On Monday the DC Circuit hears oral argument in Verizon v. FCC – the case challenging the FCC’s Open Internet Order.

Following the oral argument I’ll be participating in two events discussing the case.

Read the full piece here. 

My new FSF Perspectives piece, Let Them Eat Cake and Watch Netflix, was published today. This piece explores a tension in Susan Crawford’s recent Wired commentary on Pew’s 2013 Broadband Report.

I excerpt from the piece below. You can (and, I daresay, should!) read the whole thing here.

In her piece, after noting the persistence of the digital divide, Crawford turns to her critique of both Pew’s and the FCC’s definition of “high-speed internet” – 4 Mbps down/1 Mbps up – and the inclusion of mobile Internet access in these measurements. She argues that this definition … is too slow. What if you wanted to watch two HD quality videos at once over a single connection? […]

But the digital divide isn’t about people today not being able to watch movies on Netflix. And it’s definitely not about people today not being able to use future service that may or may not require the sort of infrastructure Crawford wants the government to build. […] It’s about the (very real) concern that, as civic and democratic institutions increasingly migrate online, those without basic Internet access or knowledge will be locked out of a vital civic and democratic forum. […]

None of [applications central to concerns about the digital divide] require bandwidth sufficient to stream high-quality video. Indeed, none of them should require such capacity. Another very real concern related to the digital divide is that various groups with disabilities – the deaf and blind, for instance – are already unable to avail themselves of these online forums because they rely too much on sophisticated multimedia formats to provide basic information. […]

I would suggest that a better target for Crawford’s efforts – if she is really concerned about lessening the digital divide (and I do fully believe that her convictions are well meaning and sincere) – would be to advocate for government institutions and other civic and democratic forums to develop online applications that do not require high-speed broadband connections. […]

In a world where consumers perceive a non-zero marginal cost for incremental bandwidth consumption – perhaps, as an example, a world with consumer bandwidth caps – there would be consumer demand for lower-bandwidth versions of websites and other Internet services. Rather than ratcheting bandwidth requirements consistently up – increasing the size of the digital divide – the self-interested decisions of consumers on the fortunate side of that divide could actually help shrink that divide. […]

The tragic thing (though, to economists, not surprising) about demands that the Internet economy disobey laws of supply and demand, that Internet providers offer consumers a service unconstrained by scarcity, is that such demands create the Internet-equivalent of bread lines. They are, in fact, the wedge that widens the digital divide.

Filed under: federal communications commission, law and economics, markets, net neutrality, regulation, telecommunications Tagged: bandwidth caps, Crawford, digital divide, FCC, net neutrality

Summary

This article assesses the FCC’s current policies and rules regarding transaction reviews, concluding that the Commission’s current spectrum transfer review process harms consumer welfare. In particular, the FCC’s spectrum screen as currently structured, its standard of review for spectrum transfers, its use of conditions, as well as the scope of its transaction reviews exceed legal limits, impede efficient markets for spectrum, and deter welfare-increasing transactions and investment.

First we explain the FCC’s current policies and decisions regarding transaction reviews and assess their appropriateness with respect to the Commission’s authorizing legislation, regulations and case law. With respect to the scope of its transaction reviews and its use of conditions in particular, we find that the FCC’s practices exceed their permissible limits.

Next we address the economics of the FCC’s policies and decisions, explaining and assessing the animating economic logic behind the FCC’s actions. We demonstrate that the FCC’s current spectrum screen and transaction review standards rest on the premise that spectrum concentration in markets inherently leads to anticompetitive behavior. Further, we explain the flaws in this premise.

In demonstrating and assessing the basis of the FCC’s transaction reviews, we discuss the particulars of the FCC’s spectrum screen in detail, focusing on its use of concentration metrics and claims that its full analysis (beyond the initial screen) investigates competitive conditions more broadly. As we discuss, the Commission uses HHIs and spectrum concentration measures improperly as de facto triggers for per se illegality, rather than triggers for further investigation. Further, none of the full analyses described by the Commission investigates an aspect of competition other than market or spectrum concentration; instead, they simply restate in more detail the structural analysis implied by the HHI test and spectrum screen.

Addressing the economics underlying the FCC’s actions, we demonstrate that both economic theory and evidence indicate that the presence of more competitors in telecommunications markets does not necessarily result in lower prices and better service for consumers. Particularly in industries (like wireless) that are characterized by rapid technological change, non-horizontal competitive constraints and shifting consumer demand, the threat of entry and the need for repeated contracts with input providers with market power operate to constrain strategic behavior, even in heavily concentrated markets.

The welfare effects of spectrum concentration are at worst ambiguous, and, as we demonstrate, as the market has grown more concentrated, investment, coverage and product diversity have increased while prices for consumers have decreased. These results are consistent with a more robust model of firm behavior in the industry that takes account of entry threats and technological change.

Next we undertake a detailed critique of the FCC staff’s analysis of the AT&T/T-Mobile merger, demonstrating that it exhibits the same flaws as the agency’s more cursory transaction reviews.

We conclude with a discussion of the policy implications and suggestions for reform.

