I was saddened to learn that Commissioner Joshua Wright is resigning from the Federal Trade Commission. Commissioner Wright leaves the agency with a tremendous legacy. He brought to the FTC’s decision-making groundbreaking economic analysis, such as his opinion in Ardagh/St. Gobain that the government should evaluate possible merger efficiencies under a standard of proof similar to that applied to predicted anticompetitive effects. He proposed and reached across the aisle to accomplish major reforms, such as the FTC’s recent clarification of its Section 5 authority to police “unfair methods of competition” (something the agency had never done in its century-long existence).

Read the full piece here.

Remember when net neutrality wasn’t going to involve rate regulation and it was crazy to say that it would? Or that it wouldn’t lead to regulation of edge providers? Or that it was only about the last mile and not interconnection? Well, if the early petitions and complaints are a preview of more to come, the Open Internet Order may end up having the FCC regulating rates for interconnection and extending the reach of its privacy rules to edge providers.

On Monday, Consumer Watchdog petitioned the FCC to not only apply Customer Proprietary Network Information (CPNI) rules originally meant for telephone companies to ISPs, but to also start a rulemaking to require edge providers to honor Do Not Track requests in order to “promote broadband deployment” under Section 706. Of course, we warned of this possibility in our joint ICLE-TechFreedom legal comments:

For instance, it is not clear why the FCC could not, through Section 706, mandate “network level” copyright enforcement schemes or the DNS blocking that was at the heart of the Stop Online Piracy Act (SOPA). . . Thus, it would appear that Section 706, as re-interpreted by the FCC, would, under the D.C. Circuit’s Verizon decision, allow the FCC sweeping power to regulate the Internet up to and including (but not beyond) the process of “communications” on end-user devices. This could include not only copyright regulation but everything from cybersecurity to privacy to technical standards. (emphasis added).

While the merits of Do Not Track are debatable, it is worth noting that privacy regulation can go too far and actually drastically change the Internet ecosystem. In fact, it is actually a plausible scenario that overregulating data collection online could lead to the greater use of paywalls to access content.  This may actually be a greater threat to Internet Openness than anything ISPs have done.

And then yesterday, the first complaint under the new Open Internet rule was brought against Time Warner Cable by a small streaming video company called Commercial Network Services. According to several news stories, CNS “plans to file a peering complaint against Time Warner Cable under the Federal Communications Commission’s new network-neutrality rules unless the company strikes a free peering deal ASAP.” In other words, CNS is asking for rate regulation for interconnection. Under the Open Internet Order, the FCC can rule on such complaints, but it can only rule on a case-by-case basis. Either TWC assents to free peering, or the FCC intervenes and sets the rate for them, or the FCC dismisses the complaint altogether and pushes such decisions down the road.

This was another predictable development that many critics of the Open Internet Order warned about: there was no way to really avoid rate regulation once the FCC reclassified ISPs. While the FCC could reject this complaint, it is clear that they have the ability to impose de facto rate regulation through case-by-case adjudication. Whether it is rate regulation according to Title II (which the FCC ostensibly didn’t do through forbearance) is beside the point. This will have the same practical economic effects and will be functionally indistinguishable if/when it occurs.

In sum, while neither of these actions were contemplated by the FCC (they claim), such abstract rules are going to lead to random complaints like these, and companies are going to have to use the “ask FCC permission” process to try to figure out beforehand whether they should be investing or whether they’re going to be slammed. As Geoff Manne said in Wired:

That’s right—this new regime, which credits itself with preserving “permissionless innovation,” just put a bullet in its head. It puts innovators on notice, and ensures that the FCC has the authority (if it holds up in court) to enforce its vague rule against whatever it finds objectionable.

I mean, I don’t wanna brag or nothin, but it seems to me that we critics have been right so far. The reclassification of broadband Internet service as Title II has had the (supposedly) unintended consequence of sweeping in far more (both in scope of application and rules) than was supposedly bargained for. Hopefully the FCC rejects the petition and the complaint and reverses this course before it breaks the Internet.

Filed under: administrative, federal communications commission, international center for law & economics, internet, net neutrality, political economy, politics, regulation, technology, telecommunications Tagged: FCC, Federal Communications Commission, internet, net neutrality, Open Internet Order, politics, Time Warner Cable

Filed under: consumer protection, federal communications commission, regulation, technology, telecommunications Tagged: Federal Communications Commission, innovation, regulation, technology

Excerpt

“Net neutrality” sounds like a good idea. It isn’t.

