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The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Fees for Public Media

by on March 29, 2010 · 1 comment

As mentioned last week, in a new series of essays, PFF scholars will be examining proposals that would have the government play a greater role in sustaining struggling media enterprises, “saving journalism,” or promoting more “public interest” content. With many traditional media operators struggling, and questions being raised about how journalism in particular will be supported in the future, Washington policymakers are currently considering what role government can and should play in helping media providers reinvent themselves in the face of tumultuous technological change wrought by the Digital Revolution. We will be releasing 6 or 7 essays on this topic leading up to our big filing in the FCC’s “Future of Media” proceeding (deadline is May 7th).  And here’s a podcast Berin Szoka and I did providing an overview of the series.

In the first installment of the series, Berin and I critiqued an old idea that’s suddenly gained new currency: taxing media devices or distribution systems to fund media content. In the second installment, “The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Taxes to Subsidize Public Media,” I discuss proposals to impose a tax on broadcast spectrum licenses to funnel money to public media projects or other “public interest” content or objectives. Such a tax would be fundamentally unfair to broadcasters, who are struggling for their very survival in the midst of unprecedented marketplace turmoil.  Moreover, such a tax is unnecessary in light of the many other sources of “public interest” programming available today. Finally, even if the government creates or subsidizes wonderful, civic- and culturally-enriching content, there’s no way to force people to consume it.  Nor should government force such media choices upon the public. There’s no good reason for government to be socially-engineering media choices through taxes.

I’ve attached the entire essay down below.

Continue reading →

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Tom Hazlett on the history and economics of spectrum

by on March 16, 2010 · 0 comments

Tom HazlettNow that the broadband plan is out, and the FCC has its sights set on 500 MHz of broadcast spectrum, come listen to what it all means. In the latest episode of the Surprisingly Free Conversation podcast, Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University School of Law, discusses the economics of spectrum. The discussion also turns to the history of spectrum regulation, ongoing inefficiencies in the current system, and suggestions for possible improvements.

Listen to other episodes and remember to subscribe to the podcast using RSS or iTunes.

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5 Regulatory Hot Potatoes That Could Derail the FCC National Broadband Plan

by on March 15, 2010 · 8 comments

Beyond the fact that the Federal Communications Commission (FCC) decided to release the executive summary of its long awaited National Broadband Plan via a PDF of a scanned printed copy, there are other reasons to be concerned about the agency’s ability to centrally plan one of the most important, fast-moving sectors of our economy.  In this video clip, I discussed some of my general reservations with the idea of a gargantuan government industrial policy for the broadband sector, and in this essay I noted how, from what we’ve see of the plan thus far [Executive Summary], the FCC appears to be engaged in some creative accounting techniques to fund the scheme.

Not everything in The Plan troubles me, however, and I hope to touch on some of the more sensible elements in a future post. But, as I was reading through it, I flagged 5 regulatory hot potatoes in the plan that threaten to derail the entire thing.  In this regard, the parallels between the National Broadband Plan and the debate over health care “reform” are really quite striking. Indeed, it appears the Administration has once again settled upon a “go for broke” (potentially quite literally!) strategy. In both cases, they appear hell-bent and trying to do it all in the form of One Big Plan. Now, I won’t lie to you; such everything-plus-the-kitchen-sink public policy gambits make me nervous based simply on the sheer scale of the undertaking. When Washington tries to regulate massive chunks of the economy using bloated bills and bureaucracies inside the Beltway, it troubles me greatly. But even if the sound of Big Government on Steroids doesn’t raise your blood pressure, one would hope that the prospect of political gridlock and litigation hell would force advocates to scale back their ambitions a tad bit. After all, what good is a plan that can never pass or be implemented?

