutrality issues. They are not “loopholes.” They were expressly exempted from the FCC’s 2010 (now-defunct) rules. However, net neutrality proponents are attempting to bring interconnection and managed services to the FCC’s attention as the FCC crafts new net neutrality rules. Net neutrality proponents have an uphill battle already, and the following trends won’t help.

1. Interconnection becomes less about traffic burden and more about leverage.

The ostensible reason that content companies like Netflix (or third parties like Cogent) pay ISPs for interconnection is because video content unloads a substantial amount of traffic onto ISPs’ last-mile networks.

Someone has to pay for network upgrades to handle the traffic. Typically, the parties seem to abide by the equity principle that whoever is sending the traffic–in this case, Netflix–should bear the costs via paid peering. That way, the increased expense is incurred by Netflix who can spread costs across its subscribers. If ISPs incurred the expense of upgrades, they’d have to spread costs over its subscriber base, but many of their subscribers are not Netflix users.

That principle doesn’t seem to hold for WatchESPN, which is owned by Disney. WatchESPN is an online service that provides live streams of ESPN television programming, like ESPN2 and ESPNU, to personal computers and also includes ESPN3, an online-only livestream of non-marquee sports. If a company has leverage in other markets, like Disney does in TV programming markets, I suspect ISPs can’t or won’t charge for interconnection. These interconnection deals are non-public but Disney probably doesn’t pay ISPs for transmitting WatchESPN traffic onto ISPs’ last-mile networks. The existence of a list of ESPN’s “Participating Providers” indicates that ISPs actually have to pay ESPN for the privilege of carrying WatchESPN content.

Netflix is different from WatchESPN in significant ways (it has substantially more traffic, for one). However, it is a popular service and seems to be flexing its leverage muscle with its Open Connect program, which provided higher-quality videos to participating ISPs. It’s plausible that someday video sources like Netflix will gain leverage, especially as broadband competition increases, and ISPs will have to pay content companies for traffic, rather than the reverse. When competitive leverage is the issue, antitrust agencies, not the FCC, have the appropriate tools to police business practices.

2. The rise of managed services in video.

Managed services include services ISPs provide to customers like VoIP and video-on-demand (VOD). They are on data streams that receive priority for guaranteed quality assurance since customers won’t tolerate a jittery phone call or movie stream. Crucially, managed services are carried on the same physical broadband network but are on separate data streams that don’t interfere with a customer’s Internet service.

The Apple-Comcast deal, if it comes to fruition, would be the first major video offering provided as a managed service. (Comcast has experimented with managed services affiliated with Xbox and TiVo.) Verizon is also a potential influential player since it just bought an Intel streaming TV service. Future plans are uncertain but Verizon might launch a TV product that it could sell outside of the FiOS footprint with a bundle of cable channels, live television, and live sports.

Net neutrality proponents decry managed services as exploiting a loophole in the net neutrality rules but it’s hardly a loophole. The FCC views managed services as a social good that ISPs should invest in. The FCC’s net neutrality advisory committee last August released a report and concluded that managed services provide “considerable” benefits to consumers. The report went on to articulate principles that resemble a safe harbor for ISPs contemplating managed services. Given this consensus view, I see no reason why the FCC would threaten managed services with new rules.

3. Uncertainty about what is “the Internet” and what is “television.”

Managed services and other developments are blurring the line between the Internet and television, which makes “neutrality” on the Internet harder to define and implement. We see similar tensions in phone service. Residential voice service is already largely carried via IP. According to FCC data, 2014 will likely be the year that more people subscribe to VoIP service than plain-old-telephone service. The IP Transition reveals the legal and practical tensions when technology advances make the FCC’s regulatory silos–“phone” and “Internet”–anachronistic.

Those same technology changes and legal ambiguity are carrying over into television. TV is also increasingly carried via IP and it’s unclear where “TV” ends and “Internet video” begins. This distinction matters because television is regulated heavily while Internet video is barely regulated at all. On one end of the spectrum you have video-on-demand from a cable operator. VOD is carried over a cable operator’s broadband lines but fits under the FCC’s cable service rules. On the other end of the spectrum you have Netflix and YouTube. Netflix and YouTube are online-only video services delivered via broadband but are definitely outside of cable rules.

In the gray zone between “TV” and “Internet video” lies several services and physical networks that are not entirely in either category. These services include WatchESPN and ESPN3, which are owned by a cable network and are included in traditional television negotiations but delivered via a broadband connection.

IPTV, also, is not entirely TV nor Internet video. AT&T’s UVerse, Verizon’s FiOS, and Google Fiber’s television product are pure or hybrid IPTV networks that “look” like cable or satellite TV to consumers but are not. AT&T, Verizon, and Google voluntarily assent to many, but not all, cable regulations even though their service occupies a legally ambiguous area.

Finally, on the horizon, are managed video and gaming services and “virtual MSOs” like Apple’s or Verizon’s video products. These are probably outside of traditional cable rules–like program access rules and broadcast carriage mandates–but there is still regulatory uncertainty.

