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TechCrunch TV on “Net Neutrality”

by on May 6, 2010 · 11 comments

I appeared this afternoon on the inaugural edition of TechCrunch TV to talk about–what else?–Net Neutrality.

http://c.brightcove.com/services/viewer/federated_f9/63890987001?isVid=1&isUI=1 Multiple media sources are now reporting that the FCC, contrary to reports from earlier this week, has decided to go ahead with an effort to change the classification of broadband Internet service from a Title I “information service” to a Title II “telecommunications service,” if only to salvage the proposed rulemaking on the open and transparent Internet.  (See stories on The Wall Street Journal and The Washington Post as well as Ars Technica.) Those of us who aren’t on the FCC’s official leak list will have to wait with the rest of the rabble to get a look at just how the FCC proposes to effect this radical change in communications law.  Will it apply to all broadband Internet–including cable, fiber, DSL, satellite, wireless and broadband over power lines?  Will the FCC propose to regulate only as much as needed to get the jurisdiction the D.C. Circuit says it doesn’t have under Title I to implement the NPRM, or will they throw in some additional provisions to achieve other goals–such as the reform of the Universal Service Fund?  Will state and local regulators get to share in the fun of telling ISPs how best to run their business? Continue reading →

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PFF’s Mega-Filing in the FCC’s “Future of Media” Proceeding

by on May 5, 2010 · 12 comments

The Progress & Freedom Foundation today filed comments in the Federal Communication Commission’s (FCC) “Future of Media” proceeding. Berin Szoka, Ken Ferree, and I urged the FCC to “reject Chicken Little-esque calls for extreme media ‘reform’ solutions,” and counseled policymakers to move cautiously so that media reform can be “organic and bottom-up, not driven by heavy-handed, top-down industrial policies for the press.”

Our 79-page filing covers a wide range of ideas being examined by Washington policymakers to help struggling media outlets and unemployed journalists, or to expand public media / “public interest” content and regulation. Among the major issues explored in our filing:

  • First Amendment concerns implicated by government subsidies;
  • The pitfalls of imposing new “public interest” obligations on media operators;
  • How advertising restrictions could harm the provision of media and news;
  • Taxes, fees and other regulations to be avoided;
  • The limited role in reform that public media subsidies can play; and
  • Positive steps government could take.

We note that as “With many operators struggling to cope with intensifying competition, digitization, declining advertising budgets, and fragmenting audiences, some pundits and policymakers are wondering what the ‘future of media’ entails. The answer: Nobody knows.”  While this uncertainty has put concerned policymakers at the ready to “help” the press, we warn that: “There is great danger in rash government intervention.” Instead, policymakers should be “careful to not inhibit potentially advantageous marketplace developments, even if some are highly disruptive.” Marketplace meddling, or government attempts to tinker with private media business models in the hopes that something new and better can be created, are misguided. Moreover, “Our constitutional traditions warn against it, history suggests it would be unwise, and practical impediments render such meddling largely unworkable, anyway.”

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event: May 20th – “Can Government Help Save the Press?”

by on May 4, 2010 · 0 comments

Thought you all might be interested in this upcoming PFF event on “Can Government Help Save the Press?” It will take place on Thursday, May 20, 2010 from 8:30 a.m. – 12:00 p.m. in the International Gateway Room, Mezzanine Level of the Ronald Reagan Building on 1300 Pennsylvania Ave, N.W. here in DC.   This event will consider the FCC’s “Future of Media” proceeding (comments are due this Friday) and debate what role the government should play (if any) in sustaining struggling media enterprises, “saving journalism,” or promoting more “public media” or “public interest” content. [You can find all our essays about this here.]

The event will feature a keynote address by Ellen P. Goodman of the FCC’s Future of Media team. Ellen is one of the sharpest minds in the media policy universe today, and a real asset to the FCC team. She is a Distinguished Visiting Scholar at the FCC, a Research Fellow at American University’s Center for Social Media, and a Visiting Scholar at the University of Pennsylvania’s Annenberg School of Communications.  She is also a Professor at Rutgers University School of Law at Camden, specializing in information law and policy. She has spoken before a wide range of audiences around the world on media policy issues, has consulted with the U.S. government on communications policy, and served as an advisor to President Obama’s presidential campaign and transition team.

