by Larry Downes and Geoffrey A. Manne

Now that the election is over, the Federal Communications Commission is returning to the important but painfully slow business of updating its spectrum management policies for the 21st century. That includes a process the agency started in September to formalize its dangerously unstructured role in reviewing mergers and other large transactions in the communications industry.

This followed growing concern about “mission creep” at the FCC, which, in deals such as those between Comcast and NBCUniversal, AT&T and T-Mobile USA, and Verizon Wireless and SpectrumCo, has repeatedly been caught with its thumb on the scales of what is supposed to be a balance between private markets and what the Communications Act refers to as the “public interest.”

Commission reviews of private transactions are only growing more common—and more problematic. The mobile revolution is severely testing the FCC’s increasingly anachronistic approach to assigning licenses for radio frequencies in the first place, putting pressure on carriers to use mergers and other secondary market deals to obtain the bandwidth needed to satisfy exploding customer demand.

While the Department of Justice reviews these transactions under antitrust law, the FCC has the final say on the transfer of any and all spectrum licenses. Increasingly, the agency is using that limited authority to restructure communications markets, beltway-style, elevating the appearance of increased competition over the substance of an increasingly dynamic, consumer-driven mobile market.

Given the very different speeds at which Silicon Valley and Washington operate, the expanding scope of FCC intervention is increasingly doing more harm than good.

Deteriorating Track Record

We’re trapped in a vicious cycle: the commission’s mismanagement of the public airwaves is creating more opportunities for the agency to insert itself into the internet ecosystem, largely to fix problems caused by the FCC in the first place. That is happening despite the fact that Congress clearly and precisely circumscribed the agency’s authority here, a key reason the internet has blossomed while heavily regulated over-the-air broadcasting and wireline telephone fade into history.

Desperate for continued relevance, the FCC can’t resist the temptation to tinker with one of the only segments of the economy that is still growing and investing. The agency, for example, fretted over Comcast’s merger with NBCUniversal for 10 months, approving it only after imposing a 30-page list of conditions, including details about which channels had to be offered in which cable packages.

Regulating-by-merger-condition has become a popular sport at the FCC, one with dangerous consequences. While it conveniently allows the agency to get around the problem of intervening where it has no authority, the result is a regulatory crazy quilt with different rules applying to different companies in different markets. Consumers, the supposed beneficiaries of this micromanagement, cannot be expected to understand the resulting chaos.

For example, Comcast also agreed to abide by an enhanced set of “net neutrality” rules even if, as appears likely, a federal appeals court throws out the FCC’s 2010 industry-wide rulemaking for exceeding the agency’s jurisdiction. As with all voluntary concessions, Comcast’s acquiescence isn’t reviewable in court.

The FCC made an even bigger hash in its review of AT&T’s proposed merger with T-Mobile. Once it became clear that the FCC was bowing to political pressure to reject the deal, the companies pulled their applications for license transfers to focus on winning over the Department of Justice first. But FCC Chairman Julius Genachowski, determined to have his say, simply released an uncirculated draft of the agency’s analysis of the deal anyway.

The report found that the combination, as initially proposed, would control too much spectrum in too many local markets. But that was only after the formula, known as the “spectrum screen,” was manipulated to reduce substantially the amount of frequency included in the denominator. Hidden in a footnote, the report noted cryptically that the reduction was being made (and explained) in an unrelated order yet to be published.

When the other order was released months later, however, it made no mention of the change. It never actually happened. With the T-Mobile deal off the table, apparently, the chairman found it more expedient to leave the screen as it was, at least until further gerrymandering proved useful. Unwittingly, Genachowski had exposed his hand in rigging a supposedly objective test applied by a supposedly independent agency.

Leave it to the Experts

This amateurish behavior, unfortunately, is increasingly the norm at the FCC. Politics aside, part of the problem is that while federal antitrust regulators enforce statutes under a long line of interpretive case law, the FCC’s review of license transfers is governed by an undefined and largely untested public interest standard.

Now the commission is asking interested parties how, if at all, it needs to formalize its transaction review process, particularly the spectrum screen calculation it blatantly manipulated in the AT&T/T-Mobile review. It’s even asking whether it should re-impose a rigid cap on the amount of spectrum any one carrier can license, a bludgeon of a regulatory tool the agency wisely abandoned in 2003.

We have a better idea. Do away with easily forged formulae and proxies with no scientific relevance. Instead, review transactions in the broader context of a dynamic broadband ecosystem that is disciplined not only by inter-carrier competition, but increasingly by device makers, operating system providers, app makers and ultimately by consumers.

Every user with an iPhone 5 knows perfectly well how complex and competitive the mobile marketplace has become. It’s now time for the government to abandon its 19th century toolkit and look at actual data—data that the FCC already collects and dutifully reports, then ignores when political expediency beckons.

Thanks to the FCC’s endemic misadventures in spectrum management, we can expect more, not fewer, mergers—necessitating more, not fewer, commission reviews. Rather than expanding the agency’s unstructured approach to transaction reviews, we should be reining it in. As the FCC embarks on its analysis of T-Mobile’s takeover of MetroPCS and Sprint’s acquisition by SoftBank, it’s time to put an end to dangerous mission creep at the FCC.

That, at least, would better serve the public interest.

(Reprinted, with permission, from Bloomberg BNA Daily Report for Executives, Dec. 6, 2012.  Our recent paper on FCC transaction review can be found at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2163169.)

The national broadband plan drafted by Federal Communications Commission staff has a lot of goals in it. Goals for broadband infrastructure deployment include:

1. Make broadband with 4 Mbps download speeds available to every American
2. Over the long term, have broadband with 100 Mbps download and 50 Mbps upload speeds available to 100 million American homes, with 50 Mbps downloads available to 100 million homes by 2015
3. Have the fastest and most extensive wireless broadband networks in the world
4. Ensure that no state lags significantly behind in 3G wireless coverage
5. Ensure that every community has access to 1 Gbps broadband service in institutions like schools, libraries, and hospitals

The plan also outlines a number of policy steps that the FCC and other federal agencies could take to help accomplish these goals.

So far, so good. But to truly hold federal agencies accountable for achieving these objectives, we need more than goals, measures, and a list of policy proposals. We also need a realistic baseline that tells us how the market is likely to progress toward these goals in the absence of new federal action, and some way to determine how much the specific policy initiatives affect the amount of the goal achieved.

Here’s what will happen in the absence of a well-defined baseline and analysis that shows how much improvement in the goals is actually caused by federal policies: The broadband plan announces goals. The government will take some actions. Measurement will show that broadband deployment improved, moving the nation closer to achieving the goals. The FCC and other decisionmakers will then claim that their chosen policies have succeeded, because broadband deployment improved.