As political slogans go, the phrase net neutrality has been enormously effective, riling up the chattering classes and forcing a sea change in the government’s decades-old hands-off approach to regulating the Internet. But as an organizing principle for the Internet, the concept is dangerously misguided. That is especially true of the particular form of net neutrality regulation proposed in February by Federal Communications Commission (FCC) Chairman Tom Wheeler.

Net neutrality backers traffic in fear. Pushing a suite of suggested interventions, they warn of rapacious cable operators who seek to control online media and other content by “picking winners and losers” on the Internet. They proclaim that regulation is the only way to stave off “fast lanes” that would render your favorite website “invisible” unless it’s one of the corporate-favored. They declare that it will shelter startups, guarantee free expression, and preserve the great, egalitarian “openness” of the Internet.

No decent person, in other words, could be against net neutrality.

In truth, this latest campaign to regulate the Internet is an apt illustration of F.A. Hayek’s famous observation that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Egged on by a bootleggers-and-Baptists coalition of rent-seeking industry groups and corporation-hating progressives (and bolstered by a highly unusual proclamation from the White House), Chairman Wheeler and his staff are attempting to design something they know very little about-not just the sprawling Internet of today, but also the unknowable Internet of tomorrow.

Continue reading at Reason Magazine

Ben Sperry and I have a long piece on net neutrality in the latest issue of Reason Magazine entitled, “How to Break the Internet.” It’s part of a special collection of articles and videos dedicated to the proposition “Don’t Tread on My Internet!”

Reason has put together a great bunch of material, and packaged it in a special retro-designed page that will make you think it’s the 1990s all over again (complete with flaming graphics and dancing Internet babies).

Here’s a taste of our article:

“Net neutrality” sounds like a good idea. It isn’t.

As political slogans go, the phrase net neutrality has been enormously effective, riling up the chattering classes and forcing a sea change in the government’s decades-old hands-off approach to regulating the Internet. But as an organizing principle for the Internet, the concept is dangerously misguided. That is especially true of the particular form of net neutrality regulation proposed in February by Federal Communications Commission (FCC) Chairman Tom Wheeler.

Net neutrality backers traffic in fear. Pushing a suite of suggested interventions, they warn of rapacious cable operators who seek to control online media and other content by “picking winners and losers” on the Internet. They proclaim that regulation is the only way to stave off “fast lanes” that would render your favorite website “invisible” unless it’s one of the corporate-favored. They declare that it will shelter startups, guarantee free expression, and preserve the great, egalitarian “openness” of the Internet.

No decent person, in other words, could be against net neutrality.

In truth, this latest campaign to regulate the Internet is an apt illustration of F.A. Hayek’s famous observation that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Egged on by a bootleggers-and-Baptists coalition of rent-seeking industry groups and corporation-hating progressives (and bolstered by a highly unusual proclamation from the White House), Chairman Wheeler and his staff are attempting to design something they know very little about-not just the sprawling Internet of today, but also the unknowable Internet of tomorrow.

And the rest of the contents of the site are great, as well. Among other things, there’s:

• “Why are Edward Snowden’s supporters so eager to give the government more control over the Internet?” Matt Welch’s  take on the contradictions in the thinking of net neutrality’s biggest advocates.
• “The Feds want a back door into your computer. Again.” Declan McCullagh on the eternal return of government attempts to pre-hack your technology.
• “Uncle Sam wants your Fitbit.” Adam Thierer on the coming clampdown on data coursing through the Internet of Things.
• Mike Godwin on how net neutrality can hurt developing countries most of all.
• “How states are planning to grab tax dollars for online sales,” by Veronique de Rugy
• FCC Commissioner Ajit Pai on why net neutrality is “a solution that won’t work to a problem that simply doesn’t exist.”
• “8 great libertarian apps that make your world a little freer and a whole lot easier to navigate.”

There’s all that, plus enough flaming images and dancing babies to make your eyes bleed. Highly recommended!

Filed under: net neutrality, regulation, technology, telecommunications, television Tagged: ajit pai, internet, net neutrality, reason magazine, regulating the Internet

Excerpt

California’s leaders have worked long and hard to dispel the state’s image as an over-regulated maze for business. In 2012, those efforts culminated in a landmark law, signed by Democratic Gov. Jerry Brown, declaring that the state would not regulate the Internet, preserving the freewheeling innovation and vitality of one the state’s most critical economic drivers.