That’s why I was rather surprised to see these 5 regulatory initiatives teed up in the National Broadband Plan:

(1) Return of the Forced Access Regulatory Nightmare? The Plan says the FCC will, “Undertake a comprehensive review of wholesale competition rules to help ensure competition in fixed and mobile broadband services.” As my friend Randy May of the Free State Foundation notes: Continue reading →

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Will the FCC’s National Broadband Plan Really Be Costless?

by on March 15, 2010 · 19 comments

After working my way through the Executive Summary of the Federal Communications Commission’s (FCC) National Broadband Plan, there are a number of things I find troubling that I will get to in a subsequent post. But here’s the thing about “The Plan” that I found most surprising — even audacious — in its arrogance: The FCC wants us to believe the whole scheme is costless. The agency bases this astonishing claim on the following assumptions:

Given the plan’s goal of freeing 500 megahertz of spectrum, future wireless auctions mean the overall plan will be revenue neutral, if not revenue positive.  The vast majority of recommendations do not require new government funding; rather, they seek to drive improvements in the government efficiency, streamline processes and encourage private activity to promote consumer welfare and national priorities. The funding requests relate to public safety, deployment to unserved areas and adoption efforts. If the spectrum auction recommendations are implemented, the plan is likely to offset the potential costs.

Let me translate: ” Pay no attention to all the bills we are racking up, because spectrum revenues shall set us free!”

Perhaps that logic works in the reality-free zone we call the Beltway, but back in the real world this simply doesn’t add up. Regardless of how well-intentioned any of these goals and proposals may be, it should be equally clear that there is no free lunch, even with spectrum auction proceeds fueling the high-tech gravy train. The proposals and programs the FCC sets forth will impose serious economic costs that shouldn’t be so casually dismissed, especially using the weak reasoning that “improvements in the government efficiency” will magically manifest themselves thanks to massive new government intervention in the field. (If you think you’ve heard this one before, you have. See: The current health care debate.)

Moreover, if everything really does hang on the promise of spectrum auction revenues covering the broadband spending binge, well, bad news: The agency is never going to bring in enough to cover what they’ve proposed here. The reason is simple: Most of the spectrum they want to grab is currently occupied by someone else! Continue reading →

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FCC Releases Executive Summary of Broadband Plan

by on March 15, 2010 · 0 comments

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.

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Video with Some Thoughts on FCC’s National Broadband Plan

by on March 15, 2010 · 7 comments

Details are starting to trickle out about the Federal Communications Commission’s (FCC) National Broadband Plan, which is due out tomorrow. Someone just posted the Executive Summary here. I haven’t had a chance to go through it all yet, but I’m looking forward to learning more about what the agency’s plans are on this front.

On Friday (again, before seeing any details), I offered some fairly mushy comments about the idea of national “plan” to the gang over at the excellent new site, FiveQsOnTech.com.  The site has a great format: Five questions on technology and policy asked and answered (usually on tape) by technology policy wonks. I’m honored to be among the first couple of experts featured on the site, along with Markham Erickson of the Open Internet Coalition and Rob Atkinson of ITIF.

In the first 3 minutes of this second of the two videos I appear in, I offered some thoughts about “The Plan”:

http://www.youtube.com/v/sBRL2RfdMk4&rel=0&color1=0xb1b1b1&color2=0xcfcfcf&hl=en_US&feature=player_embedded&fs=1

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Fun Facts from the FCC's 2011 Budget Request

by on February 3, 2010 · 0 comments

The Federal Communications Commission released its 102-page fiscal year 2011 budget request to Congress this week.  Here are some fascinating factoids about the agency that I’ll pass on without commentary, beyond saying that they caught my attention:

