Excerpt

Meet iHolo. This innovative (though hypothetical) startup sells a tiny cube that hooks into smartphones and projects a holographic image above the screen. Now we can see actual 3D holographic characters and movie explosions, hovering right in front of us! There’s just one problem: “Holovids” require an incredibly fast connection, and tons of bandwidth. The typical smartphone user has neither the speed nor the data capacity to use the new technology: after extended buffering waiting for the holovid to load, a user would exhaust his data plan within minutes.

Worried that users won’t materialize, iHolo offers a deal to the big wireless carriers: To any carrier that will boost the speed of iHolo customers and exempt iHolo material from users’ data caps, iHolo will sell a minority interest in its fledgling company.

It’s a potential win-win. iHolo gets access to much-needed capital, boosts demand for its product, and gains the stability that comes from having a big backer. That institutional support would mollify investors who would otherwise be wary of betting on an unproven technology. The carrier could differentiate itself in the wireless market, and the two companies could work together to figure out how to stream holovids efficiently.What’s not to love? Well, the business model that could make this innovation possible isn’t “neutral.” It could be banned if Net neutrality hardliners get their way.

Net neutrality — the idea that all data should be treated the same as it zips over the Internet — sounds appealing in principle. Who wouldn’t want every competitor to have a fair shot, and for the best ideas to rise to the top? But in practice, rigid Net neutrality regulation could cripple the potential business arrangements that help launch new companies.

Continue reading on Computer World

In the 2014 Open Internet NPRM, the Commission began the process of closing the gap created by the Verizon decision, which left no legally enforceable rules for the Commission to prevent broadband providers from acting to limit Internet openness. The2014 Open Internet NPRM sought broad public comment on how the Commission should ensure that the Internet remains open, and proposed new rules and enhancements to current rules.

To further develop our understanding of the issues, the Commission is hosting a series of staff-led Open Internet Roundtable Discussions that are free and open to the public. The Open Internet Roundtable Discussions provide an opportunity for the Commission staff and interested parties to further examine the actions the Commission should take for its goal of determining the best approach to protecting and promoting Internet openness.

The roundtable discussions will focus on public policy considerations and how they should be addressed to protect and promote Internet openness in both the fixed and mobile markets; the technological considerations involved in protecting the open Internet; how the competitive landscape and the economics of providing broadband and online services affects Internet openness; how the Commission can effectively enforce the current and proposed open Internet requirements; and the various legal theories underlying possible Commission actions in this area.

Roundtable 3: Enhancing Transparency
This roundtable will consider proposed enhancements to the existing transparency rule, which currently requires providers of broadband Internet access services to disclose accurate information about their service offerings and make this information accessible to the public.

Click here to view the roundtable

Excerpt

Google made headlines this month when the tech giant agreed to pay $19 million to settle Federal Trade Commission charges that the company had made it too easy for children to make unauthorized purchases in the Android app store. That wasn’t all: The FTC effectively gave itself the right to oversee Google’s app-store design decisions for the next two decades. This is the latest in a series of legal settlements that threaten to hobble innovation in the fast-paced technology industry.

In 2011 the FTC began investigating Google’s “in-app purchases,” which are transactions a user makes on a smartphone while, say, playing a game. Children’s apps sometimes have in-app purchase options such as buying gold coins to reach the next level of a game. The FTC accused Google of not properly warning parents that children could run up a bill for such in-app purchases, although since 2012 Google has required a password to do so.

The agency claims the authority to second-guess product-design decisions under Section 5 of the 1914 Federal Trade Commission Act. The FTC may deem a product design “unfair” if it causes “substantial injury” to consumers that cannot reasonably be avoided. One caveat: The FTC by law must show that the consumer harm outweighs the design’s countervailing benefits.

When the FTC files a complaint, companies often settle out of court to avoid expensive legal hassle and prolonged public exposure. But under Section 5, the FTC has especially broad discretion to decide what practices are “unfair.” And because nearly all high-tech enforcement actions end in settlements, there is almost no case law to rein in the agency.

