Adam Thierer's Blog, page 86

The Troubling Persistence of Policy Clichés

A cable TV monopoly is imminent and high prices loom, at least as far as the Associated Press is concerned.

That was the angle of a widely syndicated AP story last week reporting that in the second quarter of this year, landline phone companies lost broadband subscribers while cable companies gained market share.

Beneath the lead, Peter Svensson, AP technology reporter, wrote:

The flow of subscribers from phone companies to cable providers could lead to a de facto monopoly on broadband in many areas of the U.S., say industry watchers. That could mean a lack of choice and higher prices.

In the news business, the second graph is usually referred to as the “nut” graph. It encapsulates the significance of the story, that is, why it’s news.

It’s interesting that Svensson, with either support or input from his editors, jumped on the “de facto” monopoly angle. There could be any number of reasons why cable broadband is outpacing telco DSL, beginning with superior speed (to be fair, an aspect noted in the lead).

However, AP defaulted to the clichéd narrative that the telecom, Internet and media technology markets inevitably bend toward monopoly (see here, here, here and here for just as a sample). Moreover, that the money quote came from Susan Crawford, President Obama’s former special assistant for science, technology and innovation policy, and a vocal advocate of broad industry regulation, was all the more reason it should have been countered with some acknowledgement of the growing data on how consumer behavior is changing when it comes to TV viewing. Arguably, at least, the cable companies, far from heading toward monopoly, are sailing into competitive headwinds stirred up by video on demand services such as Netflix, Hulu and iTunes.

What numbers does AP base its monopoly supposition on? Their own tally from separate phone company reports finds that the eight largest phone companies in the U.S. collectively lost 70,000 broadband subscribers between April and June. Meanwhile, the top four public cable companies reported a gain of 290,000 subscribers. Assuming most of the 70,000 the telcos lost was DSL-to-cable churn, that still leaves cable with a net gain of 220,000 broadband subscribers (although some likely switched from satellite). So another way to read these numbers is that U.S. broadband subscriptions increased by nearly a quarter-million households in the second quarter. Too much of a smiley face? OK.

Then consider this:

Balancing the AP’s reporting of cable dominance is the Convergence Consulting Group’s finding that between 2008 and 2011 2.65 million people have dropped cable entirely in favor of alternative methods. Separate research from Nielsen tracked with this, finding that the number of households paying a multichannel provider last year declined by 1.5 million, which suggests the rate of cord-cutting is increasing.

In an excellent analysis of these trends, Engadget’s Brad Hill, no fan of cable, looks at how the cable companies are slowly getting boxed in between the on-demand alternatives and their traditional tiered pricing model, which day-by-day appears less and less price-competitive.

My purpose here has not been to pile on AP’s or the mainstream media’s technology reporting. But the danger in defaulting to the monopoly angle reinforces erroneous perceptions that persist in policy circles. I can’t predict how it’s going to turn out, but if consumers are to be served, broadband providers, as well as companies in any other segment of the digital economy, need the freedom to respond to market conditions. Regulations that restrain now-competitive companies as if they were once-and-future monopolies is not going to promote innovation. If progress is to be made on broadband policy that truly benefits consumers, lawmakers and regulators have approach the industry as it exists today—not as it was one, three, five or ten years ago. I’ll be the first to say legacy perceptions are hard to dismiss. But responsible reporting and analysis contributes to greater clarity and does not reinforce outdated notions.

 

Fred Campbell on broadband deployment

Fred Campbell, director of the Competitive Enterprise Institute’s Communications Liberty and Innovation Project and adjunct professor of Law at the University of Nebraska, discusses the deployment of broadband in the United States. ISPs such as Verizon and AT&T; have had difficulty rolling out their fiber networks due to regulatory barriers that are legacies from past technological eras, says Campbell. The natural contrast to the difficulties of these companies is the recent entrance of Google into the broadband market with its own fiber network service in Kansas City. Rather than going to municipalities and asking for the right to install their network, Google turned the tables by holding a contest for their service and selecting the most accommodating city. Campbell talks about pros and cons to these and various other strategies to deploy broadband, including as open access.

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Related Links


“What Google Fiber Says About Tech Policy: Fiber Rings Fit Deregulatory Hands” , Communications Liberty and Inovation Project
“Google Fiber: Pros and Cons”, PC World
“Google Fiber roll-out zips along in Kansas City”, USA Today

Will the Republican Platform Address Internet Freedom?