Broadband and video markets are in a unique state of flux. New business models are slowly emerging and firms are attempting to figure out each other’s leverage. However, as phone and video move out of their traditional regulatory categories and converge with broadband services, companies face substantial regulatory compliance risks. In such an environment, more than ever, the FCC should proceed cautiously and give certainty to firms. In any case, I’m optimistic that experts’ predictions will be borne out: ex ante net neutrality rules are looking increasingly rigid and inappropriate for this ever-changing market environment.

Related Posts

1. Yes, Net Neutrality is a Dead Man Walking. We Already Have a Fast Lane.
2. Who Won the Net Neutrality Case?
3. If You’re Reliant on the Internet, You Loathe Net Neutrality.

The Mercatus Center at George Mason University has released a new working paper by Daniel A. Lyons, professor at Boston College Law School, entitled “Innovations in Mobile Broadband Pricing.”

In 2010, the FCC passed net neutrality rules for mobile carriers and ISPs that included a “no blocking” provision (since struck down in FCC v. Verizon). The FCC prohibited mobile carriers from blocking Internet content and promised to scrutinize carriers’ non-standard pricing decisions. These broad regulations had a predictable chilling effect on firms trying new business models. For instance, Lyons describes how MetroPCS was hit with a net neutrality complaint because it allowed YouTube but not other video streaming sites on its budget LTE plan (something I’ve written on). Some critics also allege that AT&T’s Sponsored Data program is a net neutrality violation.

In his paper, Lyons explains that the FCC might still regulate mobile networks but advises against a one-size-fits-all net neutrality approach. Instead, he encourages regulatory humility in order to promote investment in mobile networks and devices and to allow new business models. For support, he points out that several developing and rich countries have permitted commercial arrangements between content companies and carriers that arguably violate principles of net neutrality. Lyons makes the persuasive argument that these “non-neutral” service bundles and pricing decisions on the whole, rather than harming consumers, expand online access and ease non-connected populations into the Internet Age. As Lyons says,

The wide range of successful wireless innovations and partnerships at the international level should prompt U.S. regulators to rethink their commitment to a rigid set of rules that limit flexibility in American broadband markets. This should be especially true in the wireless broadband space, where complex technical considerations, rapid change, and robust competition make for anything but a stable and predictable business environment.

Further,

In the rapidly changing world of information technology, it is sometimes easy to forget that experimental new pricing models can be just as innovative as new technological developments. By offering new and different pricing models, companies can provide better value to consumers or identify niche segments that are not well-served by dominant pricing strategies.

Despite the January 2014 court decision striking down the FCC’s net neutrality rules, it’s an issue that hasn’t died. Lyons’ research provides support for the position that a fixation on enforcing net neutrality, however defined, distracts policymakers from serious discussion of how to expand online access. Rules should be written with consumers and competition in mind. Wired ISPs get the lion’s share of scholars’ attention when discussing net neutrality. In an increasingly wireless world, Lyon’s paper provides important research to guide future US policies.

The Internet is abuzz with news that Federal Communications Commission Chairman Tom Wheeler favors a case-by-case approach to addressing Internet competition issues. It is the wisest course, and perhaps the most courageous. Some on the right will say he is going too far, and some on the left will say he isn’t going far enough. That is one reason Wheeler’s approach should be commended. Staunch disagreements about net neutrality and other Internet governance issues reflect the uncertainty inherent in a dynamic market.

Chairman Wheeler’s comments this week echoed Socrates (“I’m not smart enough to know what comes next [in innovation]”) and, to my surprise, Virginia Postrel (the Chairman favors addressing Internet issues “in a dynamic rather than a static way”). He recognizes that, in a two-sided market, there is no reason to assume that ISPs will necessarily have the ability to charge content providers rather than the other way around. The potential for strategic behavior on the Internet today is radically different than in the dial-up Internet era, and the Chairman appears prepared to consider those differences in his approach to communications regulation.

The Chairman also noted that section 706 gives the FCC authority over the entire Internet. Though my friends at TechFreedom have expressed alarm that the Chairman thinks this is positive, an approach that recognizes the potential for strategic behavior by so-called edge providers is preferable to the one-sided approach embodied in net neutrality. The FCC’s decision to impose strict limitations on only one side of the two-sided Internet marketplace was bound to create market distortions and always smacked of cronyism. A broader approach, fairly applied, is more likely to discourage strategic behavior and protect consumers than the FCC’s previous net neutrality rules, which were designed to protect the commercial interests of edge providers.

To be clear, I remain unconvinced that intervention is necessary. But that is the virtue of the common law approach. If anticompetitive behavior occurs, the FCC would have the ability to take action. If not, the market would have the freedom to experiment with new business models and service arrangements. In comparison, a  per se rule “will almost always favor one group over another.”