After Ellen Goodman brings us up to speed with where the FCC’s Future of Media process stands, we’ll hear from a diverse panel of experts that I am still busy assembling. But so far it includes Charlie Firestone of the Aspen Institute, who will be on hand to discuss the work he’s been doing with the Knight Commission on this front.  I’ve also invited a rep from the Newspaper Association of America to come and talk about the diversity of new media monetization models that they have been aggregating.  (Check out the appendix of their outstanding FTC filing last Nov.) And Kurt Wimmer of Covington & Burling, who represents broadcasters among others, will talk about the need for regulatory flexibility / forbearance, especially on ownership issues.  Again, more panelists to come. But please sign up now!

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The Wrong Way to Reinvent Media, Part 5: Media Bailouts & Welfare for Journalists

by on April 30, 2010 · 0 comments

PFF today released the fifth installment in our ongoing series on “The Wrong Way to Reinvent Media.” This series of papers explores various tax and regulatory proposals that would have government play an expanded role in supporting the press, journalism, or other media content. In the latest essay, Berin Szoka, Ken Ferree, and I discuss proposals for direct subsidies for failing media outlets and out-of-work journalists.

We argue taxpayer support for failing outlets and unemployed journalists implicates significant First Amendment concerns. On the whole, subsidies can make “journalists and media operators more dependent upon the State; compromise press independence and diminish public trust in the free press; and result in government discrimination in the politically inescapable dilemma of determining eligibility for subsidies.” Such an agenda would also entail huge cost to taxpayers—initially about $35 billion per year according to advocates—and would represent “a massive wealth transfer from one class of speakers to another…”

We warn that calls for seemingly beneficent bailouts “to save” the media and journalism may actually be driven by those who have something more nefarious in mind: a “post-corporate” world shorn of media capitalists, and “such radicalism must be rejected if we hope to sustain a truly free press and uphold America’s proud tradition of keeping a high and tight wall of separation between Press and State.”

The ideas within these and other essays in the series will be worked into a major PFF filing in the Federal Communications Commission’s (FCC) proceeding on the “Future of Media” on May 7. The paper may be viewed online here and I’ve attached it down below in a Scribd reader.

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Shortcuts That Don't Save Time

by on April 29, 2010 · 0 comments

The Washington Post carried an article earlier this week by Cecilia Kang that noted the Federal Trade Commission could gain enforcement power over online businesses as a result of the financial services legislation under discussion in Congress. Ms. Kang contrasted the possibility of an empowered FTC issuing fast-track regulations against the recent experience of the Federal Communications Commission, which has become bogged down in its search for legal authority to issue net neutrality regulations. 

The comparison is insightful, but not for the reasons you might expect. Part of the debate over the FTC revolves around language in the House financial services bill that would repeal the “Magnuson-Moss” provisions that govern FTC promulgation of consumer protection regulations. (The name comes from the fact that these restrictions on FTC rulemaking were included in the Magnuson-Moss Warranty Act, which got the FTC into the business of regulating car warranties.)

If the FTC wants to regulate some type of general business practice under the FTC Act, it has to establish a factual record substantiating that there is actually a systemic problem that regulation can solve, hold a public hearing, allow cross-examination on factual matters, and conduct an economic analysis of the regulation’s effects.  In short, the commission has to do the homework necessary to demonstrate that its proposed regulation will actually solve a widespread problem that actually exists.

When Tim Muris directed the FTC’s Bureau of Consumer Protection in the early 1980s, he authored an article in Regulation magazine pointing out that when the FTC does careful analysis before issuing a rule, the rule is more likely to benefit consumers, more likely to be upheld in court, and more likely to be issued expeditiously. He contrasted the evidence-based eyeglass rule, which took three years to issue, with the anecdote-based funeral rule, which took ten. Muris noted wryly, “Some critics of my position charge that it is revolutionary to ask a body of lawyers and economists not to impose its own view of proper regulation on the world without first systematically evaluating the problem.” Muris went on to serve as chairman of the FTC between 2001-04, and last month he defended the Magnuson-Moss restrictions in testimony before Congress.  

What does this have to do with the FCC?  The FCC lost its case against Comcast on appeal, precisely because the FCC tried to take shortcuts. The FCC tried to promote net neutrality by enforcing a set of “principles” that originated in a former chairman’s speech and were never promulgated in a notice-and-comment rulemaking. The FCC commissioners endorsed these principles without investigating whether there was a systemic problem (ie, more than a few anecdotes of misbehavior). Indeed, Chairman Martin’s Notice of Inquiry on “Broadband Industry Practices” that was launched around the same time the FCC took its enforcement action against Comcast turned up no evidence of a systemic problem. If the FCC now tries to impose net neutrality by reclassifying broadband as a “Title II” common carrier, it will have to do the difficult but necessary work of demonstrating, with real factual evidence, that broadband is more like a common carrier than like the lightly-regulated “information service” the commission previously decided it was.

