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The Seven Deadly Sins of Title II Reclassification (NOI Remix)

by on July 13, 2010 · 4 comments

Better late than never, I’ve finally given a close read to the Notice of Inquiry issued by the FCC on June 17th.  (See my earlier comments, “FCC Votes for Reclassification, Dog Bites Man”.)  In some sense there was no surprise to the contents; the Commission’s legal counsel and Chairman Julius Genachowski had both published comments over a month before the NOI that laid out the regulatory scheme the Commission now has in mind for broadband Internet access.

Chairman Genachowski’s “Third Way” comments proposed an option that he hoped would satisfy both extremes.  The FCC would abandon efforts to find new ways to meet its regulatory goals using “ancillary jurisdiction” under Title I (an avenue the D.C. Circuit had wounded, but hadn’t actually exterminated, in the Comcast decision), but at the same time would not go as far as some advocates urged and put broadband Internet completely under the telephone rules of Title II.

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A Speed Bump on the Road to Universal Broadband?

by on July 7, 2010 · 0 comments

The Federal Communications Commission has an open proceeding in which it seeks advice on how to repurpose universal service subsidies for phone service in high cost areas to subsidize broadband instead. The FCC apparently wants to subsidize broadband with a minimum download speed of 4 megabytes per second (mbps) and upload speed of 1 mbps. These are the goals proposed in the commission’s National Broadband Plan.

I’m no lawyer, but I wonder if the FCC can do this legally. Section 254 of the Telecommunications Act of 1996 lays out criteria the FCC is supposed to consider when it decides whether to provide universal service subsidies for new services in addition to phone service. One of the criteria is that the new service must be subscribed to by a “substantial majority” of residential consumers.

Sixty-five percent of Americans have broadband at home. (National Broadband Plan, p. 167)  But a minority of residential customers subscribe to broadband that meets the FCC’s 4 mbps/1 mbps definition. According to the FCC’s Omnibus Broadband Initiative technical report on the “Availability Gap” (p. 43), 48 million subscribers have download speeds of 4 mbps or higher. More subscribers – 53 million – have broadband download speeds of 3 mbps or lower. And 35 percent of Americans have no broadband at all. These figures imply that a “substantial majority” of Americans have not subscribed to broadband that meets the National Broadband Plan’s proposed definition.

Based on figures in the technical report, I calculated that approximately 59 percent of Americans subscribe to broadband with a download speed of 768 kbps or higher. Perhaps this figure qualifies as a “substantial majority,” but surely the 4 mbps/1 mbps definition does not.

A reasonable person might also question whether even 59 percent counts as a “substantial majority” for the purpose of declaring broadband a service eligible for subsidy. Surely Section 254 requires a “substantial majority” in part to ensure that consumers who have chosen not to subscribe to a service do not bear the injustice of having to subsidize the provision of that service to others. It is clear from the FCC’s figures that most of the 35 percent of American households without broadband have it available but choose not to subscribe. Therefore, subsidizing even 768 kbps broadband would force many consumers to pay universal service assessments to provide others with a subsidized service that they themselves have decided is not worth the cost.

Wait and see how the FCC addresses this issue once it starts creating a universal service program for broadband.

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Good Spectrum News from the Obama Administration

by on June 29, 2010 · 2 comments

National Economic Council Director Lawrence Summers made a major policy speech yesterday at the New America Foundation, announcing the adminstration’s plan to find an additional 500 megaherz of spectrum for wireless broadband service by the end of the decade. The spectrum will come from two places: federal agencies who currently under-utilize their spectrum, and commercial users who volunteer to participate in “incentive auctions.”

In an incentive auction, the current spectrum user receives part of the proceeds in exchange for making the spectrum available for reallocation. Within the current US system of spectrum allocation, it’s about as close as we can come to allowing spectrum holders to sell their spectrum licenses to someone else who can put the spectrum to a more valuable use. 

Summers even mentioned broadcasters specifically, noting that a local television station with a few hundred millions of dollars of revenue may currently control spectrum worth hundreds of millions of dollars. Federal agencies would get to use some of the proceeds to adopt “state-of-the-art communications.” Presumably this would include new equipment that doesn’t use so much spectrum.