But now an unelected state official reviewing the Comcast-Time Warner Cable deal has called for sweeping new Internet regulations — under the guise of its review of the transaction — that would render that bipartisan law a dead letter.

If Internet access, speeds and prices can suddenly be mandated by the California Public Utilities Commission (CPUC) under this kind of flimsy pretense, the legislative policy of Internet freedom and deregulation online would no longer exist. Hopefully cooler heads will prevail as the full commission moves forward.

Overall, the CPUC’s proposed decision correctly recognized that the transaction should be approved. That was no great surprise, because Comcast and Time Warner Cable operate in separate markets, it was always clear that the competitive issues raised by this deal were limited and could be readily addressed.

But most of the conditions suggested in the proposed decision have nothing to do with addressing the sort of competitive concerns that the deal might raise. Instead they address broader policy issues that are the province of the Legislature, not an unelected state official supposedly reviewing a single business transaction.

Continue reading at Los Angeles Daily News

 

Excerpt

The line between a “principled change of views” and a “craven flip-flop” is a fine one. But if there were a land-speed record for changing one’s mind, Netflix would have just won it.

A mere four days into the new net neutrality world order it helped to usher in, Netflix was already expressing doubts about the regnant Title II canon. Twitter was agog much of Wednesday with reporters politely noting the absurdity. “Can’t believe that @netflix, the poster child for #Title II, is now saying it really didn’t mean it. WTF,” remarked one journalist.

It’s not an exaggeration to say that Netflix was one of the chief evangelists for an exhaustive net neutrality decree. One of the watershed moments in the debate leading up to the FCC’s vote last Thursday was Netflix’s fervent claim that the strongest possible rules were needed to prevent Internet providers from imposing “online tolls” or discriminating against the video giant’s traffic. With Google sitting out this round, net neutrality activists needed a corporate crusader. They found one in Netflix.
Of course, that inflammatory charge was never actually borne out by the facts. It turns out that Netflix (and its partner, Cogent) was slowing down its own traffic with spurious routing decisions, seemingly tailor-made to create the spectacle it needed to galvanize the faithful. The gambit worked. Disingenuous or not, there’s no disputing that it greatly influenced the outcome, ultimately leading to the passage of the most onerous form of net neutrality rules.

And this isn’t the only case where Netflix is sitting comfortably on both sides of the issue. The company recently announced a new initiative in Australia where one ISP will exempt Netflix traffic from its data limits. That practice — called “zero rating” — isn’t unusual, especially in the developing world, but it raises plenty of hackles among net neutrality disciples.

Continue reading on TheHill.com

Excerpt

The day after the FCC’s net neutrality vote, Washington was downright frigid. I’d spoken at three events about the ruling, mentioning at each that the order could be overturned in court. I was tired and ready to go home.

I could see my Uber at the corner when I felt a hand on my arm. The woman’s face was anxious. “I heard your talk,” she said.“If net neutrality is overturned, will I still be able to Skype with my son in Turkey?”

The question reveals the problem with the supposed four million comments submitted in support of net neutrality. *Almost no one really gets it. *Fewer still understand Title II, the regulatory tool the FCC just invoked to impose its conception of net neutrality on the Internet.

Some internet engineers and innovators do get it. Mark Cuban rightly calls the uncertainty created by Title II a “Whac-a-Mole environment,” driven by political whims. And telecom lawyers? They love it: whatever happens, the inevitable litigation will mean a decade’s worth of job security.

As I’ve said in technically detailed comments, academic coalition letters, papers, and even here at Wired, while “”net neutrality”” sounds like a good idea, it isn’t. And reclassifying the internet under Title II, an antiquated set of laws repurposed in the 1930s for Ma Bell, is the worst way to regulate dynamic digital services.

Continue reading on WIRED.com

 

On February 13 an administrative law judge (ALJ) at the California Public Utility Commission (CPUC) issued a proposed decision regarding the Comcast/Time Warner Cable (TWC) merger. The proposed decision recommends that the CPUC approve the merger with conditions.