There is another reason the Chairman should be commended for not rushing to reinstate the invalidated net neutrality rules – respect for the role of Congress. As Commissioner Pai noted in his statement on the DC Circuit’s decision striking down the rules, it was “the second time in four years” that the court had ruled that the agency exceeded its authority in attempting to regulate the Internet. In the meantime, Congress has begun a #CommActUpdate process to modernize the statute for the Internet era. In these circumstances, comity counsels that the FCC defer to Congress on Internet rules. A case-by-case approach would give the FCC flexibility to address any serious anti-competitive or consumer issues that might arise while avoiding the issuance of comprehensive rules in the face of a Congressional rewrite. That is indeed wise.

On its face, Verizon won a resounding victory in Verizon v. FCC since the controversial net neutrality regulations were vacated by all three DC Circuit judges. This marks the second time in four years the FCC had its net neutrality enforcement struck down.

Look at published reactions, though, and you’ll see that both sides feel they suffered a damaging loss in yesterday’s decision.

Prominent net neutrality advocates say “the court loss was even more emphatic and disastrous than anyone expected” and a “FEMA-level fail.”

Conversely, critics of net neutrality say that it was a “big win for FCC” and that “the court has given the FCC near limitless power to regulate not just broadband, but the Internet itself.”

Most analysis of the case will point out that it’s a mixed bag for both sides. What is clear is that the net neutrality movement suffered an almost complete loss in the short term. The FCC’s regulations from the Open Internet Order preventing ISPs from “unreasonable discrimination” and “blocking” of Internet traffic were struck down. The court said those prohibitions are equivalent to common carrier obligations. Since ISPs are not common carriers–per previous FCC rulings–most of the Open Internet Order was vacated.

The long term is more uncertain and net neutrality critics have ample reason to be concerned. The court yesterday said the FCC has broad authority to regulate ISPs’ treatment of traffic under Section 706 of the 1996 Telecommunications Act. This somewhat unanticipated conclusion–given its breadth–leaves the FCC with several options if it wants to enact net neutrality or “net neutrality-lite” regulations.

Putting aside the possibility that the FCC or Verizon will appeal the decision, these are the developments to watch:

1. Title II reclassification.

The FCC could always reclassify ISPs as common carriers and subject them to common carrier obligations. I think this is unlikely for several reasons.

First, reclassification would absolutely poison relationships with Congressional Republicans, some important Democrats, and the broadband industry. This is a large reason why then-FCC Chairman Genachowski did not seriously pursue reclassification in 2010. If anything, the political climate is worse for reclassification. Republicans and ISPs simply oppose reclassification more than Democrats and advocates support it.

Second, the content companies–like Google, Hulu, and Netflix–who would ostensibly benefit from net neutrality seem to have cooled to the idea. Part of content companies’ waning interest in net neutrality, I suspect, is exhaustion. This fight has gone on for a decade with little to show for it. They may also realize that ISPs are not likely to engage in truly abusive behaviors. Broadband speeds and capacity have advanced substantially in a decade and concerns about being squeezed out have lessened. There are also powerful norms that ISPs are not likely to violate. Consumers don’t like unseemly behavior by ISPs–like throttling a competing VoIP or video provider. If only because of the PR risk, ISPs have significant incentives to maintain the level of service they have historically provided.

Third, reclassification is a time-consuming and legally fraught process. Even the most principled net neutrality proponents don’t want ISPs subjected to every applicable Title II obligation. But “forbearance” of Title II regulations means several regulatory proceedings, each one potentially subject to litigation.

Finally, Chairman Tom Wheeler, fortunately, does not appear to be an ideologue willing to spend most of his tenure as chairman re-fighting this bitter fight. His comments last month were telling:

I think we’re also going to see a two-sided market where Netflix might say, ‘well, I’ll pay in order to make sure that . . . my subscriber receives, the best possible transmission of this movie.’ I think we want to let those kinds of things evolve.

This statement struck dread in the hearts of many net neutrality proponents. I’ve always believed he was talking about specialized services when he made this statement since pay-for-priority deals were essentially banned by the Open Internet Order. Regardless, his apparent comfort with changing pricing dynamics in two-sided markets indicates he is not a net neutrality partisan. I suspect Chairman Wheeler wants to go down as the chairman who guided America to a mobile future. His priorities seem to be in getting spectrum auctions right, not in rehashing old battles.

2. Pay-for-priority deals.

The legal uncertainties need to be settled before ISPs begin looking at prioritization deals, but they’ll probably pursue some. For example, gaming services might want to pay ISPs to make sure gamers receive low latency connections and large enterprise customers might want prioritized traffic for services like virtual desktops for, say, on-the-road employees. No one knows how common these deals will be. In any case, these deals will probably be closely monitored by the FCC for perceived abuses of market power, as explained next.

3. Increased FCC scrutiny using Section 706.

Substantial and costly scrutiny of ISPs’ traffic management from the FCC is the long-term fear. It now appears that the FCC has many tools to regulate how ISPs treat traffic under Section 706. I call this net neutrality-lite but 706 authority has the potential to be a more powerful weapon than the Open Internet Order. Not only can the FCC use 706 to regulate ISPs through adjudications, the mere threat of using 706 against ISPs may induce compliance. If there is a bright side to the court’s recognition of the FCC’s 706 authority, it’s that it makes Title II reclassification of ISPs less likely.