In his speech, Summers gave appropriate credit to the Federal Communications Commission, which surfaced many of these ideas in its National Broadband Plan. Even more appropriately, the former Harvard University president and academic economist assigned proper credit for the original source of the idea: 

Most of the freed-up spectrum will be auctioned off for use by mobile broadband providers. As the great law and economics scholar Ronald Coase originally pointed out, auctions ensure that spectrum is devoted to its most productive uses because it is determined by investors’ willingness to pay for it.

There are, of course, a few unanswered questions. How much of the spectrum will actually get auctioned for mobile broadband, rather than reserved for unlicensed use? Will the buyers have to use the spectrum for mobile broadband, or will the license be sufficiently broad that they could use it for other forms of personal communication that perhaps haven’t even been invented yet? Do we really have to wait ten years for this? Will the Ronald Coase Institute get any royalties for the government’s use of its namesake’s intellectual property? (Academics will recognize the joke in the last question.)

For now I’ll just say, “Bravo, Dr. Summers!”

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FCC Votes for Reclassification, Dog Bites Man

by on June 17, 2010 · 8 comments

Not surprisingly, FCC Commissioners voted 3 to 2 today to open a Notice of Inquiry on changing the classification of broadband Internet access from an “information service” under Title I of the Communications Act to “telecommunications” under Title II.  (Title II was written for telephone service, and most of its provisions pre-date the breakup of the former AT&T monopoly.)  The story has been widely reported, including posts from The Washington Post, CNET, Computerworld, and The Hill.

As CNET’s Marguerite Reardon counts it, at least 282 members of Congress have already asked the FCC not to proceed with this strategy, including 74 Democrats.

I have written extensively about why a Title II regime is a very bad idea, even before the FCC began hinting it would make this attempt.  I’ve argued that the move is on extremely shaky legal grounds, usurps the authority of Congress in ways that challenge fundamental Constitutional principles of agency law, would cause serious harm to the Internet’s vibrant ecosystem, and would undermine the Commission’s worthy goals in implementing the National Broadband Plan.  No need to repeat any of these arguments here.  Reclassification is wrong on the facts, and wrong on the law. Continue reading →

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FCC “Third Way” Plan = Beginning of Big Government Broadband Era

by on June 17, 2010 · 4 comments

Today, the Federal Communications Commission (FCC) voted along party lines to adopt a Notice of Inquiry opening a new proceeding to regulate the Internet by reclassifying it under Title II of the Communications Act. FCC Chairman Julius Genachowski calls this his “Third Way” plan. In a PFF press release, I issued the following response:

In its ongoing ‘by-any-means-necessary’ quest to regulate the Internet via Net Neutrality mandates, Chairman Genachowski’s FCC continues to flaunt the rule of law and magically invent its own authority as it goes along. If this Chairman wants to bring the Net under his thumb and regulate broadband networks like plain-vanilla public utilities, he should ask Congress for the authority to pursue such imperial ambitions. As the law stands today, the FCC has no such authority. Indeed, the unambiguously deregulatory thrust of the Telecom Act of 1996 stands in stark contrast to Chairman Genachowski’s outdated vision for Big Government Broadband. The FCC stands on the cusp of killing one of the great deregulatory success stories of modern economic history by reviving the discredited regulatory industrial policies of the 19th Century. The revisionism about that epoch is dead wrong: Price controls and protected markets limited choice and stifled innovation. With the agency rolling back the regulatory clock in this fashion, today marks the beginning of the Internet’s “Lost Decade” of stymied investment, innovation, and job creation as all sides wage battle over the legality of reclassification and its implementation.

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Do you know your broadband speed? Do you care?

by on June 17, 2010 · 0 comments

This is a post for all those broadband fans out there who want to talk about something today besides the Federal Communication’s Commission’s decision to take comments on which legal classification it should use to regulate broadband.

A recent FCC survey revealed that 80 percent of home broadband users do not know the speed of their broadband service. I can easily imagine how this statistic could be spun to “prove” that consumers are woefully uninformed and the broadband market must be plagued with “market failures” because consumers do not have even the basic information they need to make intelligent decisions.

Before we go down that road, let me explain, based on my own experience, why this is a non-issue.

I’m part of that 80 percent. I do not know the speed of my broadband service at home.  I know that when I signed up several years ago, I selected the slowest and cheapest broadband speed the provider offered.  I also know that this speed is still plenty fast for anything we need to do at home (and usually faster than the speed at my university office). I remain blissfully ignorant of the actual speed, even though it would be very easy for me to find out by looking at the materials I received when I signed up or checking the provider’s web site online.