But in the absence of proof that the policies cause a measurable change in outcomes, this is like the rooster claiming that his crowing makes the sun rise. Scientists call this the ” post hoc, ergo propter hoc” fallacy: “B happened after A, therefore A must have caused B.” (Brush up on your Latin a little more, and you’ll even find out what Mercatus means. But I digress.)

Enough abstractions. Let me give a few examples.

The first goal listed above is to ensure that all Americans have access to broadband with 4 Mbps download speeds. In his second comment on my March 17 “Broadband Funding Gap” post, James Riso notes that the plan acknowledges that 5 out of the 7 million households that currently lack access to 4 Mbps broadband will soon be covered by 4th generation wireless. That means coverage for 83 percent of the households that lack 4 Mbps broadband is already “baked into the cake.” 

Accurate accountability must avoid giving future policy changes credit for this increase in deployment, because it was going to happen anyway.  (Of course, policymakers need to avoid taking steps that would discourage this deployment, such as levying the 15 percent universal service fee on 4th generation wireless.) The relevant question for evaluating future policy changes is, “How do they affect deployment to the remaining 2 million households?”

Similarly, the goal of 50 Mbps to 100 million households by 2015 seems to have been chosen because cable and fiber broadband providers indicate that they plan to cover more than that many homes by 2013 with broadband capable of delivering those speeds (pp. 21-22). Future policy initiatives should get zero credit for contributing toward this goal unless analysis demonstrates that the initiatives increased deployment of very high speed broadband over and above what the companies were already planning.

If you think this point is so basic that it’s not worth mentioning, you haven’t read enough government reports. Post hoc, ergo propter hoc is endemic, and not just on technology-related topics. For example, both sides regularly display this fallacy whenever the unemployment figures get released: “Unemployment increased after Obama’s election, therefore his administration caused the unemployment.” “The recession started when Bush was president, therefore his administration caused the unemployment.” These are at best hypotheses whose truth, untruth, and quantititive significance needs to be established by analysis that controls for other factors affecting the results.

Just take this as an advance warning on reporting results of the national broadband plan: Tone down the triumphalism.  

Note: For those of you who just can’t get enough discussion of the national broadband plan, Jerry Brito and I will have a dialog on other aspects of the plan in a future podcast that will be available here on Surprisingilyfree.com.

The FCC today released an executive summary of its National Broadband Plan, which is supposed to be delivered to Congress tomorrow.  Of course, executive summaries by their nature are brief and usually don’t explain the underlying logic and evidence supporting the conclusions. Here are a few highlights, some possible interpretations, and things to look for when the full plan gets released tomorrow:

Recommendation: “Undertake a comprehensive review of wholesale competition rules to help ensure competition in fixed and mobile broadband.” This could signal that the FCC plans to re-impose “unbundling” or “line sharing” regulations, which would require broadband companies to let competitors use their lines and other facilities at regulated rates. Such initiatives would likely undermine broadband deployment and investment.  Economic research by my GMU colleague Tom Hazlett and others finds that broadband investment, competition, deployment in the US took off only after the FCC eliminated line-sharing requirements. Christina Forsberg and I summarized a lot of this research here.

Recommendation: “Make 500 Mhz of spectrum available for broadband within ten years … Enable incentives and mechanisms to repurpose spectrum.” This is a fantastic recommendation. A Mercatus Center review of the costs of federal telecommunications regulations found that federal spectrum allocation, which prevents spectrum from being reallocated to uses that consumers value highly (like broadband), is by far the costliest federal regulation affecting telecom and the Internet. This recommendation indicates the FCC leadership would like to auction a lot more spectrum and share the proceeds with existing users (like broadcasters) in order to overcome resistance to reallocation. It’s not quite a market in spectrum, but it might be the closest the FCC can come.

Recommendation: “Broaden the USF contribution base to ensure USF remains sustainable over time.” Uh-oh. I’m not sure what this means, but if means that broadband subscribers will have to start payng into the FCC’s universal service fund (USF), watch out! Most economic studies find that consumer demand for broadband is very price-sensitive. That means if the FCC slaps broadband with universal service fees (which currently exceed 10 percent), we’ll see a big drop in broadband subscribership — maybe by 4-7 million subscribers. This is , of course, precisely the opposite of what the FCC wants to accomplish!

Recommendation: “Reform intercarrier compensation, which provides implicit subsidies to telephone companies by eliminating per minute charges over the next ten years…” Another excellent idea.  “Intercarrier compensation” refers to payments phone companies make when they hand traffic off to each other. Small, rural phone companies usually receive the highest per minute payments — as much as 15-30 cents per minute! This is a huge markup on long-distance phone service — another price-sensitive service!

Recommendation: Provide subsidies so that rural areas can have broadband with download speeds of 4 MB.  It will be interesting to read in the full plan where this 4 MB figure came from. Does it reflect the speed of service that a lot of Americans currently have, so these subsidies are just supposed to help equalize opportunities for rural residents? Or does it reflect some balancing of the costs and benefits of subsidizing broadband in rural areas?  Or is this a magic number experts believe subscribers need, regardless of the choices consumers actually make in the marketplace and regardless of what it costs?

The executive summary also lists a set of goals, such as ensuring that every American has the ability to subscribe to “robust” broadband service, having 100 million households with access to 100 MB broadband, and ensuring that the US has the fastest and most extensive wireless networks of any nation.  When the full plan comes out, look carefully at whether or how the FCC plans to measure accomplishment of these goals.  More importantly, look to see whether the FCC explains how it will quantify how much its own policies actually contribute to these goals over time. The FCC is famous for NOT doing these kinds of things, so let’s see if the broadband plan signals a new era in accountability.

FCC Chairman Julius Genachowski’s comparison of broadband with electricity in a speech this week has generated mixed reviews in the blogosphere. Manny Ju says that this shows Genachowski “gets it” — that he understands the transformational power of broadband and how it will come to be regarded as a ubiquitous necessity in the years ahead. Scott Cleland is more alarmed: “The open question here is electricity transmission is regulated as a public utility. Is the FCC Chairman’s new metaphor intended to extend to how broadband should be regulated?”

It may surprise some technophiles, but this kind of discussion even predates electricity. The advent of the railroads in the 19th century brought similar arguments.  Railroads were usually a heck of a lot cheaper way of hauling goods and people across land than the next best alternative at the time: wagons. Railroads were “The Next Big Thing” that no town could do without — especially if the town lacked access to navigable waters. Lawmakers handed out subsidies (often in the form of land grants), then regulated railroads to control perceived abuses, such as discriminatory pricing for different kinds of traffic or traffic between different locations. Henry Carter Adams, the godfather of economic regulation in the U.S., said all shippers deserved “equality before the railroads.” Even today, commentators lament the rural towns that people abandoned because they lacked rail access. Deja vu all over again! 