We don’t need Congress to free the FTC from Magnuson-Moss. Instead, Congress should impose the same requirements on the FCC. Sometimes, taking the time to do your homework leads to better decisions, sooner.

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The Wrong Way to Reinvent Media, Part 4: Expanding Postal Subsidies

by on April 20, 2010 · 2 comments

As mentioned here before, PFF has been rolling out a new series of essays examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. We’re releasing these as we get ready to submit a big filing in the FCC’s “Future of Media” proceeding (deadline is May 7th).  Here’s a podcast Berin Szoka and I did providing an overview of the series and what the FCC is up to.

In the first installment of the series, Berin Szoka and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, I took a hard look at proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content. The third installment dealt with proposals to steer citizens toward “hard news” and get them to financially support it through the use of “news vouchers” or “public interest vouchers.”

In our latest essay, “The Wrong Way to Reinvent Media, Part 4: Expanding Postal Subsidies,” Berin and I argue that expanding postal subsidies won’t likely do much to help failing media enterprises, will raise the risk of greater meddling by politicians with the press, and can’t be absorbed by the Postal Service without a significant increase in cost for ratepayers or taxpayers.  The entire essay is attached down below.

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“Reclassifying” Broadband: The New York Times Snorts the Fairy Dust

by on April 19, 2010 · 5 comments

I have a long opinion piece on CNet today, arguing that much of the talk of “reclassifying” or “relabeling” broadband Internet access to bring it under the FCC’s regulatory authority is just that—talk.

On April 6th, the D.C. Circuit Court of Appeals ruled definitively that the squishy doctrine of “ancillary jurisdiction” provides no authority for the FCC to impose its net neutrality rules on broadband Internet providers.

Law professors and paid advocates are doing a good job of convincing journalists who don’t understand the finer points of administrative law that all the FCC needs to undo that decision is the will to change the classification of broadband and…problem solved.

Not quite.  Those who argue the FCC can simply waive a regulatory wand and give itself all the jurisdiction it needs under Title II of the Communications Act are engaging in serious wishful thinking, or worse.

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Broadband and Title II Regulation: An Economic Primer

by on April 16, 2010 · 4 comments

Last week the D.C. Circuit Court of Appeals ruled that the Federal Communications Commission cannot impose net neutrality rules on broadband providers under its “ancillary jurisdiction” under the Communications Act.  If it wants to impose net neutrality, the FCC must first reverse previous decisions and reclassify broadband as a “Title II” common carrier.

Whoa!  The previous two sentences prove that this economist has been spending way too much time around telecom lawyers.

In almost-plain English, the court decision means the FCC cannot impose net neutrality regulations unless it publicly changes its five-headed mind and decides that broadband is much like an old-fashioned telephone monopoly and should be regulated much the same way. 

A lot of regulatory economists pretty much gag at this idea, or worse. Non-economists wonder what triggers this visceral reaction.

Let me explain.  As the recipient of 8 years of excellent Jesuit education, of course I have three reasons.

First, anyone who follows the scholarly literature on economic regulation generally knows that this form of regulation has a pretty checkered track record. In a wide variety of industries, economic regulation has increased prices, inflated costs, stunted innovation, and/or created shortages. In addition, because this regulation transfers enormous amounts of wealth — $75 billion annually in the case of federal telecommunications regulation — it creates enormous incentives for firms to lobby and litigate to bend the rules in their favor. While big corporations may feel they benefit from these expenditures, from a society-wide perspective the fight over wealth transfers is pure waste because it rarely produces anything of value for consumers. 

Utility regulation works best in relatively stangant industries where a company makes a big capital investment, pays a few employees to run it, and doesn’t need to innovate much.  In those kinds of situations, it’s easier for regulators and other outsiders to determine costs, set some rates that let the utility earn a reasonable rate of return, and keep the regulated company from gaming the system too much. If you think this describes broadband, well, good luck. A local water utility is probably the best example.

Second, anyone knowledgeable about the economic theory underlying utility regulation (which includes most economists who specialize in the area, and some lawyers) understands that regulation is supposed to be a last resort for “natural monopoly” industries where it’s cheaper to have one firm serve the entire market. A monopolist protected from competition could increase prices, degrade service, or do other things that increase its profits while harming consumers; economic regulation seeks to prevent those behaviors. But if competition is possible, competition is preferable. 