Verizon v. FCC was mostly a win for those of us who viewed the Open Internet Order as a regulatory overreach. Risks remain since net neutrality as a policy goal will not die, but reclassification is a long shot, fortunately. Policy watchers will be analyzing Wheeler’s actions, in particular, to see whether the FCC pursues its Section 706 authority to regulate ISPs. Hopefully the court’s decision is accepted as final and marks the end of the most heated battles over net neutrality. The FCC could then turn its attention to important issues like spectrum auctions, the IP transition, and the rapidly changing television market.

My response to Free State Foundation’s blog post, “Understanding the Un-Free Market for Retrans Consent Is the First Step for Reforming It”

The Free State Foundation (FSF) questioned my most recent blog post at RedState, which noted that the American Television Alliance’s (ATVA) arguments supporting FCC price regulation of broadcast television content are inconsistent with the arguments its largest members make against government intervention proposed by net neutrality supporters. FSF claimed that my post created a “false equivalency” between efforts to modify an existing regulatory regime and efforts to impose new regulations in a previously free market.

FSF’s “false equivalence” theory is a red herring that is apparently intended to distract from the substantive issues I raised. The validity of the economic arguments related to two-sided markets discussed in my blog doesn’t depend on the regulatory status of the two-sided markets those arguments address. The notion that the existence of regulation in the video marketplace gives ATVA a free pass to say anything it wants without heed for intellectual consistency is absurd.

I suspect FSF knows this. Its blog post does not dispute that ATVA’s arguments at the FCC are inconsistent with the arguments its largest members make against net neutrality; in fact, FSF failed to address the ATVA petition at all. Though the FSF blog was ostensibly prompted by my post at RedState, FSF decided to “leave the merits of ATVA’s various proposals to others” (except me, apparently).

FSF’s decision to avoid the merits of ATVA’s arguments at the FCC (the subject of my blog post), begs the question: What was the FSF blog actually about? It appears FSF wrote the blog to (1) reiterate its previous (and misleading) analyses of the video programing market, and (2) argue that the Next Generation Television Marketplace Act “represents the proper direction” for reforming it.

To be clear, I haven’t previously addressed either issue. But, in the spirit of collegial dialogue initiated by FSF, I discuss them briefly in this blog.

Retransmission Consent

FSF is right that, “In a truly free marketplace, private parties have the liberty to pursue [or not pursue] commercial deals with whomever they choose.” I also agree that the market for video programming is not a “truly free marketplace,” and that the rules governing retransmission consent “restrict private bargaining.” But, FSF’s one-sided characterization of retransmission consent as granting “special rights” to broadcasters only is flatly misleading.

FSF highlights how local broadcasters benefit from (1) “must carry” rules and (2) non-duplication and syndication agreements.

The must carry rules require for-pay video distributors (e.g., cable operators) to carry the programming of broadcasters who elect mandatory program carriage while prohibiting distributors from charging such broadcasters for that carriage. Although I agree with FSF that the must carry rules are particularly intrusive, they are also irrelevant to retransmission consent negotiations. Once a broadcaster elects to engage in retransmission consent negotiations for carriage, it cannot take advantage of must carry for three years. Even if it could, the existence of must carry wouldn’t provide the broadcaster any pricing advantage in negotiations with for-pay video distributors, whose goal is to carry the programming at the lowest possible cost (which must carry sets at zero).

FSF correctly notes that non-duplication and syndication agreements limit the ability of for-pay video distributors (e.g., cable operators) to bargain with non-local broadcasters for new and syndicated broadcast programming, respectively. But FSF sidesteps the fact that these limitations are created in the free market by private contractual arrangements between broadcast stations and the providers of network or syndicated programming, not the government. The FCC’s non-duplication and syndication “rules do not create these rights but rather provide a means for the parties to exclusive contracts to enforce them through the Commission rather than the courts.”

Finally, FSF fails to mention, either in its blog post or its scholarly papers, that the retransmission consent rules limit the ability of broadcasters to choose with whom they bargain by prohibiting broadcasters from entering into exclusive program carriage agreements with for-pay video distributors – a limitation on bargaining that does not apply to programming owned by for-pay video distributors. Unlike non-duplication and syndication, this exclusivity prohibition is not grounded in private contractual arrangements.

FSF does not address whether the potential negotiating advantages conferred on broadcasters by FCC enforcement of network non-duplication and syndication agreements is more valuable in retransmission consent negotiations than the potential disadvantages imposed by the prohibition on exclusive program carriage agreements. To the extent the value of exclusive carriage agreements (the opportunity cost of the retransmission consent regime for broadcasters) outweighs the value of network non-duplication and syndication enforcement (the benefit to broadcasters), for-pay video distributors benefit more from the retransmission consent regime than broadcasters.