As long as we’re deja-vuing, let’s remember a few little problems America encountered down the railroad regulatory track:

1. Subsidies created “excess capacity” — that is, more capacity than customers were willing to pay for. In some cases, subsidies attracted shady operators into the railroad business whose main goal was to get land grants or sell diluted stock offerings to the public, not build and operate railroads. 

2. Regulation ended up caretlizing railroads and propping up rail rates, which faced downward pressure because of the excess capacity.

3. When another low-cost, convenient alternative (trucking) came along in the 1930s, truckers got pulled into the cartel when they too were placed under Interstate Commerce Commission regulation to keep them from undercutting rail rates.

4. Despite cartelization, by the late 1970s, 21 percent of the nation’s railroad track was operated by bankrupt railroads, even though the railroads had shed unprofitable passenger service to Amtrak earlier in the decade. Part of the reason was excessive costs: Because access to freight rail service was still considered a right, regulation prevented railroads from abandoning money-losing lines. Part of the reason was restraints on competition: The regulatory passion for “fair” pricing kept railroads from competing aggressively with each other or with truckers. When the Southern Railway introduced its 100-ton “Big John” grain hopper cars in the 1960s, for example, it couldn’t offer shippers lower rates in exchange for high volume until it appealed an Interstate Commerce Commission all the way to the Supreme Court.

By the late 1970s, a Democratic president, a bipartisan majority in Congress, and economists across the political spectrum agreed that railroad regulation needed a radical overhaul. Regulatory reforms made it easier for railroads to abandon unprofitable service, in many cases turning track over to new, lower-cost short lines and regional railroads. Prices for more than 90 percent of rail traffic were effectively deregulated. At the same time, Congress deregulated rates and entry on interstate trucking routes. This encouraged rail-truck competition and also allowed each mode to specialize in serving those markets it could serve at lowest cost.

Rail rates fell, and railroads came out of bankruptcy. The current system is hardly perfect, but most economic research suggests that most consumers, shippers, and railroads are much better off now than they were under the old regulatory system.  (For reviews of scholarly research on this, check out Clifford Winston’s paper here  or my article here.)

Will we repeat the cycle with broadband? I don’t know, but to this railfan, the current broadband debate is looking soooo retro — as in 19th century!

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. At the end of November, the White House took the unprecedented step of releasing its visitor logs through the end of August—a major step towards the kind of transparency candidate Obama promised on the campaign trail. But the logs also revealed something remarkable: that Genachowski had visited the White House 47 times, making him the visitor with the third-most visits out of 1,786 total visitors.  This pattern is astonishing when one considers that no other agency head racked up more than five visits, and only a handful of independent agency heads visited at all, as Adam Thierer and I noted.

While most of these visits (39) occurred while Genachowski was technically serving as lead technology advisor to the new administration, it was clear even before Obama’s inauguration that Genachowski would be chairman, and 31 of those visits occurred between his formal nomination and confirmation. A further eight visits occurred after his Senate confirmation, when he was officially FCC Chairman—but even that far exceeded visits by other agency heads, and occurred during what are generally the two slowest months Washington, July and August.  So it will be very interesting indeed to see how much more visits Genachowski has logged since August when the White House releases updated visitor logs, as it has promised to do “in December 2009.” That clock is winding down rapidly!

So what’s the big deal? As Adam Thierer and I noted in October:

at least in theory, “independent agencies” are supposed to be just that: independent.  They aren’t part of any Cabinet-level department and are supposed to be insulated from direct, day-to-day political pressure through bipartisan commissions, fixed terms, and safeguards against presidential removal.  At least that was always the “progressive ideal”: independent, “scientific” expert agencies and officials.

Think back to Leary’s comment as a former Republican Commissioner—defending an enforcement action taken by a now Democratic-led FTC with a palpable outrage that anyone should question the independence of his successors or try to cast the FTC’s enforcement actions in a partisan light:

[Over six years] 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 vision of agency independence is so profoundly different from Genachowski’s apparent practice that one might think Leary was describing how regulatory agencies operated in a different century or on a different planet. At the very least, Genachowski’s close relationship with the Obama administration will make it difficult, if not impossible, for anyone on the outside to clearly demarcate between Genachowski’s decisions as Chairman and the Administration’s agenda—as Leary could do for the FTC. That means the many contentious issues the FCC will deal with in the coming years (e.g., net neutrality and potentially broader regulation of the applications and services layers of the Internet) will likely become increasingly partisan issues—which is a recipe for poor policy-making, especially given how highly technical some of those issues are.

This dynamic is most disturbing when it involves the FCC above all other “independent” regulatory agencies, as we noted:

whose extensive media regulations give it leverage that has been used to squelch political opposition to past administrations. Even liberal Democrats, such as Alfred Kahn, a Carter appointee, have long recognized that the FCC is particularly vulnerable to “regulatory capture” by special interests.  That’s why the FCC requires disclose of all “ex parte” meetings between Commissioners or staff and “interested parties” outside government.  Genachowski’s predecessors, Kevin Martin and Michael Powell, were both criticized by Democrats for their close ties to the Bush administration, largely because of fears that special interests were influencing FCC decisions through the White House.  Had either Republican visited the White House half as often as Genachowski, there would have likely been howls from the Left about “undue influence.”

And even more disturbing when it involves this hyper-activist FCC, with a sweeping view of its own jurisdiction:

Under Genachowski, the FCC has essentially asserted jurisdiction over the entire Internet, recently inquiring about regulation of online television, video games, Google Voice, cloud computing, the Apple apps store, and resurrecting railroad-era concepts of common carriage “neutrality” in ways that could ultimately apply not only to broadband, but also to search engines, social networking, and devices.  As we’ve warned, Chairman Genachowski is leading us down the road of vastly increased government meddling across cyberspace.  That regulatory apparatus will inevitably be used as a tool of politics, if not by this administration, then by another less noble one in the near future—which might explain why some in this administration are so keenly interested in Chairman Genachowski’s FCC.

Ultimately, the health of any democracy depends on the independence of its media from political meddling. After free speech rights guaranteed by the First Amendment and due process rights guaranteed by the Fourteenth Amendment, the independence of the FCC from direct political pressure has been perhaps the greatest bulwark of freedom of the press in America. Discard that all that  and it’s not hard to see how we could someday, perhaps under some future president, see headlines like this one the Land of the Free: ” Venezuela: Chávez Won’t Renew TV Station’s License.”