Yesterday POLITICO Pro said both political parties are on the verge of declaring support for some version of Internet freedom in their 2012 platforms. The Democratic platform contained a lengthy statement in 2008, but according to Politico, its 2012 platform will consist of a simple sentence about protecting the open Internet. Politico also noted that, though Republicans hardly mentioned the Internet in 2008, they are expected to consider several Internet proposals during their platform meeting early next week. Will the new Republican platform address Internet freedom? If so, what is the platform likely to say?

I expect the Republican platform will have more to say about the Internet in 2012. In the last four years, the Internet has become critical to this election’s central issues – job creation and economic growth. In mature economies, job creation and growth are sustained through boundless innovation, which is increasingly reliant on Internet connectivity. According to McKinsey Global Institute, Internet-related consumption and expenditure is now bigger than agriculture or energy in G-8 nations as well as Brazil, China, and India.

The Internet is also the biggest driver of private capital investment in America’s infrastructure. According to a recent report ranking U.S.-based companies by their U.S. capital spending in 2011, AT&T and Verizon ranked first and second, respectively, with Intel coming in fifth, Comcast eighth, and Sprint Nextel, Time Warner Cable, Google, and Apple all in the top twenty-five. Together these companies invested nearly $60 billion in our future.

What does private investment in Internet infrastructure mean for job creation? Conservative and progressive economists believe infrastructure investment is a highly effective way to create jobs and increase the productivity of businesses of all sizes. Economists from the Political Economy Research Institute estimate that each $1 billion in new infrastructure investment generates between 9,819 and 17,784 jobs through direct and indirect effects and between 14,515 and 23,784 jobs when induced effects are considered.

America’s comeback requires government policies that encourage private investment in the wired and mobile Internet and empower the imaginations of our technology entrepreneurs to innovate. Policies that permit innovative experimentation and promote new investment in Internet infrastructure would rapidly create new jobs and promote the economic growth that is so critical to America’s future. Focusing government on encouraging Internet investment, rather than discouraging it, would allow Americans to get back to work, put our economy on the road to a strong recovery, and preserve our global competitiveness.

Unfortunately, the policies pursued by progressives have failed to encourage substantial investment in our communications infrastructure. Despite its good intentions, the Administration’s expansive regulatory approach has had the opposite effect. The largest Internet companies are stockpiling billions of dollars in cash overseas while our communications infrastructure struggles to keep up with consumer demand for more data.

Conservatives hadn’t perceived the full extent of this regulatory threat until the Democratic FCC eliminated the historically bipartisan agreement against regulation of the Internet in 2010, when it adopted net neutrality rules. The breadth of the FCC’s interference in the Internet marketplace surprised Republicans, who had been content to allow private innovators to continue developing the Internet. Net neutrality was a wake-up call for the Republican Party, and the reaction to the next wave of Internet regulation – SOPA and PIPA – was a fire alarm. Republicans are now aware of the threats that government interference poses to the Internet, and they are ready to counter those threats.

That’s why I expect the Republic platform will address Internet freedom in 2012. The more interesting question is how much emphasis the platform places on the issue.

If the Republicans intend to build a strong, conservative movement for Internet freedom, their platform will expressly support a market-based approach to the Internet. It will resist efforts to shift control of Internet governance from private stakeholders to governmental organizations. It will seek to enhance consumer choice by removing regulatory barriers to innovation and investment, including centralized spectrum management and 1930s-era communications regulations. It will support the ability of consumers to protect their personal data from disclosure through strict adherence to Constitutional requirements. And it will recognize that rapid technological change requires a more dynamic approach to competition issues than static “market power” analyses.

If the Republicans intend to strike a more bipartisan tone on Internet issues, their platform will adopt a generic statement touting the benefits of an open Internet. A less substantive approach would demonstrate Republican support for the Internet while signaling a willingness to embrace policies that align more closely with Democratic ideology.

I expect the Republican platform will emphasize its commitment to a free market Internet with substantive proposals. The Internet is too important to our national competitiveness in a global economy – and to the liberty of U.S. citizens and people worldwide – for the Republican Party to cede the Internet’s future to the failed regulatory policies of the past. Conservatives are ready to embrace the future of Internet freedom, and they are expecting free markets, not government regulation, to lead the way.

