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Regulatory Whack-A-Mole, Part II

by on January 21, 2010 · 0 comments

Congress and the Federal Communications Commission periodically get upset over wireless phone early termination fees. The latest uproar has occurred during the past couple months in response to Verizon’s doubling of the early termination fee on “smart” devices. The fee falls by $10 per month, leaving s $120 early termination fee in the last month of a two-year contract.

Policymakers still have not gotten the message that they cannot really do much about this “problem” unless they comprehensively regulate wireless rates and terms of service. (I would not recommend this, since a competitive wireless market has brought us rate reductions that even perfectly-functioning regulation would be unlikely to achieve. ) Attempts to poke and prod early termination fees are like the carnival game “whack-a-mole.”  As soon as you whack one mole with a stick, another one pops up out of another hole.

Sen. Amy Klobuchar (D-MN) is taking another whack.  In 2007, she introduced legislation requiring wireless companies to prorate early termination fees “in a manner that reasonably links the fee to recovery of the cost of the device or other legitimate business expenses.”  Coincidentally, the major carriers promised to prorate their fees at about the same time her bill got a hearing.  Then last November, up popped a mole from Verizon’s hole. Early termination fees for smart devices are prorated, but doubled. Now the good senator is whacking away at that mole with legislation that requires wireless companies to prorate early termination fees AND mandates that the early termination fee cannot exceed the size of the subsidy the carrier is giving the consumer on the phone.

Smart whack, huh?  Doesn’t cost-based regulation of early termination fees eliminate the loophole (oops, mole-hole)?

Not necessarily. In the first place, the legislation could create an accounting nightmare with plenty of opportunities for companies to game the system, especially if they offer different subsidies on different phones. Recall that the original impetus for breaking up the old AT&T landline monopoly was that AT&T was gouging consumers by charging them inflated prices to lease equipment manufactured by its subsidiary, Western Electric. With the AT&T breakup, the government essentially gave up on managing that problem and completely prohibited the monopoly local phone companies from manufacuring equipment. I think George Santayana just left me a voice mail. Even if the game board is restricted to early termination fees, we’ll soon see uglier, nastier moles emerge from uglier, nastier holes.

But the wireless phone contract is about more than early termination fees. Even if policymakers succeed in imposing effective,  cost-based regualtion on early termination fees, wireless companies can still change other terms of the contract to compensate for any revenue losses. The law must have a truly long arm to reach the diverse array of rodents that will scurry forth from diverse orifices.

Stay tuned for the next whack.

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Neutrality v. Diversity: Minority Groups Make Case Against Regulation

by on January 20, 2010 · 0 comments

No one disputes that a key goal of the FCC is to help foster diversity in, and minority access to, channels of communication. In practice, this all too often has been interpreted to mean ownership limits, set-asides, preferences and other mandates imposed by the Commission. Usually lost in the heated debates is the fact that ill-considered regulation itself can impede minority access and diversity.

In comments filed last week, a group of sixteen minority and civil rights organizations — ranging from the Lawyers’ Committee for Civil Rights Under Law to the National Conference of Black Mayors — argue that net neutrality regulation may do just that. “[T]his proceeding implicates one of the most important civil rights issues of our time,” the comments –written by David Honig of the Minority Media and Telecommunications Council — assert. Continue reading →

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Is the FCC Above the Law?

by on January 15, 2010 · 7 comments

Can the Federal Communications Commission (FCC) just do anything it wants? If it wants to bring the entire Internet under its thumb, or regulate any speech uttered over electronic media, can it just do so on a whim? The agency’s recent actions on the Net neutrality and free speech fronts seems to suggest that the agency thinks so.

I don’t need to rehash here what the FCC has been up to on the Net neutrality front.  Most everyone is familiar with how the agency has essentially been trying to invent its authority to regulate out of thin air.  If you want the whole ugly history of how this charade has unfolded over past few years, I encourage you to read these amazing comments filed today in the FCC’s net neutrality NPRM proceeding by my PFF colleague Barbara Esbin.  Barbara simply demolishes the FCC’s argument that it can do anything it wants under the guise of its “ancillary jurisdiction.” As Barbara argues in her comments, the FCC’s position “is akin to saying that the FCC can regulate if its actions are ancillary to its ancillary jurisdiction, and that is one ancillary too many.”  She notes that:

The proposed rules regulating the services and network management practices of broadband Internet providers must rest, if at all, on the Commission‘s implied or ancillary jurisdiction and the NPRM fails to provide a basis upon which the exercise of such jurisdiction can be considered lawful.