It’s laudable that the ALJ acknowledges at least some of the competitive merits of the proposed deal. But the set of conditions that the proposed decision would impose on the combined company in order to complete the merger represents a remarkable set of unauthorized regulations that are both inappropriate for the deal and at odds with California’s legislated approach to regulation of the Internet.

According to the proposed decision, every condition it imposes is aimed at mitigating a presumed harm arising from the merger:

The Applicants must meet the conditions adopted herein in order to provide reasonable assurance that the proposed transaction will be in the public interest in accordance with Pub. Util. Code § 854(a) and (c).… We only adopt conditions which mitigate an effect of the merger in order to satisfy the public interest requirements of § 854.

By any reasonable interpretation, this would mean that the CPUC can adopt only those conditions that address specific public interest concerns arising from the deal itself. But most of the conditions in the proposed decision fail this basic test and seem designed to address broader social policy issues that have nothing to do with the alleged competitive effects of the deal.

Instead, without undertaking an analysis of the merger’s competitive effects, the proposed decision effectively accepts that the merger serves the public interest, while also simply accepting the assertions of the merger’s opponents that it doesn’t. In the name of squaring that circle, the proposed decision seeks to permit the merger to proceed, but then seeks to force the post-merger company to conform to the merger’s critics’ rather arbitrary view of their preferred market structure for the provision of cable broadband services in California.

For something — say, a merger — to be in the public interest, it need not further every conceivable public interest goal. This is a perversion of the standard, and it turns “public interest” into an unconstrained license to impose a regulatory wish-list on particular actors, outside of the scope of usual regulatory processes.

While a few people may have no problem with the proposed decision’s expansive vision of Internet access regulation, California governor Jerry Brown and the overwhelming majority of the California state legislature cannot be counted among the supporters of this approach.

In 2012 the state legislature passed by an overwhelming margin — and Governor Brown signed — SB 1161 (codified as Section 710 of the California Public Utilities Code), which expressly prohibits the CPUC from regulating broadband:

The commission shall not exercise regulatory jurisdiction or control over Voice over Internet Protocol and Internet Protocol enabled services except as required or expressly delegated by federal law or expressly directed to do so by statute or as set forth in [certain enumerated exceptions].”

The message is clear: The CPUC should not try to bypass clear state law and all institutional safeguards by misusing the merger clearance process.

While bipartisan majorities in the state house, supported by a Democratic governor, have stopped the CPUC from imposing new regulations on Internet and VoIP services through SB 1161, the proposed decision seeks to impose regulations through merger conditions that go far beyond anything permitted by this state law.

For instance, the proposed decision seeks to impose arbitrary retail price controls on broadband access:

Comcast shall offer to all customers of the merged companies, for a period of five years following the effective date of the parent company merger, the opportunity to purchase stand-alone broadband Internet service at a price not to exceed the price charged by Time Warner for providing that service to its customers, and at speeds, prices, and terms, at least comparable to that offered by Time Warner prior to the merger’s closing.

And the proposed decision seeks to mandate market structure in other insidious ways, as well, mandating specific broadband speeds, requiring a break-neck geographic expansion of Comcast’s service area, and dictating installation and service times, among other things — all without regard to the actual plausibility (or cost) of implementing such requirements.

But the problem is even more acute. Not only does the proposed decision seek to regulate Internet access issues irrelevant to the merger, it also proposes to impose conditions that would actually undermine competition.

The proposed decision would impose the following conditions on Comcast’s business VoIP and business Internet services:

Comcast shall offer Time Warner’s Business Calling Plan with Stand Alone Internet Access to interested CLECs throughout the combined service territories of the merging companies for a period of five years from the effective date of the parent company merger at existing prices, terms and conditions.

Comcast shall offer Time Warner’s Carrier Ethernet Last Mile Access product to interested CLECs throughout the combined service territories of the merging companies for a period of five years from the effective date of the parent company at the same prices, terms and conditions as offered by Time Warner prior to the merger.

But the proposed decision fails to recognize that Comcast is an also-ran in the business service market. Last year it served a small fraction of the business customers served by AT&T and Verizon, who have long dominated the business services market:

According to a Sept. 2011 ComScore survey, AT&T and Verizon had the largest market shares of all business services ISPs. AT&T held 20% of market share and Verizon held 12%. Comcast ranked 6^th, with 5% of market share.