If Genachowski, an exceptionally well-qualified technocrat, wants to avoid being seen as the “Cat’s Paw” for a highly ideological administration with a broad agenda of reinventing a radically more “Progressive” America, he would do well to ask “What Would Leary Do?” and be a lot more leery of even creating the impression of taking any “direct or indirect policy recommendation” from the White House.

If Democrats don’t like the sound of ” Palin Won’t Renew TV Station’s License” (or “Gingrich Won’t Renew Google’s Search Engine License“), they had better start remembering that every action taken by this administration and its appointed independent agency heads will set precedents for presidents they may loathe as much as, say, Richard Nixon, whose abuse of the FCC’s “Fairness Doctrine” as an instrument of censorship is legendary.

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.

In a speech yesterday, FCC Chairman Julius Genachowski pledged to revisit the Federal Communications Commission’s universal service programs for telecommunications as part of the National Broadband Plan: 

 The key points for today are these: USF is a multi-billion dollar annual fund that continues to support yesterday’s communications infrastructure. The goal of universality is as important as ever — and to meet our country’s innovation goals, we need to reorient the fund to support broadband communications. This is a thorny issue, with no shortage of practical and statutory challenges. We need to wring savings out of the system, protect consumers, avoid flashcuts, while ultimately moving USF in the direction it needs to go to support our 21st century platform for innovation. 

The USF program spends approximately $7 billion annually. Most of the money goes to subsidize phone service in “high cost” areas. Eeuww – phone service.  So twentieth century! All of us who have not yet shifted 100% of our personal communications to Facebook and Twitter pay for the universal service fund via surcharges of about 12 percent on our wireless and  wireline phone bills, including VOIP. (Dirty little secret: you also pay for universal telephone service if you use a wireless broadband card, because each card is assigned a phone number.) 

Genachowski’s comment follows some rather interestingly-timed announcements from the FCC’s broadband task force. On November 13, the task force asked for public comment on the role the universal service fund and “intercarrier compensation” (another, more opaque set of transfers from consumers in general to rural phone companies) should play in the national broadband plan. Comments are due December 7. Five days after soliciting comments, on November 18, the FCC announced that the structure of the universal service fund is one of the “critical gaps” in the path to universal broadband.

I doubt the FCC has telepathically determined what the parties will say in the comments they file on December 7, but there’s no need to. The FCC has ground through so many rounds of comments on universal service reform that the problems and potential solutions are well-known. At a conference on universal service about five years ago, I recall one speaker commented, “Everything that can be said about universal service has already been said, but not everyone’s had a chance to say it, so that’s why we still have conferences on it.” About a year ago, the FCC almost used a court-imposed deadline as an opportunity to actually reform universal service and intercarrier compensation, but the commissioners failed to reach consensus.

Here are some major problems with the universal service fund, in no particular order:

• It subsidizes voice phone service with built-in incentives for inefficiency on the part of providers.
• It subsidizes wireless voice service without limiting the subsidy to one essential connection per household, so it has effectively created an entitlement to both wired and mobile phone service in rural areas.
• The FCC does not measure or track the outcomes produced by the subsidies to see what they actually accomplish for the public. (Section 201 of the draft Boucher-Terry USF reform bill would require the FCC to adopt outcome-oriented performance measures.)
• The contribution mechanism acts like a percentage tax that discourages use of price-sensitive services like long-distance, wireless voice, and wireless broadband.
• The “death of distance” has slashed long-distance phone charges, which means wireless bears a growing percentage of the burden and the funding mechanism may well be unsustainable.

(For more detail on these issues, read the assortment comments on USF reform by various Mercatus Center colleagues and me here, here, here, here, here, here, here, here, here, and here. BTW, did I mention this issue has been beaten to death?)

So is the FCC jumping the gun, rushing to judgment on universal service before the comments are in?  Heck no. It’s about time.

by Adam Thierer & Berin Szoka

Move over, health care reform, climate change, and the economy. Judging by White House visits by various government agency heads, the Obama administration instead appears preoccupied with the re-regulation of communications, media, and the Internet. The Administration has just released logs of all visitors to the White House and Executive Office Buildings from Obama’s inauguration through August—including a staggering 47 visits by Federal Communications Commission (FCC) Chairman Julius Genachowski. By contrast, no other major agency head logged more than five visits.  Chairman Genachowski obviously has an audience with those at the highest levels of power, including the President himself, but this raises questions about just how “independent” this particular regulator and his agency really are.

Unprecedented Transparency by White House

The Administration deserves credit for releasing these visitor logs, which offer unprecedented transparency into the White House’s workings.  Unfortunately, the logs lack visitors’ affiliation and title, making it difficult to discern subtle patterns.  Furthermore, each entry indicates only one “visitee” and the total number of people involved.  Full disclosure requires identifying all meeting participants. Nonetheless, President Obama’s gesture is a great first step toward improved government accountability.

This openness allows us to ask questions we couldn’t pose for previous administrations—such as why the FCC head seems to have unparalleled access to the White House.  Lacking data from previous administrations, it’s difficult to make direct comparisons with previous FCC Chairmen, but the sheer number of visits by Chairman Genachowski leaves no doubt about his uniquely close involvement with the White House.

Given the ongoing economic/financial crisis, you might think that the President and White House officials would be meeting regularly with the heads of other independent agencies, such as the Federal Reserve, Securities and Exchange Commission, Small Business Administration, Federal Trade Commission, Federal Deposit Insurance Corporation, and National Labor Relations Board.  But not one of those agency heads appears to have logged a visit through August.  Climate change?  Just a single visit with the EPA Administrator.

And Cabinet-level officials?  Just 23 visits among 21 officials.  How is that possible, you might ask?  Apparently, Obama held just one full Cabinet meeting in the first seven months of his presidency (in May)—followed by a second meeting in November (well after the logs end). So, while President Obama and White House staffers were too busy to meet with Cabinet-level officials, they always made time for Chairman Genachowski.  Indeed, of the 1,786 visitors listed, only two logged more visits than Genachowski: Bancorp CEO Richard Davis (56) and Lee Sachs (61), Deputy Treasury Secretary.

President Obama appears as the “visitee” for two of Genachowski’s many visits, but could have met with him along with others if someone else was listed as the visitee.  More telling is that only 7 of his 47 visits included more than 10 attendees, and 25 were one-on-one—meaning that the FCC Chairman usually had a personal audience or a small audience.

Why all this attention for such a relatively obscure regulatory agency?  Genachowski served as Obama’s Technology Advisor during the campaign, the transition, and the beginning of the administration.  Eight of his 47 visits occurred before his long-anticipated nomination as FCC Chairman was announced on March 3, with 31 more before his June 29 confirmation.  Only eight occurred after his confirmation, but July and August are generally Washington’s slowest months, so it will be interesting to see just how many more visits he’s racked up since August when the administration releases updated logs.  Probably far more than any other independent agency head: Even his eight visits in July and August are remarkable compared to the near complete lack of visits by other agency heads.