Next Generation TV Act

To be sure, even if for-pay video distributors benefit more from retransmission consent than broadcasters, retransmission consent negotiations do not occur in a “truly free market.” I agree with FSF that, “The ultimate goal should be to eliminate regulatory intrusion in this space – and to thereby eliminate occasions for debate over whether this or that particular modification to the old regulations will tip the scales in favor of one class of competitors over another.” Unfortunately, the modifications proposed by the Next Generation TV Act (the Bill) would not eliminate such debates.

FSF describes the Bill as a “comprehensive free market reform.” It would indeed eliminate FCC enforcement of network non-duplication and syndication agreements (and compulsory copyright licenses—an issue that merits additional discussion), but it is far from comprehensive.

First, the Bill doesn’t eliminate must carry for non-profit (e.g., religious and educational) broadcasters – the broadcasters most likely to elect mandatory carriage. Retaining such protections for religious and educational broadcasters is certainly reasonable when viewed from a political perspective; however, it falls short of being a free market approach to video regulation generally.

More importantly, the Bill wouldn’t eliminate any of the underlying reasons for which broadcasters enter into non-duplication and syndication agreements. Broadcasters negotiate exclusive distribution rights in local markets because government regulations require broadcasters to provide their programming for free. As a result of this government mandate, broadcasters rely on local advertising revenue to generate profit. If for-pay video distributors could retransmit duplicative programming (syndicated or otherwise) from non-local broadcasters (e.g., because the local broadcaster had not negotiated exclusive distribution rights), the local broadcaster would lose a substantial portion (if not all) of its advertising revenue. In a “truly free market,” the local broadcaster could respond to the potential loss of advertising revenue by charging subscription fees for its over-the-air video programming delivery or repurposing its spectrum for an alternative use. But broadcasters today don’t operate in a truly free market, and the government generally won’t allow them to pursue other business models.

Although the Bill aims toward a more vibrant free market, my primary concern is that it would leave in place the intrusive business model restrictions on broadcasters while eliminating rules that help make the government-mandated business model work. Perhaps FSF would agree that, if the goal is to “eliminate regulatory intrusions in this space,” the Bill should also eliminate government restrictions on broadcast business models and spectrum use. Anything less is better described as “picking winners and losers,” not “comprehensive free market reform.”

Join TechFreedom on Thursday, December 19, the 100th anniversary of the Kingsbury Commitment, AT&T’s negotiated settlement of antitrust charges brought by the Department of Justice that gave AT&T a legal monopoly in most of the U.S. in exchange for a commitment to provide universal service.

The Commitment is hailed by many not just as a milestone in the public interest but as the bedrock of U.S. communications policy. Others see the settlement as the cynical exploitation of lofty rhetoric to establish a tightly regulated monopoly — and the beginning of decades of cozy regulatory capture that stifled competition and strangled innovation.

So which was it? More importantly, what can we learn from the seventy year period before the 1984 break-up of AT&T, and the last three decades of efforts to unleash competition? With fewer than a third of Americans relying on traditional telephony and Internet-based competitors increasingly driving competition, what does universal service mean in the digital era? As Congress contemplates overhauling the Communications Act, how can policymakers promote universal service through competition, by promoting innovation and investment? What should a new Kingsbury Commitment look like?

Following a luncheon keynote address by FCC Commissioner Ajit Pai, a diverse panel of experts moderated by TechFreedom President Berin Szoka will explore these issues and more. The panel includes:

• Harold Feld, Public Knowledge
• Rob Atkinson, Information Technology & Innovation Foundation
• Hance Haney, Discovery Institute
• Jeff Eisenach, American Enterprise Institute
• Fred Campbell, Former FCC Commissioner

Space is limited so RSVP now if you plan to attend in person. A live stream of the event will be available on this page. You can follow the conversation on Twitter on the #Kingsbury100 hashtag.  

When: Thursday, December 19, 2013 11:30 – 12:00Registration & lunch 12:00 – 1:45Event & live stream

The live stream will begin on this page at noon Eastern.

Where: The Methodist Building 100 Maryland Ave NE Washington D.C. 20002

Questions? Email contact@techfreedom.org.

It’s encouraging to see more congressional movement in repurposing federal spectrum for commercial use. This week, a bill rewarding federal agencies for ending or moving their wireless operations passed a House committee. The bipartisan Federal Spectrum Incentive Act of 2013 allows agencies to benefit when they voluntarily give up their spectrum for FCC auction.

In the past, an agency could receive a portion of auction proceeds but only to compensate the agency for relocating its systems. Agencies complained, sensibly, that this arrangement does little to encourage them to give up spectrum. Federal agencies had to go through the hassle of modifying their wireless equipment and sharing spectrum with another agency but were left no better off than before. In some cases, the complications with sharing spectrum made them worse off, so there was risk of downside and no upside.

This House bill provides that an agency can keep 1% of auction proceeds in addition to relocation costs. With this additional carrot, the hope is, agencies will be more willing to modify their equipment and make room for mobile broadband carriers.