The proposed conditions would hamstring the upstart challenger Comcast by removing both product and pricing flexibility for five years – an eternity in rapidly evolving technology markets. That’s a sure-fire way to minimize competition, not promote it.

The proposed decision reiterates several times its concern that the combined Comcast/Time Warner Cable will serve more than 80% of California households, and “reduce[] the possibilities for content providers to reach the California broadband market.” The alleged concern is that the combined company could exercise anticompetitive market power — imposing artificially high fees for carrying content or degrading service of unaffiliated content and services.

The problem is Comcast and TWC don’t compete anywhere in California today, and they face competition from other providers everywhere they operate. As the decision matter-of-factly states:

Comcast and Time Warner do not compete with one another… [and] Comcast and Time Warner compete with other providers of Internet access services in their respective service territories.

As a result, the merger will actually have no effect on the number of competitive choices in the state; the increase in the statewide market share as a result of the deal is irrelevant. And so these purported competition concerns can’t be the basis for any conditions, let alone the sweeping ones set out in the proposed decision.

The stated concern about content providers finding it difficult to reach Californians is a red herring: the post-merger Comcast geographic footprint will be exactly the same as the combined, pre-merger Comcast/TWC/Charter footprint. Content providers will be able to access just as many Californians (and with greater speeds) as before the merger.

True, content providers that just want to reach some number of random Californians may have to reach more of them through Comcast than they would have before the merger. But what content provider just wants to reach some number of Californians in the first place? Moreover, this fundamentally misstates the way the Internet works: it is users who reach the content they prefer; not the other way around. And, once again, for literally every consumer in the state, the number of available options for doing so won’t change one iota following the merger.

Nothing shows more clearly how the proposed decision has strayed from responding to merger concerns to addressing broader social policy issues than the conditions aimed at expanding low-price broadband offerings for underserved households. Among other things, the proposed conditions dramatically increase the size and scope of Comcast’s Internet Essentials program, converting this laudable effort from a targeted program (that uses a host of tools to connect families where a child is eligible for the National School Lunch Program to the Internet) into one that must serve all low-income adults.

Putting aside the damage this would do to the core Internet Essentials’ mission of connecting school age children by diverting resources from the program’s central purpose, it is manifestly outside the scope of the CPUC’s review. Nothing in the deal affects the number of adults (or children, for that matter) in California without broadband.

It’s possible, of course, that Comcast might implement something like an expanded Internet Essentials program without any prodding; after all, companies implement (and expand) such programs all the time. But why on earth should regulators be able to define such an obligation arbitrarily, and to impose it on whatever ISP happens to be asking for a license transfer? That arbitrariness creates precisely the sort of business uncertainty that SB 1161 was meant to prevent.

The same thing applies to the proposed decision’s requirement regarding school and library broadband connectivity:

Comcast shall connect and/or upgrade Internet infrastructure for K-12 schools and public libraries in unserved and underserved areas in Comcast’s combined California service territory so that it is providing high speed Internet to at least the same proportion of K-12 schools and public libraries in such unserved and underserved areas as it provides to the households in its service territory.

No doubt improving school and library infrastructure is a noble goal — and there’s even a large federal subsidy program (E-Rate) devoted to it. But insisting that Comcast do so — and do so to an extent unsupported by the underlying federal subsidy program already connecting such institutions, and in contravention of existing provider contracts with schools — as a condition of the merger is simple extortion.

The CPUC is treating the proposed merger like a free-for-all, imposing in the name of the “public interest” a set of conditions that it would never be permitted to impose absent the gun-to-the-head of merger approval. Moreover, it seeks to remake California’s broadband access landscape in a fashion that would likely never materialize in the natural course of competition: If the merger doesn’t go through, none of the conditions in the proposed decision and alleged to be necessary to protect the public interest will exist.

Far from trying to ensure that Comcast’s merger with TWC doesn’t erode competitive forces to the detriment of the public, the proposed decision is trying to micromanage the market, simply asserting that the public interest demands imposition of it’s subjective and arbitrary laundry list of preferred items. This isn’t sensible regulation, it isn’t compliant with state law, and it doesn’t serve the people of California.

Filed under: antitrust, law and economics, mergers & acquisitions, regulation, technology, telecommunications Tagged: Broadband, broadband Internet service, California, California governor Jerry Brown, California Public Utility Commission, Comcast, CPUC, merger, public interest, SB 1161, Time Warner Cable