In economic jargon, I am “rationally ignorant” of my home broadband speed. I don’t know (or remember) the speed, but to me this information is not worth the 45 seconds it would take me to find out. And that also means any FCC initiatives to “improve consumer information” or “educate” me about it will not, for me, be worth the time and money the FCC might spend on them.

If some of our Internet applications were not working in a satisfactory manner, we would probably do an online speed test, check to see what other speeds our provider offers, and check offers from competing providers. All of these steps would be easy and would require no FCC policy initiatives to facilitate (beyond making sure that the providers aren’t lying about what speeds they will provide).

I’m probably not alone.  The same survey reveals that 50 percent of Americans are satisfied with their broadband speeds, and another 41 percent are “somewhat satisfied.” So, 91 percent of consumers are more or less satisfied, even though 80 percent don’t know their speeds.

It would have been quite useful and instructive if the FCC survey had included an additional question: “Is your broadband speed adequate for the Internet applications you want to use?” And then cross-tabulate the responses with the responses on knowledge of broadband speed. Wanna bet that a substantial majority of people who do not know their speed would also have said that it is adequate?

Surely there are some broadband customers who use applications that require specific (fast) speeds, and these customers have a greater need to know what speed they’re receiving. That’s why providers tell prospective customers what speed tiers they offer. And that’s why one can find multiple web-based speed tests. This information is not hard to find if you want it.

But for some of us, it just ain’t worth it. And shame on anyone who tries to use my willful ignorance as an excuse for some new policy initiative. Rational ignorance is bliss, and I’m a bliss-ter.

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The Future of Journalism & Washington’s War on Advertising

by on June 15, 2010 · 6 comments

So, I’m sitting here at today’s Federal Trade Commission (FTC) workshop, “Will Journalism Survive the Internet Age?” and several panelists have argued that private “professional” media is toast, not just because of the rise of the Net and digital media, but also because the inherent cross-subsidy that advertising has traditionally provided is drying up.  It very well could be the case that both statements are true and that private media operators are in some trouble because of it. But what nobody seems to be acknowledging is that our government is currently on the regulatory warpath against advertising and that this could have profound impact on the outcome of this debate.

As Berin Szoka and I noted in a recent paper, “The Hidden Benefactor: How Advertising Informs, Educates & Benefits Consumers,” the FTC, the FCC, the FDA, and Congress are all considering, or already imposing, a host of new rules that will seriously affect advertising markets.  This article in AdAge today confirms this:

The advertising industry is heading for a “tsunami” of regulation and is at a “tipping point” of greatly increased scrutiny, warned a panel on social media and privacy at the American Advertising Federation conference here [in Orlando].

The reason this is so important for the ongoing debate about the future of media and journalism is because, as Berin and I argued in our paper: Continue reading →

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FTC Workshop Tomorrow on Future of Journalism to Consider Controversial Recommendations

by on June 14, 2010 · 0 comments

Just a reminder that tomorrow the Federal Trade Commission (FTC) will be hosting the 3rd workshop in its ongoing event series, “Will Journalism Survive the Internet Age?” This workshop will feature various experts discussing the FTC’s 47-page “staff discussion draft,” which outlines “Potential Policy Recommendations to Support the Reinvention of Journalism.” In these two recent essays, I discussed the controversy surrounding some of the recommendations in that discussion draft:

According to this press release announcing the event,”The workshop is free and open to the public, but space is limited and attendees will be admitted on a first-come basis. The workshop will be held at: The National Press Club, 549 14th Street NW, 13th Floor, Washington, DC. Members of the public and press who wish to participate but who cannot attend can view a live webcast.  A link will be available on the day of the workshop at: http://www.ftc.gov/opp/workshops/news/index.shtml.”