The bill is a good start but I think it’s a little too restrictive. A one percent claim on auction receipts seems insufficient to induce dramatically improved agency participation. Given how poorly federal agencies use spectrum, Congress should be doing much more to force agencies to justify their spectrum usage. Additionally, how agencies can use that 1% benefit seems too limited. The bill allows the funds to be used 1) to offset sequestration cuts, and 2) to compensate other agencies if they agree to share spectrum. Some journalists are reporting that agencies can use the funds to expand existing programs but I don’t see that language in the proposed bill. It wouldn’t be a bad idea, though, to have fewer restrictions on the payments since it would likely increase agency participation.

Further Reading:

See my Mercatus paper on the subject of repurposing federal spectrum.

Call it what you want: a bailout, a thumb on the scales, bidder restrictions–the FCC might conspicuously intervene in the 2015 incentive auctions at the behest of smaller carriers and public interest advocates.

Chairman Wheeler’s recent comments indicate the FCC may devise a way to prevent the largest two carriers–AT&T and Verizon–from purchasing “too much” of the television broadcasters’ spectrum at auction. AT&T likely sees the writing on the wall and argues that if there are auction limits, the restrictions should apply only to the auction, rather than more extreme restrictions that would penalize AT&T and Verizon, the largest carriers, for previously-acquired spectrum. As The Switch’s Brian Fung put it,

the small carriers favor what are called “asymmetric” spectrum caps that affect various carriers differently, while opponents prefer “symmetric” caps that don’t account for existing market positions.

While I wish AT&T put up more of a fight to auction interventions, they (and staff at the FCC) are handicapped in pursuing an unrestricted auction. The blame lies mostly with Congress who gave the FCC vague (thus ripe for abuse) and conflicting mandates spanning decades. The 1993 law authorizing auctions, for instance, requires the FCC to “avoid[] excessive concentration of licenses” and to “disseminat[e] licenses among a wide variety of applicants” among other regulatory carve-outs for smaller competitors. These latter requirements, if implemented as rigorously as smaller carriers would like, directly undermine the purpose of the 2012 American Taxpayer Relief Act that requires the upcoming spectrum auctions raise $7 billion for a public safety broadband network and $20 billion for deficit reduction.

By asymmetrically penalizing AT&T and Verizon, the FCC increases the probability the auction fails to raise the tens of billions of dollars needed (see Fred Campbell’s recent paper). I haven’t heard a policymaker speak about the incentive auction without remarking how extraordinarily complex it is. That complexity–as was made clear in this week’s Senate hearing on the subject–means no one knows how much spectrum will be auctioned off or how much money will be raised. I was doubtful the FCC would secure the called-for 120 MHz for auction in the first place, but the Senate hearing convinced me that they might not get even 60 MHz. If the FCC meddles too much and the broadcasters aren’t assured they’ll get top dollar for their spectrum, the broadcasters might not show up to sell.

For many reasons, the FCC should ignore the pressures to restrict the large carriers in bidding. Smaller carriers argue the large carriers will outbid them only to preclude competition and hoard the spectrum. Every major carrier is spending billions to expand its footprint and capacity rapidly so the hoarding argument is hard to accept (not to mention, carriers face FCC build out requirements). The hoarding argument also confounds me because AT&T and Verizon are at the forefront arguing for more spectrum auctions, particularly spectrum from federal agencies. Would they want the market flooded with new spectrum only so they could spend billions to hoard it?

Asymmetric auction restrictions also resemble a bailout for smaller carriers. T-Mobile and Sprint–who most actively lobby for auction restrictions–are not mom-and-pop establishments. Each is a sophisticated, powerful corporation with access to capital markets and backed by larger international telecoms–Germany’s Deutsche Telekom for T-Mobile and Japan’s SoftBank for Sprint. DT and SoftBank have both pledged to spend billions in the next few years to improve their American carrier’s competitive position. Such carriers do not need an FCC handout.

The bailout resemblance is more apparent when you realize Sprint has been hamstrung for nearly a decade with damaging business decisions. Three come immediately to mind: 1) the dreadful merger with Nextel in 2005; 2) the ill-fated bet in 2008 to forgo LTE rollout in favor of WiMax, a competing 4G standard; and 3) the loss of over one million customers when it discontinued its push-to-talk iDEN service for network upgrades. The losses from the Nextel merger alone approach $30 billion.

To be clear, I don’t second-guess Sprint’s decisions. They did what innovative firms are supposed to do in attempting big, risky investments. However, it should not be the job of the FCC to favor some firms through spectrum auctions because some carriers’ business decisions did not pan out. That is not a competitive wireless auction–that is an FCC-orchestrated bailout. Granted, the FCC has been handed conflicting mandates. The Commission has ample discretion, however, to conduct a competitive auction that both complies with the law and improves chances of reaching the ambitious revenue goals. Intense meddling with auction results could prove disastrous.

One year ago I wrote that conservatives were the leading voices in technology policy. Conservative leadership on tech policy issues became even more apparent last week, when House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) announced plans to update the Communications Act for the Internet era (#CommActUpdate). Virtually everyone recognizes that the Act, which Rep. Walden noted was “written during the Great Depression and last updated when 56 kilobits per second via dial-up modem was state of the art,” is now hopelessly out of date. But it was conservative leadership that was willing to begin the legislative process necessary to update it.