Continue reading on WSJ.com

 

Summary

“Any new rules issued by the Commission should not be based on Title II. For the reasons we explained in our comments, we believe re-opening Title II would be a disaster in ways that Title II proponents do not seem to understand – or, at least, have not been willing to seriously discuss.”

“First, subjecting broadband to Title II would not even allow the FCC to do the one thing the D.C. Circuit’s Verizon decision clearly bars the FCC from doing under Section 706: banning “paid prioritization.”…Second, the Commission cannot simply “reclassify” broadband in the sense that that term has been used by Title II proponents; the FCC can only re-open the interpretation of the key definitions of the 1996 Telecommunications Act…Third, Title II proponents invariably assert that any problems created by Title II can be solved by the FCC
through various forbearance proceedings…”

PayPal co-founder Peter Thiel has a terrific essay in the Review section of today’s Wall Street Journal.  The essay, Competition Is for Losers, is adapted from Mr. Thiel’s soon-to-be-released book, Zero to One: Notes on Startups, or How to Build the Future.  Based on the title of the book, I assume it is primarily a how-to guide for entrepreneurs.  But if the rest of the book is anything like the essay in today’s Journal, it will also offer lots of guidance to policy makers–antitrust officials in particular.

Read the full piece here. 

Acentury ago Congress enacted the Clayton Act, which prohibits acquisitions that may substantially lessen competition. For years, the antitrust enforcement Agencies looked at only one part of the ledger – the potential for price increases. Agencies didn’t take into account the potential efficiencies in cost savings, better products, services, and innovation. One of the major reforms of the Clinton Administration was to fully incorporate efficiencies in merger analysis, helping to develop sound enforcement standards for the 21st Century.

Read the full piece here.

The free market position on telecom reform has become rather confused of late. Erstwhile conservative Senator Thune is now cosponsoring a version of Senator Rockefeller’s previously proposed video reform bill, bundled into satellite legislation (the Satellite Television Access and Viewer Rights Act or “STAVRA”) that would also include a provision dubbed “Local Choice.” Some free marketeers have defended the bill as a step in the right direction.

Although it looks as if the proposal may be losing steam this Congress, the legislation has been described as a “big and bold idea,” and it’s by no means off the menu. But it should be.

It has been said that politics makes for strange bedfellows. Indeed, people who disagree on just about everything can sometimes unite around a common perceived enemy. Take carriage disputes, for instance. Perhaps because, for some people, a day without The Bachelor is simply a day lost, an unlikely alliance of pro-regulation activists like Public Knowledge and industry stalwarts like Dish has emerged to oppose the ability of copyright holders to withhold content as part of carriage negotiations.

Senator Rockefeller’s Online Video Bill was the catalyst for the Local Choice amendments to STAVRA. Rockefeller’s bill did, well, a lot of terrible things, from imposing certain net neutrality requirements, to overturning the Supreme Court’s Aereo decision, to adding even more complications to the already Byzantine morass of video programming regulations.

But putting Senator Thune’s lipstick on Rockefeller’s pig can’t save the bill, and some of the worst problems from Senator Rockefeller’s original proposal remain.

Among other things, the new bill is designed to weaken the ability of copyright owners to negotiate with distributors, most notably by taking away their ability to withhold content during carriage disputes and by forcing TV stations to sell content on an a la carte basis.

Video distribution issues are complicated — at least under current law. But at root these are just commercial contracts and, like any contracts, they rely on a couple of fundamental principles.

First is the basic property right. The Supreme Court (at least somewhat) settled this for now (in Aereo), by protecting the right of copyright holders to be compensated for carriage of their content. With this baseline, distributors must engage in negotiations to obtain content, rather than employing technological workarounds and exploiting legal loopholes.

Second is the related ability of contracts to govern the terms of trade. A property right isn’t worth much if its owner can’t control how it is used, governed or exchanged.

Finally, and derived from these, is the issue of bargaining power. Good-faith negotiations require both sides not to act strategically by intentionally causing negotiations to break down. But if negotiations do break down, parties need to be able to protect their rights. When content owners are not able to withhold content in carriage disputes, they are put in an untenable bargaining position. This invites bad faith negotiations by distributors.