Unless I am missing something, the FTC has still not posted an agenda or list of speakers, which is a bit strange. But apparently Rick Edmonds of the Poynter Institute will be participating. He’s got a nice piece up over at Poynter Online (“FTC Future-of-Journalism Inquiry Wraps Up With Little Momentum for Major Intervention“) summarizing some of what he’ll say tomorrow. I particularly liked his conclusion, which echoes the call Berin Szoka and I have made for allowing continuing marketplace evolution and experimentation: Continue reading →

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What the Oil Spill Really Says About Net Neutrality: Regulatory Capture v. the Nirvana Fallacy

by on June 9, 2010 · 18 comments

A diverse group of technology companies including broadband, video and wireless providers as well as Google, Microsoft and hardware giants like Intel and Cisco today launched the  Broadband Internet Technical Advisory Group (BITAG or TAG) to provide exactly the kind of self-regulatory forum for dealing with concerns about network management practices that we at PFF have long called for—most recently in Adam Thierer and Mike Wendy’s recent paper, “The Constructive Alternative to Net Neutrality Regulation and Title II Reclassification Wars.” But rather than applauding BITAG, the regulatory radicals at Free Press insisted that:

this or any other voluntary effort is not a substitute for the government setting basic rules of the road for the Internet.

Swansong of an Industry?

There must be a separate FCC rulemaking process, which can take the recommendations of this or any other voluntary advisory group into account, but rubber-stamping those recommendations would ignore the agency’s mandate to create public policy in the public interest. Allowing industry to set its own rules is like allowing BP to regulate its drilling. The Comcast BitTorrent case shows that without government oversight, Internet Service Providers will engage in what are already deemed by engineers to be bad practices

Free Press certainly wouldn’t have the influence they do if they weren’t so good at picking metaphors. But what does the oil spill really teach us about regulation? The Wall Street Journal notes the growing outrage on the political Left against president Obama from those who are “furious and frustrated that the President hasn’t demanded the heads of BP executives on pikes.” But the Journal points out the central irony of the situation:

The [so-called] liberals’ fury at the President is almost as astounding as their outrage over the discovery that oil companies and their regulators might have grown too cozy. In economic literature, this behavior is known as “regulatory capture,” and the current political irony is that this is a long-time conservative critique of the regulatory state…. In the better economic textbooks, regulatory capture is described as a “government failure,” as opposed to a market failure. It refers to the fact that individuals or companies with the highest interest or stake in a policy outcome will be able to focus their energies on politicians and bureaucracies to get the outcome they prefer.

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Growing Opposition to FTC “Saving Journalism” Media Takeover Blueprint

by on June 9, 2010 · 4 comments

As I pointed out here last week, the Federal Trade Commission’s (FTC) recently released 47-page document outlining “Potential Policy Recommendations to Support the Reinvention of Journalism” has been raising eyebrows in many different quarters. Even though it is just a “discussion draft” and the agency hasn’t formally endorsed any of the recommendations in it yet, the sweeping scope and radical nature of many of the proposals in the document has already raised the blood pressure for many folks. It doesn’t help that the document reads like the CliffsNotes for the recent media-takeover manifesto, The Death and Life of American Journalism, by the neo-Marxist media scholar Robert W. McChesney and Nation editor John Nichols. Their book is horrifying in its imperial ambitions since it invites the government become the High Lord and Protector of the Fourth Estate. [For an in-depth look at all of McChesney’s disturbing views on these issues, see: “Free Press, Robert McChesney & the “Struggle” for Media.”]

The FTC’s seeming infatuation with McChesney’s proposals has many rightly concerned about where exactly the Obama Administration’s FTC (and FCC) may be taking us in the name of “saving journalism.”  In an editorial this week, Investors Business Daily worries that the feds are “Seizing The News Business“ and wonders “why, as the administration contemplates a federal takeover of their business, [there is] such thundering silence” from journalists and media executive themselves.  The good news, however, is that a recent survey found plenty of skepticism among news executives regading government subsidies and regulatory meddling in their business. According to this April survey by the Pew Research Center’s Project for Excellence in Journalism in association with the American Society of News Editors (ASNE) and the Radio Television Digital News Association (RTDNA), revealed that, “Fully 75% of all news executives surveyed—and 88% of newspaper executives—said they had ’serious reservations,’ or the highest level of concern, about direct subsidies from the government.” A smaller percentage (only 46%) had serious reservations about tax credits for news organizations, then again, only 13% said they “would welcome such funding” and just 6% said they were “enthusiastic” about it.

And now there’s this new survey by Rasmussen Reports which finds that average Americans find some of the FTC’s proposed recommendations pretty silly: Continue reading →

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