How Independent?

Why care?  Well, at least in theory, “independent agencies” are supposed to be just that: independent.  They aren’t part of any Cabinet-level department and are supposed to be insulated from direct, day-to-day political pressure through bipartisan commissions, fixed terms, and safeguards against presidential removal.  At least that was always the “progressive ideal”: independent, “scientific” expert agencies and officials.

Of course, it was always more mythology than reality, since bureaucratic management is rarely “scientific” and these agencies are routinely subjected to blatant political pressure from White House officials and Congress.  Any history of America’s broadcast sector includes stories of political meddling at the FCC—often prompted by officials outside the agency.  Nonetheless, there are good reasons for maintaining a firewall between independent agencies and politicians—especially the FCC, whose extensive media regulations give it leverage that has been used to squelch political opposition to past administrations.

Even liberal Democrats, such as Alfred Kahn, a Carter appointee, have long recognized that the FCC is particularly vulnerable to “regulatory capture” by special interests.  That’s why the FCC requires disclose of all “ex parte” meetings between Commissioners or staff and “interested parties” outside government.  Genachowski’s predecessors, Kevin Martin and Michael Powell, were both criticized by Democrats for their close ties to the Bush administration, largely because of fears that special interests were influencing FCC decisions through the White House.  Had either Republican visited the White House half as often as Genachowski, there would have likely been howls from the Left about “undue influence.”

Interestingly, after his nomination, Chairman Genachowski met at least four times with Cass Sunstein, who now heads the Office of Information & Regulatory Policy (OIRA).  While Sunstein was not confirmed until September, their meetings raise important questions, since OIRA ultimately has final sign-off on the FCC’s regulations. Have the two continued to meet since?  If so, one hopes it was not to discuss Sunstein’s disturbing proposal for “electronic sidewalks” for cyberspace—a “Fairness Doctrine” for the Internet!

Is This Good or Bad for the Internet?

The critical issue is whether the FCC’s special relationship with the administration is beneficial for America’s dynamic digital economy.  That depends on whether you like the sound of a “New Deal 2.0” because—with the exception of some genuinely laudable eGoverment/transparency initiatives and openness to real spectrum reform (to be discussed at PFF’s upcoming event with Blair Levin this Tuesday, December 2nd)—that’s generally what the administration is pushing for in communications and media policy: command-and-control central planning of high-tech, backed by massive infrastructure subsidies and the re-regulation of sectors that have thrived since deregulation.

Under Genachowski, the FCC has essentially asserted jurisdiction over the entire Internet, recently inquiring about regulation of online television, video games, Google Voice, cloud computing, the Apple apps store, and resurrecting railroad-era concepts of common carriage “neutrality” in ways that could ultimately apply not only to broadband, but also to search engines, social networking, and devices.  As we’ve warned, Chairman Genachowski is leading us down the road of vastly increased government meddling across cyberspace.  That regulatory apparatus will inevitably be used as a tool of politics, if not by this administration, then by another less noble one in the near future—which might explain why some in this administration are so keenly interested in Chairman Genachowski’s FCC.

As someone who follows the federal regulatory process, I was amazed to see this in a recent American Spectator post about White House technology advisor Susan Crawford’s return to the University of Michigan Law School:

But White House sources say that she ran afoul of senior White House economics adviser Larry Summers, who claimed he and other senior Obama officials were unaware of how radical the draft Net Neutrality regulations were when they were initially internally circulated to Obama administration officials several weeks ago … In the end, the proposed regulations were slightly moderated from the original language FCC chairman Julius Genachowski, a Crawford ally, circulated.

Unlike regulatory agencies that are considered part of the executive branch, the Federal Communications Commission is an “independent” regulatory agency — which means the president cannot fire its five commissioners. Before executive branch agencies can propose a regulation, it must be reviewed by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). No administration has yet tried to bring independent agencies like the FCC under OIRA review.

Typically, congressional and private watchdogs scream bloody murder when they see the White House trying to influence independent agencies. But I haven’t heard any barking about this one.

Personally, I think independent agencies’ regulations should be subject to OIRA review. I don’t mind letting the president and his advisors have their say on regulations proposed by people he appointed. But I’d like to see it happen through the formal OIRA review process, where the public knows it’s happening and knows what the rules are.

For example: If you want to know which proposed regulations OIRA has reviewed, go here.  If you want to know the standards OIRA uses to review regulations, go here. If you want to know what outside parties have met with OIRA to discuss regulations, go here.

I like the idea of having a neutral Internet that allows me to go where I want to go and read what I want to read, all for the price of my monthly subscription.  Sure, it took me awhile to figure out why anyone would want to access skype on an iphone (after all, an iphone is already a phone!), but now I can see why some people might enjoy making free international calls without having to plop down in front of the ol’ PC wedged into the guest bedroom.

At the same time, I don’t see a pressing need for regulation to ensure that we get whatever degree of neutrality is practical. Even in his speech announcing that he would propose net neutrality rules, FCC Chairman Genachowski could cite only the same three old anecdotes that have been tirelessly trotted out by others as proof that new regulation is required.  Sure, by Washington standards, that’s two more anecdotes than are usually required to justify issuing a regulation. But it’s hardly proof of a broad, systemic problem that requires new rules (as Jerry Brito and I argued here.)

Nevertheless, as the saying goes, “You can’t beat something with nothing.”  So I suggest a positive agenda to promote sustainable net neutrality. 

Many of the arguments for a non-neutral net are based on the assumption that last-mile bandwidth is, at least sometimes, congested — or may soon become that way as people use more bandwidth-intensive applications. One solution is for the network operator to prioritize some packets over others, so if I have a heart attack, my wife’s VOIP call for an ambulance doesn’t get crowded out by the neighbor’s kid playing video games with his buddies in Australia.  Another solution, though, is to make sure the network operators have adequate ability and incentive to build plenty of bandwidth. As an economist, I understand that some network management or usage-based pricing might be less expensive for consumers than building massive bandwidth. But that’s no reason to persist with policies that artificially constrain bandwidth. 

For wired broadband, a positive agenda to promote sustainable net neutrality means avoiding regulations that impair incentives for investment that increases the capacity of the last-mile network. For wireless broadband, that means freeing up more spectrum to be auctioned for commercial wireless services.  

And while you’re at it, FCC, maybe you can do something about the NIMBY problem that prevents me from receiving a decent 3G broadband signal in my house.  Now that would expand last-mile bandwidth and promote competition to boot!