The STAVRA/Local Choice proposal would undermine the property rights and freedom of contract that bring The Bachelor to your TV, and the proposed bill does real damage by curtailing the scope of the property right in TV programming and restricting the range of contracts available for networks to license their content.

The bill would require that essentially all broadcast stations that elect retrans make their content available a la carte — thus unbundling some of the proverbial sticks that make up the traditional property right. It would also establish MVPD pass-through of each local affiliate. Subscribers would pay a fee determined by the affiliate, and the station must be offered on an unbundled basis, without any minimum tier required – meaning an MVPD has to offer local stations to its customers with no markup, on an a la carte basis, if the station doesn’t elect must-carry. It would also direct the FCC to open a rulemaking to determine whether broadcasters should be prohibited from withholding their content online during a dispute with an MPVD.

“Free market” supporters of the bill assert something like “if we don’t do this to stop blackouts, we won’t be able to stem the tide of regulation of broadcasters.” Presumably this would end blackouts of broadcast programming: If you’re an MVPD subscriber, and you pay the $1.40 (or whatever) for CBS, you get it, period. The broadcaster sets an annual per-subscriber rate; MVPDs pass it on and retransmit only to subscribers who opt in.

But none of this is good for consumers.

When transaction costs are positive, negotiations sometimes break down. If the original right is placed in the wrong hands, then contracting may not assure the most efficient outcome. I think it was Coase who said that.

But taking away the ability of content owners to restrict access to their content during a bargaining dispute effectively places the right to content in the hands of distributors. Obviously, this change in bargaining position will depress the value of content. Placing the rights in the hands of distributors reduces the incentive to create content in the first place; this is why the law protects copyright to begin with. But it also reduces the ability of content owners and distributors to reach innovative agreements and contractual arrangements (like certain promotional deals) that benefit consumers, distributors and content owners alike.

The mandating of a la carte licensing doesn’t benefit consumers, either. Bundling is generally pro-competitive and actually gives consumers more content than they would otherwise have. The bill’s proposal to force programmers to sell content to consumers a la carte may actually lead to higher overall prices for less content. Not much of a bargain.

There are plenty of other ways this is bad for consumers, even if it narrowly “protects” them from blackouts. For example, the bill would prohibit a network from making a deal with an MVPD that provides a discount on a bundle including carriage of both its owned broadcast stations as well as the network’s affiliated cable programming. This is not a worthwhile — or free market — trade-off; it is an ill-advised and economically indefensible attack on vertical distribution arrangements — exactly the same thing that animates many net neutrality defenders.

Just as net neutrality’s meddling in commercial arrangements between ISPs and edge providers will ensure a host of unintended consequences, so will the Rockefeller/Thune bill foreclose a host of welfare-increasing deals. In the end, in exchange for never having to go three days without CBS content, the bill will make that content more expensive, limit the range of programming offered, and lock video distribution into a prescribed business model.

Former FCC Commissioner Rob McDowell sees the same hypocritical connection between net neutrality and broadcast regulation like the Local Choice bill:

According to comments filed with the FCC by Time Warner Cable and the National Cable and Telecommunications Association, broadcasters should not be allowed to take down or withhold the content they produce and own from online distribution even if subscribers have not paid for it—as a matter of federal law. In other words, edge providers should be forced to stream their online content no matter what. Such an overreach, of course, would lay waste to the economics of the Internet. It would also violate the First Amendment’s prohibition against state-mandated, or forced, speech—the flip side of censorship.

It is possible that the cable companies figure that subjecting powerful broadcasters to anti-free speech rules will shift the political momentum in the FCC and among the public away from net neutrality. But cable’s anti-free speech arguments play right into the hands of the net-neutrality crowd. They want to place the entire Internet ecosystem, physical networks, content and apps, in the hands of federal bureaucrats.