She shows how farcical it is for the FCC to concoct its supposed authority to regulate from provisions of the Communications Act that have nothing whatsoever to do with Net neutrality or even expanding regulation in general. Specifically, the agency’s reliance on sections 230(b) and 706(a) of the Telecommunications Act of 1996 is completely outlandish.  Anyone who knows a lick about telecom law and the nature of those two sections understands they were never intended to serve as the basis of an expansive new regulatory regime for the Internet. As Barbara puts it:

This exercise—searching for snippets and threads of regulatory authority over a communications medium as significant as the Internet in multiple, unrelated statutory provisions—should signal to the Commission that no credible source of authority to regulate Internet services exists.

All I have to say is, thank God for checks and balances. I believe the courts will put a stop to this nonsense, but it will take some time.  Until then, I suppose the FCC will continue to act like a rogue agency, hell-bent and tossing the constitution to the wind and concocting asinine theories about why they should be allowed to do anything they want. But there are signs that the courts are ready to start holding the FCC more accountable. Continue reading →

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Summary of Tech Policy Summit Panel 1 at CES: Future of Broadband

by on January 7, 2010 · 3 comments

I’m attending the Tech Policy Summit at CES in Las Vegas today and tomorrow. Lots of good discussions. The focus of the first panel, which was entitled, “Making Nationwide Deployment and Adoption of Broadband a Reality,” was what we should expect from the National Broadband Plan. This is particularly timely as the FCC just announced today it would be delaying the rollout of the plan.

This TPS session was moderated by technology journalist Steve Wildstrom. The panelists were:

  • Susan Crawford, Professor of Law and Professor of Information, University of Michigan
  • Neil Fried, Senior Telecommunications Counsel, U.S. House Committee on Energy and Commerce
  • Anna Gomez, Deputy Assistant Secretary of Commerce for Communications and Information, NTIA
  • Karen Jackson, Deputy Secretary of Technology, Commonwealth of Virginia
  • Carlos Kirjner, Senior Advisor to the Chairman, FCC
  • Andrew McLaughlin, Deputy CTO, Internet Policy, OSTP

Below is my summary of what each of the panelists had to say.

Continue reading →

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Mississippi leads the nation …

by on January 6, 2010 · 2 comments

… in receiving support from the Federal Communications Commission’s Universal Service Fund.

In case you missed it, on December 31 the Federal-State Joint Board on Universal Service issued its 2009 Universal Service Monitoring Report. This 568 page report compiles a massive number of statistics on the Federal Communications Commission’s $7.6 billion Universal Service Fund.  This fund subsidizes phone service in high-cost areas, phone subscriptions for low-income households, Internet service for schools and libraries, and Internet connections for rural health care facilities. About 60 percent of the money — $4.4 billion — goes to “high cost” (usually rural) phone companies.

U Service fun facts 2009

The money comes from the universal service charge on your wired, wireline, or VOIP phone bill. (That’s why the phone companies put the FCC’s phone number on the bill, so you can call the FCC if you have questions about this charge. Isn’t that thoughtful!)

Virtually every table in the Monitoring Report is fascinating. But check out some of the statistics to the right, which came from Table 1.12.  After substracting the universal service charges paid by its citizens, Mississippi received the highest net amount from the Universal Service Fund — $258 million. Alaska, Puerto Rico, Kansas, and Oklahoma round out the top five net recipients.

Some states are net payers. Florida paid $304 million more into the Universal Service Fund than its phone companies, low-income consumers, schools, libraries, and rural health facilities received back. Not surprisingly, other big, high-income states with large urban areas are also big net payers.

Some states receive close to what they pay in. Although Texas is a big Universal Service Fund recipient ($511 million in 2008), Texas telephone customers also pay a lot into the fund ($508 million in 2008). Thus, Texas received a net $3 million from the Universal Service Fund. Other states close to breakeven are Arizona, Missouri, Oregon, and South Carolina.

For 2008, I counted 22 states that are net recipients of $15 million or more, and 23 states that are net payers of $23 million or more.

And you thought you had fun on New Year’s Eve!