When phone, cable, wireless, and satellite companies bombard us continually with solicitations to switch to their broadband services, and I can see multiple wires running down the street outside my house when I go up on the roof to adjust the satellite dish, it’s pretty darn obvious that broadband is NOT a natural monopoly, even if competition isn’t “perfect.”  Therefore, broadband lacks a key prerequisite for public utility regulation to possibly increase consumer welfare.  Indeed, the most anti-consumer results of economic regulation have occurred when government created monopolies, cartels and/or shortages by imposing this regulation on industries where competition is possible, such as cable TV, trucking, railroads, airlines, oil, and natural gas.

Third, recent economic studies find that the FCC’s decision to classify cable, DSL, and fiber broadband as a less-heavily-regulated “information service” generated a tsunami of investment and spurred competition. See, for example, this study by my GMU colleagues Thomas Hazlett and Anil Caliskan. Some more cites are available on pp. 17-18 of this comment to the FCC. If you don’t believe economic studies, just keep in mind that the aggressive marketing of dirt-cheap entry-level DSL tracks pretty closely with the FCC’s decision that DSL is an information service not subject to Title II regulation.  Coincidence?

So, please excuse those of us regulatory economists who vomit when the subject of Title II comes up. If you check out the links above, perhaps the reaction will be more understandable.

I have not addressed the question of whether it’s realistic to think that reclassification of broadband under Title II could be a workable mechanism to impose just a limited, targeted, surgical, light-handed, smart, data-driven, evidence-based, transparent, transformative, sustainable, green, hybrid, itsy bitsy teenie weeny yellow polka-dot bikini smidgen of net neutrality regulation to prevent only certain forms of anti-consumer discrimination, without imposing the customary broad panpoly of public utility price and service regulation. Whether that’s possible in theory, or likely in real-world political practice, is a different issue for a different day. (Whether the other name for that kind of regulation is “antitrust” is also a different  issue for a different day.) For the moment, I just wanted to provide some context on the broader Title II issue.

And now I’ll go clean off my shoes.

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Esbin on What the FCC is Up Against with Title II Reclassification

by on April 15, 2010 · 0 comments

My colleague Barbara Esbin, Director of PFF’s Center for Communications and Competition Policy, was recently asked to participate in a conference call to discuss the D.C. Circuit’s recent decision in Comcast v. FCC and its impact on the FCC’s Open Internet (“Net neutrality”) rulemaking proceeding. Yesterday, over at the PFF Blog, she published her working notes and shows exactly what the FCC is up against as it embarks on its radical plan to reclassify the Internet as a crusty old “Title II” common carrier service. Esbin argues:

To impose Title II regulations on the Internet, the FCC would need to establish a rational evidentiary and sound legal basis to bring Internet service providers under its Title II authority through an act of regulatory “reclassification.” To accomplish this procedurally, the FCC will have to:
  1. Adopt either a Notice of Inquiry or Notice of Proposed Rule Making proposing that the FCC reverse four of its own prior orders directly on point, one of which has been upheld by the U.S. Supreme Court in NCTA v. Brand X, so that it could declare Internet services to be “telecommunications services.”
  2. Receive public comment on its proposal creating a record that on balance supports its proposed reclassification.
  3. Adopt either a Declaratory Ruling or a Report and Order providing a reasoned factual and legal basis for changing the classification and regulatory treatment for Internet services.

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The Wrong Way to Reinvent Media, Part 3: Media Vouchers

by on April 14, 2010 · 0 comments

As I’ve mentioned here previously, PFF has been rolling out a new series of essays examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. We’re releasing these as we get ready to submit a big filing in the FCC’s “Future of Media” proceeding (deadline is May 7th).  Here’s a podcast Berin Szoka and I did providing an overview of the series and what the FCC is doing.

In the first installment of the series, Berin and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, I took a hard look at proposals to impose fees on broadcast spectrum licenses and channeling the proceeds to a “public square channel” or some other type of public media or “public interest” content.

In our latest essay, “The Wrong Way to Reinvent Media, Part 3: Media Vouchers,” Berin and I consider whether it is possible to steer citizens toward so-called “hard news” and get them to financially support it through the use of “news vouchers” or “public interest vouchers”?  We argue that using the tax code to “nudge” people to support media — while less problematic than direct subsidies for the press — will likely raise serious issues regarding eligibility and be prone to political meddling.  Moreover, it’s unlikely the scheme will actually encourage people to direct more resources to hard news but instead just become a method of subsidizing other content they already consume.

I’ve attached the entire essay down below.

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