While cable providers have generally opposed net neutrality regulation, there is, apparently, some support among them for regulations that would apply to the edge. The Rockefeller/Thune proposal is just a replay of this constraint — this time by forcing programmers to allow retransmission of broadcast content under terms set by Congress. While “what’s good for the goose is good for the gander” sounds appealing in theory, here it is simply doubling down on a terrible idea.

What it reveals most of all is that true neutrality advocates don’t want government control to be limited to ISPs — rather, progressives like Rockefeller (and apparently some conservatives, like Thune) want to subject the whole apparatus — distribution and content alike — to intrusive government oversight in order to “protect” consumers (a point Fred Campbell deftly expands upon here and here).

You can be sure that, if the GOP supports broadcast a la carte, it will pave the way for Democrats (and moderates like McCain who back a la carte) to expand anti-consumer unbundling requirements to cable next. Nearly every economic analysis has concluded that mandated a la carte pricing of cable programming would be harmful to consumers. There is no reason to think that applying it to broadcast channels would be any different.

What’s more, the logical extension of the bill is to apply unbundling to all MVPD channels and to saddle them with contract restraints, as well — and while we’re at it, why not unbundle House of Cards from Orange is the New Black? The Rockefeller bill may have started in part as an effort to “protect” OVDs, but there’ll be no limiting this camel once its nose is under the tent. Like it or not, channel unbundling is arbitrary — why not unbundle by program, episode, studio, production company, etc.?

There is simply no principled basis for the restraints in this bill, and thus there will be no limit to its reach. Indeed, “free market” defenders of the Rockefeller/Thune approach may well be supporting a bill that ultimately leads to something like compulsory, a la carte licensing of all video programming. As I noted in my testimony last year before the House Commerce Committee on the satellite video bill:

Unless we are prepared to bear the consumer harm from reduced variety, weakened competition and possibly even higher prices (and absolutely higher prices for some content), there is no economic justification for interfering in these business decisions.

So much for property rights — and so much for vibrant video programming.

That there is something wrong with the current system is evident to anyone who looks at it. As Gus Hurwitz noted in recent testimony on Rockefeller’s original bill,

The problems with the existing regulatory regime cannot be understated. It involves multiple statutes implemented by multiple agencies to govern technologies developed in the 60s, 70s, and 80s, according to policy goals from the 50s, 60s, and 70s. We are no longer living in a world where the Rube Goldberg of compulsory licenses, must carry and retransmission consent, financial interest and syndication exclusivity rules, and the panoply of Federal, state, and local regulations makes sense – yet these are the rules that govern the video industry.

While video regulation is in need of reform, this bill is not an improvement. In the short run it may ameliorate some carriage disputes, but it will do so at the expense of continued programming vibrancy and distribution innovations. The better way to effect change would be to abolish the Byzantine regulations that simultaneously attempt to place thumbs of both sides of the scale, and to rely on free market negotiations with a copyright baseline and antitrust review for actual abuses.

But STAVRA/Local Choice is about as far from that as you can get.

Cross-posted from Truth on the Market

The Wall Street Journal dropped an FCC bombshell last week, although I’m not sure anyone noticed. In an article ostensibly about the possible role that MFNs might play in the Comcast/Time-Warner Cable merger, the Journal noted that…

Read the full piece here.

Excerpt

At the beginning of this millennium, two tech giants, Microsoft Inc. and Sun Microsystems, Inc., waged a savage, seven-year war. Their patent infringement lawsuits and countersuits squandered hundreds of millions of dollars, dominated headlines, and consumed the time and attention of leaders at both companies.

It wasn’t until 2004 that the two companies reached a settlement. At the time, that agreement was heralded by chief executives at both companies as a win for consumers; it would finally shift focus from their legal squabbling to the production and delivery of new, more collaborative products.

But by then, some would argue, the damage was done.

Roll film forward to the mobile device industry of today. Key players, currently embroiled in seemingly endless patent litigation, risk putting their legal battles ahead of the ceaseless innovation required to compete in a dynamic global market. Observers, tired of the bloody charade and hungry for novelty, call out for patent reform to weaken patents and end the infighting.

But the real solution is more nuanced.

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