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Crowdsourcing & Community Policing Are Better Than Government Censorship

by on January 5, 2010 · 4 comments

Over at Mashable, Ben Parr has a post (“Facebook Turns to the Crowd to Eradicate Offensive Content“) expressing surprise that Facebook has a crowdsourcing / community policing solution to deal with objectionable content:

Did you know that Facebook has a crack team of employees whose mission is to deal with offensive content and user complaints? Their ranks number in the hundreds. But while most websites have people on staff to deal with porn and violence, none of them have 350 million users to manage… Now the world’s largest social network found a way to deal with this shortage of manpower, though. Facebook has begun testing a new feature called the Facebook Community Council [currently invite-only]. According to a guest post on the Boing Boing blog by one of the council’s members, its goal is to purge Facebook of nudity, drugs, violence, and spam. The Facebook Community Council is actually a Facebook app and tool for evaluating content for various offenses… The app’s tagging system allows council members to tag content with one of eight phrases: Spam, Acceptable, Not English, Skip, Nudity, Drugs, Attacking, and Violence. If enough council members tag a piece of content with the same tag, action is taken, often a takedown.

What Facebook is doing here is nothing all that new.  Many other social networking sites or platforms such MySpace, Ning, and many others, do much the same. Video hosting sites like YouTube do as well. [See my summary of YouTube’s efforts down below]**

No doubt, some will be quick to decry “private censorship” with moves by social networking sites, video hosting sites, and others to flag and remove objectionable content within their communities, but such critics need to understand that: Continue reading →

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More on the Independence of Genachowski’s FCC

by on December 30, 2009 · 8 comments

In a letter to the editor of the Washington Post last week, former FTC Commissioner Thomas Leary responded to a Post article describing the FTC’s suit against Intel as a  “major step for President Obama,” consistent with his campaign promise to “reinvigorate antitrust enforcement.”  Leary responded indignantly to this characterization by declaring:

People seem to forget that the FTC is a bipartisan independent agency. As a Republican FTC commissioner appointed by a Democratic president, I can vouch for the agency’s independence. During my service from 1999 to 2005 in the administrations of presidents Bill Clinton and George Bush, I never received a direct or indirect policy recommendation on a pending matter from anyone in the White House or from any of the people in Congress who had actively supported me.

Leary’s leeriness about political encroachment on the FTC illustrates the depth of abiding faith in independent regulatory agencies as standing truly apart from the day-to-day politics of Washington—especially when the might of the regulatory state is being wielded against a particular company in quasi-judicial prosecutions, such as antitrust enforcement actions. But if the independence of the FTC is this important, what about the independence of the Federal Communications Commission, with its broad jurisdiction over the media and tools of free speech?

Leary would probably be appalled at the politicization of the FCC in recent years. Bush’s second FCC chairman, Kevin Martin, was infamous for his political Machiavellianism and widely despised by the communications law bar. By contrast, when it became clear that Obama’s high-tech advisor Julius Genachowski would succeed Martin as FCC Chairman shortly before Obama’s inauguration, he received a chorus of applause from a wide range of philosophical perspectives, including from our former president at PFF, Ken Ferree:

Julius Genachowski is an outstanding choice to chair the Commission.  He is knowledgeable, experienced, and presumably will have the ear of the most influential people within the Administration.

While no one would compare the eminently likable Genachowski to Martin, his relationship to the Obama administration appears unprecedented in its closeness, and one must ask whether that’s a good thing for the head of a supposedly “independent” regulatory agency or integrity of that agency’s decision-making. Continue reading →

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The “Problem of Proportionality” in the Debate over Net Neutrality

by on December 21, 2009 · 7 comments

Last week I commented on a severely one-sided FCC net neutrality hearing that featured a endless parade of horribles being prophesied by virtually every speaker. The litany of spooky stories became tedious and absurd. Everyone foretold of the impending doom that awaits unless government intervenes to save us from various corporate conspiracies to “silence” our voices.  Unsurprisingly, evidence was in short supply. It was pure Chicken Little poppycock.

This got me thinking again about what I have referred to as the “problem of proportionality.” I have discussed the problem of proportionality in the context of public policy debates about online safety and privacy, but it seems equally applicable to debates about net neutrality. Here’s how I explained the “problem of proportionality” in an earlier essay:

let’s think about how some of our lawmakers and media personalities talk about the Internet.  If we were to judge the Internet based upon the daily headlines in various media outlets or from the titles of various Congressional or regulatory agency hearings, then we’d be led to believe that the Internet is a scary, dangerous place. That ’s especially the case when it comes to concerns about online privacy and child safety. Everywhere you turn there’s a bogeyman story about the supposed dangers of cyberspace. But let’s go back to the numbers. While I certainly understand the concerns many folks have about their personal privacy or their child’s safety online, the fact is the vast majority of online transactions that take place online each and every second of the day are of an entirely harmless, even socially beneficial nature.  I refer to this disconnect as the “problem of proportionality” in debates about online safety and privacy. People are not just making mountains out of molehills, in many cases they are just making the molehills up or blowing them massively out of proportion.