  • The FCC has hired “close to 54 data experts, statisticians, econometricians, economists, and other expertise” to help with the National Broadband Plan mandated under the Recovery Act. These are “term employees,” meaning they’re not permanent, but the FCC says it needs more permanent hires to work on broadband after the plan is done. (p. 2)
  • The commission asks for a “budget” of $352.5 million. (p. 1) But its total requested spending actually tops $440 million, because it also asks for authority to spend $85 million of spectrum auction proceeds to cover the cost of auctions. (p. 5)
  • The administration proposes to give the FCC authority to charge user fees for unauctioned spectrum licenses, with projected revenues totaling $4.8 billion through 2020. (p. 6)
  • The FCC commits to 24 “outcome-focused performance goals.”  (pp. 16-29) Most of these goals are phrased as activities, not accomplishments, with lots of verbs like “enact,” “encourage,” “facilitate,” “enforce,” “promote,” “work to,” “foster,” advocate,” and “maintain.” In some cases, one can identify the actual concrete outcome by looking at additional wording or performance targets. It’s clear, for example, that the FCC wants to make sure that all Americans have access to broadband. In other cases, the concrete outcome, or how we would know if it is accomplished, is not clear.  For example, the only targets listed under the goal “Promote access to telecommunications services to all Americans” are targets for enforcement actions rather than measures of whether the FCC has actually accomplished the desired outcome.
  • The FCC has been supported almost entirely by regulatory fees assessed on regulated companies, with virtually no direct appropriations of tax dollars since fiscal year 2003 (p. 31).
  • Spectrum auctions have generated more than  $51.9 billion for the US Ttreasury. (p. 33)

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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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Summary of Tech Policy Summit Panel 2 at CES: The Spectrum Grab & Innovation

by on January 7, 2010 · 2 comments

As I mentioned, I’m out in Vegas attending the Tech Policy Summit at CES today and tomorrow and trying to blog about some of what’s going on. Here’s my summary of panel#1 on broadband policy and the pending national broadband plan.

The second panel was entitled “The Spectrum Grab and Innovation” and was moderated by Rob Pegoraro of The Washington Post. The panelists were:

  • Dean Brenner, VP of Government Affairs, Qualcomm
  • Michael Calabrese, VP, Wireless Future Program, New America Foundation
  • David Donovan, President, Association for Maximum Service Television (MSTV)
  • Joan Marsh, VP, Federal Regulatory Affairs, AT&T
  • Craig Moffett, VP and Senior Analyst, Sanford C. Bernstein & Co.
  • Janice Obuchowski, Founder and President, Freedom Technologies

I have summarized some of what the panelists had to say down below.

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Transcript of PFF Event on Broadcast Spectrum Reallocation

by on December 11, 2009 · 4 comments

PFF has just released the transcript of an excellent panel discussion I moderated last week entitled, “Let’s Make a Deal: Broadcasters, Mobile Broadband, and a Market in Spectrum.”  As I’ve mentioned here before, one of the hottest issues in DC right now is the question of broadcast TV spectrum reallocation.  Blair Levin, who serves as the Executive Director of the Omnibus Broadband Initiative at the Federal Communications Commission, recently raised the possibility of reallocating a portion of broadcast television spectrum for alternative purposes, namely, mobile broadband. Such a “cash-for-spectrum” swap would give mobile broadband providers to spectrum they need to roll out next generation wireless broadband networks while making sure broadcaster receive compensation for any spectrum they hand over.  The FCC just recently released a public notice on “Data Sought on Users of Spectrum,” (NBP Public Notice # 26) that looks into the matter. “This inquiry,” the agency says,” takes into account the value that the United States puts on free, over-the-air television, while also exploring market-based mechanisms for television broadcasters to contribute to the broadband effort any spectrum in excess of that which they need to meet their public interest obligations and remain financially viable.” Meanwhile, the House Energy and Commerce Communications Subcommittee is set to hold a hearing on the issue next Tuesday.

PFF’s panel discussion on this issue featured an all-star cast of characters, including opening remarks by Blair Levin, and a terrific discussion ensued. [You can hear the full audio from the event here.]  Down below I have highlighted some of the major points each speaker made during the discussion and also embedded the complete transcript in a Scribd reader.  Also, just a reminder that my PFF colleague Barbara Esbin and I authored a short paper on this issue recently: “An Offer They Can’t Refuse: Spectrum Reallocation That Can Benefit Consumers, Broadcasters & the Mobile Broadband Sector.”

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