Although the term “progressive” literally means “advocating progress, change, improvement, or reform, as opposed to wishing to maintain things as they are,” some political progressives have focused their communications advocacy on maintaining the status quo. In response to the #CommActUpdate, Free Press said, “We’re not going to get a better act than we have now.” (Communications Daily, Dec. 5, 2013 (subscription required)) Free Press, which describes itself as a “movement to change media and technology policies,” also told Comm Daily, “The IP transition should be governed by the laws on the books today.”

The “do-nothing” approach advocated by Free Press is symptomatic of the regressive policies pursued by some communications advocates today. The laws Free Press seeks to preserve unreasonably discriminate among similar networks providing substantially the same services based solely on their historical identity. Among other things, this discriminatory statutory framework artificially shifts the costs of communications services provided to corporations to residential consumers, inhibits investment in the modern communications infrastructure to serve rural and low-income areas, and distorts competition.

When did self-described “progressives” start believing that Congress cannot improve such painfully outdated laws?

I have more faith in the legislative process than Free Press. I am confident that Congress can work in a bipartisan way to improve laws that are unfairly subsidizing business services at the expense of residential consumers, inhibiting investment in modern communications infrastructure, and distorting competition. Previous revisions to the Communications Act have not provoked partisan rancor, and this one shouldn’t either. Policymakers and advocates from both right and left of center understand the importance of ensuring that consumer-focused communications laws provide a level playing field for all market participants and foster the investment necessary to bring high-speed Internet services to every American.

Of course, improving the act will require that Congress conduct a thorough examination of the current communications market and retain only those policies that have proven successful – which is why the #CommActUpdate announcement is so important. Reviewing the Communications Act will take time, and in a global economy, we have no more time to waste.

There is bipartisan agreement that the 1996 Telecom Act was antiquated only shortly after President Clinton’s signature had dried on the legislation. There is also consensus that spectrum policy, still largely grounded in the 1934 communications statute, absolutely distorts today’s wireless markets. And there is frequent criticism from thought leaders, right and left, that the FCC has been, for decades, too accommodating to the firms it regulates and too beholden to the status quo (economist Thomas Hazlett quips the agency’s initials stand for “Forever Captured by Corporations”).

For these reasons, members of Congress every few years announce their intention to reform the 1934 and 1996 communications laws and modernize the FCC. Yesterday, some powerful House members unexpectedly reignited hopes that Congress would overhaul our telecom, broadband, and video laws. In a Google Hangout (!), Reps. Fred Upton and Greg Walden said they wanted to take on the ambitious task of passing a new law in 2015.

Much depends on next year’s elections and the composition of Congress, but hopefully the announcement spurs a major re-write that eliminates regulatory distortions in communications, much as airlines and transportation were deregulated in the 1970s–an effort led by reformist Democrats.

About ten years ago, more than fifty scholars and technologists crafted reports which constituted the Digital Age Communications Act (or DACA) that is largely deregulatory (a majority of the group had served in Democratic administrations, interestingly enough). In 2005, then-Sen. Jim DeMint proposed a bill similar to the working group’s proposals. The working group’s recommendations aged very well in eight years–which you can’t say about the 1996 Act–and represents a great starting point for future legislation.

As Adam has said the DACA reports have five primary reform objectives:

– Replacing the amorphous “public interest” standard with a consumer welfare standard, which is more well-established in field of antitrust law – Eliminate regulatory silos and level the playing field through deregulation – Comprehensively reform spectrum not just through more auctioning but through clear property rights – Reform universal service by either voucherizing it or devolving it to the States and let them run their own telecom welfare programs; and – Significantly reforming & downsizing the scope of the FCC’s power of the modern information economy

DACA redefines the FCC as a specialized competition agency for the communications sector. The FCC largely sees itself as a competition agency today but the current statutes don’t represent that gradual change in purpose. The FCC is slow, arbitrary, Balkanizes industries artificially, and attempts to regulate in areas it isn’t equipped to regulate–the agency has a notoriously bad record in federal courts. These characteristics create a poor environment for substantial investments in technology and communications infrastructure. The DACA proposals aren’t perfect but it is a resilient framework that minimizes the effect of special interests in communications and encourages investments that improve consumers’ lives.

Both parties of Congress has been increasingly critical of federal agencies’ inefficient use of spectrum in the past few years and it seems like agencies are getting the message. The NTIA, which is the official manager of federal agency spectrum, released a letter yesterday announcing that the Department of Defense would be relocating some of its systems. Defense had reached an agreement with broadcasters that Defense systems will share spectrum in the Broadcast Auxiliary Service (BAS) band.

The soon-to-be vacated band held by Defense will eventually be auctioned off–hopefully in 2014–for billions of dollars and likely used for mobile broadband provided by wireless carriers like AT&T, Verizon, Sprint, and T-Mobile. These carriers face serious congestion problems because of government-created scarcity of spectrum.