FCC Chairman Julius Genachowski suggested at an FCC field hearing this week that the federal government might create its own “version of iTunes.” Multichannel News reports:

The chairman asked panelists to think about the value of a clearinghouse where best practices could be shared. He suggested that might be a way to spur the spin-off of public-sector apps from private sector initiatives and to prevent reinventing the wheel, rather than tapping into what is already being done. There is not a lot of shared info out there, he said.

If all we’re talking about is a clearinghouse that provides easy access to apps for government-developed apps, Google Code or SourceForge may be a better model than iTunes—though perhaps without the instant name recognition by ordinary consumers. Like SourceForge, Google Code allows hosting and management of open source projects, including Google’s own products. iTunes, by contrast, essentially offers consumers finished apps. Also, iTunes is a stand-alone piece of software, of which the Apps Store is  just one part, while I can’t imagine why Genachowski’s “store” need be anything more than a website.

Whatever the analogy, such a “store” could well be a valuable tool for sharing the benefits of software development by government employees, both with the private sector and among federal agencies as well as state, local and even foreign governments. But what, exactly, Genachowski had in mind for the store remains awfully vague: Multichannel News mentions, as examples, “applications that do everything from monitoring heart rates and blood sugar to checking for greenhouse gas levels.” If the idea ever goes anywhere, it should be based on two principles:

1. All apps should be open source and available to all users to use as they see fit.
2. The store should be limited to apps developed by government employees to meet the needs of government agencies.

These principles would maximize the store’s value in making taxpayer-funded software development easily accessible. As a moral matter, it might be appropriate to limit access to U.S. taxpayers, but why bother? Attempting to authenticate users would add unnecessary complexity and raise privacy concerns needlessly: Any app we wouldn’t want to fall into the hands of, say, North Korea, simply shouldn’t be in the store at all. Sharing apps internationally would expand the potential developer base while helping to public and private sectors alike in the U.S. and abroad. If a school district in Sheboygan, WI or a village in Sudan can benefit from an app rather than starting over, so much the better for everyone!

The second requirement, combined with the open source requirement, would also help to reduce direct competition between government coders and private coders. A clearinghouse for apps government truly needs to develop on its own makes a great deal of sense: If we’re already paying a government-employee to write an app so his agency can function more effectively, that  should be shared. But a broader “public option for software” could well harm both for-profit and not-for-profit development of software by the private sector. Unless its mandate were carefully constrained by statute, such a clearinghouse could easily grow into a “public works” program for the digital age, with pressure rising for government to fund software development for as a “public good.” How to draw that line would be difficult, and it’s probably not a task that should be left to the FCC; Congress should address the question.

Keeping government-developed apps open source would allow the private sector to benefit from public sector development, rather than competing with it. But if a private company wants to incorporate a government-developed app into proprietary software, they should be free to do so. The government shouldn’t be prejudicing the private sector’s choice of business models by requiring that its apps stay open source. Nor should the government prevent commercialization of software that springs from federally funded research, as currently permitted by the Bayh-Dole Act.

Perhaps the greatest danger of such a program is that it could become a vehicle for subtle government propaganda—in violation of existing laws against using taxpayer dollars to distribute propaganda inside the U.S. The iTunes store analogy is particularly inapt (no pun intended) because iTunes, of course, provides pure content as well as apps. But apps themselves could come with a particular slant because it is increasingly difficult to distinguish “pure content” from “pure apps.” This danger could be particularly acute if the store turned into a “jobs program,” which would be inherently political, just as FDR’s New Dealers used programs like the WPA Arts Project to advance a certain ideological message, and New Deal programs in general as a way of rewarding supporters and punishing opponents. We certainly wouldn’t a Republican administration, say, trying to take revenge on Google for its support of Democrats by investing public money into direct competitors to Google’s software. Nor would we want to funding for software development to become just another dimension for the culture wars.

With those important caveats, this could be a great idea.

Is the Internet in clear and present danger?   Yes, say proponents of neutrality regulation of the Internet.  In his speech last month calling for FCC neutrality regulations, Chairman Julius Genachowski stopped short of quoting Oliver Wendell Holmes, but did all he could to paint a dire picture of the Internet’s future: “This is not about protecting the Internet against imaginary dangers,” he said.  If we wait too long to preserve a free and open Internet, it will be too late.”

The warning evoked a certain sense of deja vu, and for good reason.  As Link Hoewing over at Verizon pointed out the other day, proponents of neutrality regulation “have been yelling ‘fire’ in the movie theater ever since 1999,” when they decried the trend toward cable firms providing exclusive ISP service on broadband networks, saying that the move would result in “more price increases and fewer choices for consumers and content providers alike.”

The end has been nigh many times since.  In 2003, when a court upheld the FCC’s decision not to regulate broadband as a telecommunications service, Commissioner Michael Copps said “the Internet may be dying,”  glumly predicting that if the Commission continued its free-market policies, “we will look back, shake our heads and wonder whatever happened to that open, dynamic and liberating Internet that once we knew.” 

Not to be outdone, in 2006, as the debate over tiered pricing raged, Jeff Chester of the Center for Digital Democracy also warned of the “end of the Internet,” stating that “without proactive intervention, the values and issues that we care about–civil rights, economic justice, the environment and fair elections–will be further threatened by this push for corporate control”.

The predictions of the Internet’s death, however, were not just exaggerated, they were wrong.   Monumentally wrong.  As Hoewing points out,  the entry-level price for broadband service was $50 per month in 2001, dropped to $33 in 2004, and to $25 in 2007.  And more people are using it — seven of ten households were still using dial-up in 2004, today only 1 in 10 do.  And typical broadband speeds have more than doubled in that time.

Genachowski may have had these facts in mind when, in last month’s speech, he said: “This is about preserving and maintaining something profoundly successful and ensuring that it’s not distorted or undermined”.

Well put.  And that’s exactly why we must not impose new and unneeded regulation on the Internet.

The Post, hardly a bastion of radical cyber-libertarianism, has come out strongly against FCC Chairman Julius Genachowski’s plans to have the FCC issue “Net Neutrality” regulations. The editorial asks the critical threshold question we crazy cyber-libertarians always insist on:

Is this intervention necessary? Mr. Genachowski claims to have seen “breaks and cracks” in the Internet that threaten to change the “fundamental architecture of openness.” He and other proponents of federal involvement cite a handful of cases they say prove that, left to their own devices, ISPs… will choke the free flow of information and technology. One example alluded to by the chairman: Comcast’s blocking an application by BitTorrent that would allow peer-to-peer video sharing. Yet that conflict was ultimately resolved by the two companies — without FCC intervention — after Comcast’s alleged bad behavior was exposed by a blogger.