 

Summary

“Today’s video marketplace is shaped by a byzantine set of rules from a bygone era. In the 1990s, cable was as mighty as the Byzantines themselves were at the height of their power: Cable’s control over the single physical conduit to the home gave cable providers gatekeeper power over video programming, much as the Byzantines’ control over the Eastern Mediterranean gave them control over commerce.

But cable today is simply one of several competing conduits for video programming distribution. Today’s regulations were intended to prevent cable from thwarting the rise of satellite DBS service. They have succeeded: Virtually the entire country has access to the two primary DBS providers in addition to a cable provider. Meanwhile, telcos like AT&T and Verizon have offered a fourth alternative to cable in a third of the country. Even more importantly, the MVPD paradigm is increasingly being challenged by consumers either switching to an OVD like Netflix, Hulu or Amazon (“cord-cutting”) or cutting back on their MVPD subscription and relying, in part, on an OVD (“cord-shaving”)….”

“Rather that continuing to try to tweak the laws of a bygone era, Congress should embrace the default tool for dealing with market power across the economy: antitrust law. Properly applied, antitrust is perfectly capable of governing a market in which programmers have clear property rights for their content. Indeed, antitrust is the best tool for policing market power in evolving (if not perfectly competitive) markets, to ensure that distributors with market power do not use their power to harm consumers, while recognizing the benefits that come from experimentation in new ways and business models for delivering video content to consumers….”

Summary

AT&T’s petition presents the FCC with a stark choice: Bootstrap the regulations of a dying 20th century technology platform onto the networks of the future, to ever-diminishing consumer benefits, or take the lead in coordinating the transition to “Internet Everywhere”—Internet analyst Larry Downes’ term for a single IP-based networking standard built into all next-generation infrastructure and equipment.

A wide range of disparate, private wired and wireless networks using a variety of different hardware and software protocols are now converging on native IP technologies—sometimes by accident but increasingly by design. Once doubted, IP has now been embraced by traditional wireline, mobile, cable and satellite providers, as well as incumbent and next-generation content providers. Data, voice, and video are all converging onto a single standard, available wherever and whenever consumers want it. Internet Everywhere in the near future is within our grasp—if only the Commission does what is necessary to allow and encourage it.

While we believe the FCC has a crucial, long-term role to play in shepherding the IP Transition, as outlined in TechFreedom’s Comment, this Reply Comment argues that the FCC should resist the urging of many commenters in this docket to erect regulatory barriers, however well-meaning, to protect consumers from harms that have not materialized and are unlikely ever to do so.

Instead, the Commission should adopt a clear program to facilitate the successful transition to an all-IP network by ensuring that it is unencumbered by inappropriate, legacy regulations. To start, the FCC should approve AT&T’s petition. While the resulting trials are carried out, the agency should move to identify a date certain for concluding the IP Transition. And at the same time, the agency should make clear its intention to refrain from applying interconnection mandates and the apparatus of Title II to the IP network, thereby preempting conflicting state regulations that would otherwise derail the agency’s efforts.

Summary

“AT&T’s petition presents the FCC with a stark choice: Bootstrap the regulations of a dying 20th
century technology platform onto the networks of the future, to ever-diminishing consumer
benefits, or take the lead in coordinating the transition to “Internet Everywhere”—Internet analyst
Larry Downes’ term for a single IP-based networking standard built into all next-generation
infrastructure and equipment. “

As Democrats insist that income taxes on the 1% must go up in the name of fairness, one Democratic Senator wants to make sure that the 1% of heaviest Internet users pay the same price as the rest of us. It’s ironic how confused social justice gets when the Internet’s involved.

Read the full piece here.

Some of the most significant transactions singled out recently for intensive federal review involve the communications industry. Unfortunately, communications providers face serious and potentially fatal problems of supply. Radio spectrum — the chief input and most severe constraint on the ability of carriers to support more users and more data — is essentially unavailable at any price. That’s because the Federal Communications Commission has run out of usable, unassigned spectrum to license. As consumers pull orders of magnitude more data to their smartphones, tablets, and notebook computers, carriers are becoming desperate. Network operators, already experiencing what the FCC warned in 2010 as an imminent “spectrum crunch,” have little choice but to acquire spectrum assets from other mobile operators, whose licenses can be put to immediate use once the agency approves the transfer. They have been doing so as quickly as possible, attempting or completing over a dozen major transactions since 2007. But as the urgency of spectrum-related transactions has increased, the FCC has come to play an increasingly problematic — and largely unstructured — role in the government’s review of transactions in the communications industry. This brief essay discusses the key problems with the FCC’s current approach to transactions involving spectrum license transfers.

“Real lawyers read the footnotes!”—thus did Harold Feld chastise Geoff and Berin in a recent blog post about our CNET piece on the Verizon/SpectrumCo transaction. We argued, as did Commissioner Pai in his concurrence, that the FCC provided no legal basis for its claims of authority to review the Commercial Agreements that accompanied Verizon’s purchase of spectrum licenses—and that these agreements for joint marketing, etc. were properly subject only to DOJ review (under antitrust).

Read the full piece here.