The carriers actually had targeted some of BAS spectrum because they weren’t convinced Defense would be willing to move their systems. The broadcaster deal reached with Defense means everyone’s apparently happy–the broadcasters can keep their BAS spectrum, the feds get new equipment and Congress off their back (temporarily), and the carriers get new spectrum for auction.

The deal is welcome news because the spectrum will be put to a higher-valued use once auctioned. The federal government pays almost nothing for its own spectrum and is a poor steward of the resource. Transferring spectrum from agencies to carriers means lower phone bills and more mobile broadband coverage. Government agencies are notoriously resistant to moving their systems or sharing with others, so entering into a sharing pact with the broadcasters indicates some of the resistance is thawing.

It’s not unequivocal good news, though.

The government is clearing out from a 25 MHz band of spectrum and occupying the larger, 85 MHz BAS band that will be shared with broadcasters. The military will need a larger band because sharing imposes some capacity constraints necessitating new, agile systems that search the airwaves to make sure they don’t interfere with existing broadcast users. Dynamic sharing like this only adds to the cost and complexity and may imperil next years’ planned auction.

Further, the BAS band is unavailable for auction only because of the antiquated command-and-control regime the FCC uses to award spectrum licenses. BAS is mostly used for electronic news gathering, which relays local and national newscasts from reporters on the scene to broadcast studios. Broadcasters have used BAS spectrum since the 1960s when it was allocated to them for free.

In a market, broadcasters likely would not have as much BAS spectrum as they currently have. In fact, because of technology changes and squeezed newsroom budgets, broadcasters are finding cheaper alternatives. Increasingly, journalists are using carriers’ LTE technology to transmit their breaking newscasts since the technology costs a fraction of the cost of news vans and equipment needed for BAS transmissions. That is to say, there are alternative business models in the absence of Soviet-style allocations.

So despite these industry changes, BAS spectrum cannot be auctioned for its highest-valued use (probably mobile broadband) under current FCC rules. Further, it will be even more difficult to bring the benefits of auctions to the airwaves if federal users are intermingling with existing users, broadcasters in this case. It’s a trend to be wary of. Let’s just hope that next year’s planned auctions occur on time so that more consumers can benefit from mobile broadband.

From the time Tom Wheeler was nominated to become the next FCC Chairman, many have wondered, “What would Wheeler do?” Though it is still early in his chairmanship, the only ruling issued in Chairman Wheeler’s first meeting signals a pro-investment approach to communications regulation.

The declaratory ruling clarified that the FCC would evaluate foreign investment in broadcast licensees that exceeds the 25 percent statutory benchmark using its existing analytical framework. It had previously been unclear whether broadcasters were subject to the same standard as other segments of the communications industry. The ruling recognized that providing broadcasters with regulatory certainty in this respect would promote investment and that greater investment yields greater innovation.

The FCC’s decision to apply the same standards for reviewing foreign ownership of broadcasters as it applies to other segments of the communications industry is very encouraging. It affirms the watershed policy decisions in the USF/ICC Transformation Order, in which the FCC concluded that “leveling the playing field” promotes competition whereas implied subsidies deter investment and are “unfair for consumers.”

Chairman Wheeler’s separate statement is also very encouraging. Its first sentence declares that, “Promoting a regulatory framework that does not inhibit the flow of capital to the US communications sector is an important goal of Commission policy.” This Chairman understands that, in a global economy, U.S. companies must compete with innovators around the world to obtain the necessary investment to develop new information technologies and deploy new communications infrastructure. His separate statement indicates the Chairman’s intent to renew the FCC’s commitment to encouraging private investment.

Regrettably, the Chairman’s separate statement is potentially troubling as well. After noting that the broadcast incentive auction is intended to allow the market to assure that the spectrum is put to its highest and best use, Chairman Wheeler says he will “assess foreign ownership petitions and applications by looking at, among other factors, whether they will help to fulfill these goals, including efficient spectrum usage.”

It is not entirely clear what the Chairman meant by this non sequitur (would the FCC impose channel sharing conditions on stations seeking approval for foreign investment exceeding the benchmark?). But it indicates a willingness to use the FCC’s authority over mergers and acquisitions to promote unrelated policy goals through the imposition of unrelated conditions. As I’ve noted previously, using the FCC’s transaction authority in this way silences public debate over critical policy issues and shields the resulting decision from judicial review – due process protections that are essential to ensure that the FCC acts in the public interest. Ironically, the prospect of unpredictable, case-by-case conditions on foreign investment would appear to be at odds with the Chairman’s goal of promoting a regulatory framework that doesn’t inhibit the flow of private capital to the U.S. communications industry.

It is also possible that the Chairman was merely attempting to deter speculative investments in broadcast spectrum that could sabotage the incentive auction. The success of the incentive auction is critical to the future of our mobile broadband ecosystem, and it is appropriate that the FCC be mindful of sudden, significant foreign investments in broadcast spectrum in these circumstances.

It is still early in Wheeler’s chairmanship, and the future is bright in the spring. If the Chairman maintains his focus on pro-investment policies during his term, the future could be brighter in every season.