Thus, the FCC oppposes pre-emptive regulation that would “prohibit ISPs from ‘discriminating against’ different applications,” noting that  this would mean that “ISPs, which have poured billions of dollars into building infrastructure, would have little control — if any — over the kinds of information and technology flowing through their pipes.”

Three cheers for the Post for recognizing both the property rights of ISPs in their networks and the fact that, even with Genachowski’s “slight concession” to allow “managed services in limited circumstances… unneeded regulation could still interfere with [ISPs] ability to manage bandwidth-hogging applications that can hamper service, especially during peak times.” Instead, the Post called for simple transparency, supporting a requirement that “ISPs be candid with the agency and the public about network management practices. The last paragraph hits the ball out of the park:

Mr. Genachowski claims that the FCC “will do as much as we need to do, and no more, to ensure that the Internet remains an unfettered platform for competition, creativity and entrepreneurial activity.” He will advance this goal by insisting on transparency; he will jeopardize it — and stifle further investments by ISPs — with attempts to micromanage what has been a vibrant and well-functioning marketplace.

Amen! The Post is about as “mainstream” as it gets in American journalism, so their strong opposition really underscores that preemptive “net neutrality” regulation isn’t the popular cause some in Washington think it is. It is simply infrastructure socialism.

FOXNews.com has just published an editorial that I penned about Monday’s net neutrality announcement from the FCC.

Does Obama Want to Control the Internet?

by Ryan Radia

The federal government may gain broad new powers to regulate Internet providers next month if Federal Communications Commission Chairman Julius Genachowski gets his way. In a milestone speech on Monday, Genachowski proposed sweeping new regulations that would give the FCC the formal authority to dictate application and network management practices to companies that offer Internet access, including wireless carriers like AT&T and Verizon Wireless.

Genachowski’s proposed rules would make good on a pledge that President Obama made in his campaign to enshrine net neutrality as law. The announcement was met with cheers by a small but vocal crowd of activists and academics who have been pushing hard for net neutrality for years. But if bureaucrats and politicians truly care about neutrality, they would be wise to resist calls to expand the government’s power over private networks. Instead, policymakers should recognize that it is far more important for government to remain neutral to competing business models — open, closed, or any combination thereof.

Consider the Apple iPhone. The remarkably successful smartphone has arguably been a game-changer in the wireless world, having sold tens of millions of handsets since its 2007 launch and spurring dozens of would-be “iPhone killers” in the process. If you listen to net neutrality advocates’ mantra, you would assume the iPhone must be a wide open device with next to no restrictions. You would be mistaken. In fact, the iPhone is a prototypical “walled garden.” Apple vets every single iPhone app, and Apple reserves the right to reject iPhone apps if they “duplicate [iPhone] functionality” or “create significant network congestion.”

Why, then, has the iPhone enjoyed such popularity? It’s because consumer preferences are diverse and constantly evolving. Most users, it seems, do not place openness on the same pedestal that net neutrality advocates do. Proprietary platforms like the iPhone have advantages of their own– a cohesive, centrally-managed user experience, for one– but have disadvantages as well.

In the battle between open and closed devices, wireless subscribers have voted with their wallets. So far, they have preferred the iPhone over open source devices like the “Google phone.” In the intensely competitive wireless market, the iPhone’s success shows that innovation can occur, and even thrive, within the confines of proprietary ecosystems like the iPhone.

But under the FCC’s proposed neutrality rules, the iPhone and similar devices that place limits on the content and applications that users can access would likely be against the law.

To be sure, the virtues that neutrality proponents espouse– open access, transparency, democracy, and the like — are all legitimate, even important values. Arguably, the open nature of the Internet has been instrumental in fostering many of the innovations that consumers enjoy today. But it is wrong to assume, as neutrality proponents do, that today’s “capital-I” Internet is the end all, be all network, and that the future of global communications ought not include some proprietary elements.

Technological innovation is an unpredictable beast. Networks for transmitting data that have yet to emerge — so-called “splinternets” — may well reshape the nature of global communications in years ahead. One need only look to the FCC’s widely criticized telephone and cable regulations to witness how rigid federal mandates can thwart high-tech evolution and steer the market in unnatural directions.

Fortunately, not all hope is lost for consumers. A group of Republican Senators, led by Sen. Kay Bailey Hutchison (R-Texas), have announced that they will lead a charge in Congress to thwart the FCC’s push for neutrality. And if the FCC bites off more than it can chew and enacts overly broad rules, network providers may well challenge the agency in court. Only two weeks ago, the FCC was sharply repudiated by a federal circuit court for ignoring the facts in its regulation of the cable industry.

If net neutrality ultimately goes through, the threat to infrastructure wealth creation is serious. When regulators gain new powers, they rarely cede them in response to marketplace changes without a fight. Under a neutrality regime, the telecom industry would likely retreat, take fewer risks, and divert investment toward more fruitful pursuits. It’s no coincidence that the Internet, a sanctuary of governmental restraint, has spawned such unparalleled innovation. In the relentlessly fast-moving digital age, regulatory intervention is a recipe for entrenching the status-quo.

Ryan Radia is an information policy analyst at the Competitive Enterprise Institute in Washington, D.C.

The Senate Commerce Committee held a hearing yesterday where a number of Senators as well as Julius Genachowski, the new Chairman of the Federal Communications Commission, did a lot of fretting about the state of the modern children’s television programming marketplace.  According to the Wall Street Journal, Senate Commerce Committee Chairman Jay Rockefeller (D-WV):

suggested that a “little red button” be required on TVs so that a child could push the button to find out how a show is rated. Democratic Sen. Mark Pryor of Arkansas agreed that a red button might help since parents often have difficulties figuring out which shows are appropriate for their children to watch.

Well, I have some good news for the Senators: There are already quite a few little buttons on every remote control made today, and at least one of those buttons can pull up an on-screen guide to get more program info! (Another of them can turn the TV off!) Moreover, the ratings for just about every program already appear at the beginning of each show, and sometimes in between. And you can find out plenty more online about every TV show under the sun if you care to look.  So, I’m not sure what that fuss is all about, and we certainly don’t need to mandate “little red buttons” on every TV set when program information can be found in so many other ways.

What is more troubling about all the hand-wringing taking place at the hearing, as well as the talk of reopening the Children’s Television Act of 1990 to potentially impose more content mandates on video programmers and distributors, is that: (1) there doesn’t seem to be much appreciation for just how much wonderful children’s programming is out there today compared to the past, and (2) there doesn’t seem to be much recognition of the serious First Amendment issues at stake when government gets involved in the messy business of regulating video programming.