Again, much the same is true of net neutrality. Indeed, it is even more true since actual net neutrality “incidents” are so hard to come by.  Continue reading →

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Some good ideas in the FCC's National Broadband Plan

by on December 17, 2009 · 2 comments

Good ideas, supported by evidence, eventually matter.

That’s the conclusion I reached after reviewing the outline the FCC’s broadband task force presented to the commission yesterday. Here are some ideas perceptive scholars have been discussing for a long time that are apparently going to be part of the National Broadband Plan:

  • “Private sector investment is essential; new funding is limited.” So I guess the Interstate Highway System won’t be the funding model for universal broadband. Whew!
  • “Policy changes require the consideration of unintended consequences.”
  • “Competition drives innovation and better choices for consumers.”
  • Wireless broadband needs a big new chunk of spectrum, and policymakers need to consider reallocating broadcast TV spectrum and spectrum reserved for use by the federal government.
  • “Market forces should be applied to all [spectrum] bands, though other policy objectives should play a role in allocation decisions.”
  • Fundamental reform of the Universal Service Fund, which subsidizes phone service very inefficiently, should actually be done, not just talked about.
  • Universal service reform should include reform of “intercarrier compensation,” the charges phone companies pay each other when they hand off traffic.
  • “USF policies should be designed to achieve measurable outcomes with transparency, oversight, and accountability.”

Most of these ideas were considered wacky, ideological, politically unrealistic, or just not relevant a few decades (or even a few years) ago.  Now they are the mainstream.

That doesn’t mean everything is wonderful with the National Broadband Plan. The FCC is supposed to plan how broadband will be used to promote consumer welfare, civic participation, public safety, education, health care, energy independence, community development, worker training, and a host of other legislative goals. In many cases there may be a fundamental tension between consumer welfare — a term of art in economics that means resources are allocated so that consumers get the selection of goods and services they are most willing to pay for, with the quality attributes they most prefer, at the best possible prices — and the other goals, which often involve planners deciding what consumers should want. Similarly, FCC Chairman Genachowski’s comments illustrate some decisionmakers’ disturbing tendency to conflate access (the service is available to those who want it) with adoption (everybody actually chooses to use it). Technophiles sometimes have an annoying habit of assuming that those of us who fail to adopt the latest info tech gadget or service must be ignorant rubes who don’t understand the glories of being hooked up to a fat information pipe 24/7 — rather than careful shoppers who have better things to do with our time than read Yahoo OMG! while driving. For this reason I fully expect to be annoyed by the National Broadband Plan, as well as gratified to see that some good ideas have finally made it from the Ivory Tower to real-world policy application.

But there’s enough good stuff in there to stick with “gratified” for at least one day.

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The First Amendment & Net Neutrality: Be Careful What You Wish For

by on December 17, 2009 · 6 comments

Robert Corn-RevereAs I noted here a few days ago, the Federal Communications Commission held a workshop on Tuesday about “Speech, Democratic Engagement, and the Open Internet.”  It was a shockingly one-sided affair with the deck being stacked almost entirely in favor of advocates of Net neutrality regulation. Worse yet, those advocates shamelessly made up spooky stories about a future of “private censorship” that could only be remedied by using the First Amendment as a club to beat private players into submission. The token opposition at this Chicken Little circus was Robert Corn-Revere, a Partner at the law firm of Davis Wright Tremaine LLP in Washington, D.C.   Bob set the record straight–both in terms of baseless accusations that were flying that day as well as the revisionist histories of the First Amendment that were being put forward. I’m happy to report that Bob allowed PFF to reprint his remarks as a new white paper entitled, “The First Amendment, the Internet & Net Neutrality: Be Careful What You Wish For.”

In his essay, Corn-Revere discusses the relationship between the First Amendment and regulatory policy, particularly the treatment of new communications technologies, and he warns that government regulation of broadband networks could “provide the vehicle for advancing new First Amendment theories for media regulation” and online speech and expression more generally.  “It should not be forgotten,” he argues, “that the federal government’s initial impulse was to censor the Internet and to subject it to a far lower level of First Amendment protection. It pursued this agenda for more than a decade but was blocked by a series of First Amendment rulings.”  The Communications Decency Act and the Child Online Protection Act are just two notable examples. Luckily, the courts determined that “the open Internet would be at great risk if the government is allowed to exercise such power,” he notes, and they struck down such laws.

Continue reading →

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