On that first point, let me just reiterate what I have found after conducting an exhaustive survey of the market for children’s programming in my ongoing PFF special report, Parental Controls & Online Child Protection: A Survey of Tools & Methods.  I found that the overall market for family and children’s programming options continues to expand quite rapidly. Thirty years ago, families had a limited number of children’s television programming options at their disposal on broadcast TV.  Today, by contrast, there exists a broad and growing diversity of children’s television options from which families can choose. The list below highlights just some of the more popular family- or child-oriented networks available on cable, telco, and satellite television today. And this list continues to grow rapidly.

• ABC Family Channel (http://abcfamily.go.com)
• Animal Planet (http://animal.discovery.com)
• Anime Network (www.theanimenetwork.com)
• Black Family Channel (www.blackfamilychannel.com)
• Boomerang (www.cartoonnetwork.com/tv_shows/boomerang)
• Cartoon Network (www.cartoonnetwork.com)
• Discovery Channel (www.discovery.com)
• Discovery Kids (http://kids.discovery.com)
• Disney Channel (www.disney.go.com/disneychannel)
• Encore WAM!
• Familyland Television Network (www.familyland.org/content/Content.aspx?CategoryID=51)
• FUNimation (www.funimation.com)
• Hallmark Channel (www.hallmarkchannel.com)
• Hallmark Movie Channel (www.hallmarkmoviechannel.com)
• HBO Family (www.hbofamily.com)
• History Channel (www.history.com)
• KTV – Kids & Teens Television (www.ktvzone.com)
• Learning Channel (http://tlc.discovery.com)
• National Geographic Channel (http://channel.nationalgeographic.com/channel)
• Nickelodeon (www.nick.com)
• Nick 2
• Nick Toons (http://nicktoonsnetwork.nick.com/home.html)
• Noggin (www.noggin.com)
• N Channel (www.the-n.com)
• PBS (www.pbs.org)
• PBS Kids (http://pbskids.org/go)
• Science Channel (http://science.discovery.com)
• Showtime Family Zone
• Sprout (www.sproutonline.com)
• Starz! Kids and Family (http://www.starz.com/appmanager/seg/s?_nfpb=true&_pageLabel=starz_kids_family)
• Toon Disney (http://psc.disney.go.com/abcnetworks/toondisney)
• Varsity World (www.varsityworld.com)

Importantly, this list does not include the growing universe of religious / spiritual television networks. Nor does it include the many family or educational programs that traditional TV broadcasters offer. Finally, the list does not include the massive market for interactive computer software or websites for children.  All of this begs the obvious question: What more is it that policymakers want?

More offerings are always welcome, of course.  But, on a personal note, as the parents of two young kids (ages 5 and 7), my wife and I regularly struggle to sort through all the wonderful video programming options at our disposal.  We often find ourselves swimming through an ocean of choices available from our local broadcasters and multichannel video provider. Moreover, our kids are spending an increasing amount of time watching snippets of video via kid-oriented online search portals like KidZui and Glubble. Such online walled gardens offer a safe place for parents to find terrific online content for their kids.

I have to admit, all the choices my kids have today have left me a bit jealous!  I grew up in small central Illinois town with a couple of crummy (Iowa-based!) broadcast stations that were barely visible on our TV (and usually only when my Dad made me hold the antenna and stick my arms up in the air to get reception!) There was also one local cinema in town that usually showed old movies from the ‘50s and ‘60s that few kids cared to see.  And that was generally the extent of video choices for kids in our town.  Sure, the 1970s brought us Sesame Street as well as Mister Rogers (if that was your cup of tea).  Today, however, we still have those shows and much, much more.  Our kids now enjoy an unprecedented cornucopia of media alternatives and, contrary to what some policymakers would have us believe, many of them are extremely high-quality in nature.  My parents would have likely given anything to just have even one network as incredibly enriching as Noggin at their disposal in the ‘60s and ‘70s.  Instead, on the occasions that the TV had to become a babysitter and nothing worthwhile was on the tube, I usually ended up watching trashy soap operas.  (Don’t even get me started on “Days of Our Lives.” I could write a short history of the show’s 1975-1982 seasons!)

Speaking of trashy shows, there was a lot of talk at yesterday’s hearing about the “need to protect our children from harmful content,” as Sen. Rockefeller began the hearing by arguing.  But as I have shown in my parental controls report, not only are there more and better quality options to steer your kids toward today, but it is easier than ever before to steer them right to those preferred options and lock down everything else in sight.  As I concluded in that report:

there has never been a time in our nation’s history when parents have had more tools and methods at their disposal to help them decide what constitutes acceptable media content in their homes and in the lives of their children. […] parents now have [many tools and techniques] at their disposal to better control media content and raise their children as they see fit. That is not to say that media and communications technologies don’t continue to play a major role in our society and culture. But… parents have been empowered with tools, controls, strategies, and information, that can help them devise and then enforce a media plan for their families that is in line with their own values.

So, again, it must be asked: What is the problem here?

Finally, it should be noted that any effort by Congress or the FCC to tinker with video programming marketplace will eventually run up against serious First Amendment concerns and eventual court challenges.  In a previous session of Congress, before he became Chairman of the Senate Commerce Committee, Sen. Rockefeller aggressively pushed for expanded content controls, not just for broadcast television, but for cable and satellite platforms as well.  In a 2005 PFF report on Sen. Rockefeller’s “Indecent and Gratuitous and Excessively Violent Programming Control Act of 2005,” First Amendment attorney Robert Corn-Revere of the law firm Davis Wright Tremaine argued that efforts to expand the horizons of FCC regulation to cover more content and platforms “would be almost certain to fail a constitutional challenge.”  Likewise, in a 2007 PFF white paper, constitutional law expert Laurence H. Tribe of the Harvard Law School, noted that the old “it’s-for-the-children” rationale for such content regulation is exactly backwards:

the malleability of children—how easy it is to mold their minds and to influence them—counts against and not in favor of centralized governmental controls. One of the arguments that you will often find is, yes, it’s all very well to believe in free speech between consenting adults but we’re talking about kids here and their minds are like plastic and they are being molded and shaped and, therefore, we have greater power to protect them. Therefore, you should keep your hands off them because they are so easy to shape. No, no, no. The argument is not that kids are malleable and therefore, Big Brother should be empowered. The argument is that kids are malleable and, therefore, families should be empowered. Parental authority should be at the center of decision making.

Indeed. And, as already noted, parents have more tools and strategies to exercise that authority than ever before, as well as more programming options to choose from. Policymakers should be celebrating these modern media marketplace developments, not bemoaning them.  We are blessed to be living in the Golden Age of children’s video programming.