Obama’s Flawed Cybersecurity Strategy

President Obama seems to be poised once again to use executive powers to get what Congress won’t give him.

In this case, it’s the imposition of a sweeping set of cybersecurity mandates and regulations on the private sector. My latest commentary at Reason.org addresses the problems of the original Cybersecurity Act, which did not muster enough support in the Senate to get to a vote, and why a White House decision to implement it by executive order simply expands the government’s surveillance and datagathering power while doing little to secure the nation’s information infrastrucuture.

Find the commentary here.

Donald Harris on copyright law and alcohol prohibition

Donald P. Harris, associate professor of law at Temple University discusses the regulation of file sharing. Harris explains that Alcohol Prohibition of the 1920s and 1930s as an historical example of laws that were inconsistent with the vast majority of society’s morals and norms. Looking back, one can see many similarities between the Alcohol and Filesharing Prohibitions. Harris suggests, then, that lessons learned from the failed “noble experiment” of Alcohol Prohibition should be applied to the current filesharing controversy. Doing so, he advocates legalizing certain noncommercial filesharing. A scheme along those lines would better comport with societal norms, he argues, and would force new business models to replace outdated and ineffective business models.

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Related Links

“The New Prohibition: A Look at the Copyright Wars Through the Lens of Alcohol Prohibition” , by Harris
“Too Much Copyright: This Generation’s Prohibition”, Tech Dirt
“Infringement Nation: Copyright Reform and the Law/Norm Gap”, by John Tehranian

No More Backscratching Between Phone Companies

An ad campaign urged residents of Butler, GA to “Stop AT&T From Raising Your Rates” by planning to attend a public hearing earlier this month at the Taylor County Courthouse to provide testimony in Docket #35068, Rate Cases on the Track 2 Companies.

The Georgia Public Service Commission sets the phone rates in Butler, but politics are politics, and AT&T is a better scapegoat for an ad campaign. AT&T doesn’t even provide the town’s phone service, although the telecom giant does help finance it. That’s because Georgia consumers pay a hidden tax on their phone bills that subsidizes the phone service provided by Public Service Telephone Co. in Butler. You guessed it, PST paid for the ads.

Congenial industry relations were a hallmark of the regulatory era.  The large companies that contribute the bulk of the subsidies mostly kept quiet, because they needed political support from the smaller companies that receive the subsidies to convince legislators and regulators to reform outdated rules that destroy proper incentives for investment and innovation. Besides, they could also pass the cost on to their customers. Nowadays, these firms simply can’t afford to play this game as they struggle to compete.

PST currently charges $17.27 per month for residential phone service, which is exceptionally low if you consider that in Atlanta the cost of residential phone service was $28.26 in 2007 (the last year such data was published by the Federal Communications Commission). The price in Butler may go up by 10%, according to PST, if the commission denies part of the company’s claim for assistance from the state’s Universal Access Fund.

PST is one of only three companies requesting in excess of $1 million in annual support from the fund, which is just one of several sources of subsidies these companies receive. At a hearing last August in Atlanta, certain expenses at PST received particular scrutiny, including: holiday party catering ($2,044), travel to industry meetings in the Virgin Islands ($913) and Alaska ($5,398), aircraft rental ($10,921), executive compensation ($1.2 million) and dividend payments made to the owners ($2 million).

AT&T, the Cable Television Association of Georgia and the Competitive Carriers of the South all participated in the hearing, because each has an interest in minimizing the burden that contributing to the fund imposes on consumers (most of whom receive no benefit). Captive ratepayers are a thing of the past as new technologies have given consumers added choices and reduced many of the costs of doing business, enabling providers of voice and video services get into each other’s business and offer consumers better value.

Revenues have been tanking for providers of traditional telephone service as more consumers discontinue landline service in favor of Internet-enabled VoIP and/or mobile phones. To survive, the phone companies can and must fully exploit new revenue opportunities that lay in cable TV, mobile phones and broadband.

Large and midsize providers may be forced to write off significant investment in facilities that are no longer needed, regardless of anticipated depreciation schedules. The Georgia legislature passed HB 168 in 2010 to protect small rural providers like PST. The legislation ensures sufficient funds for these lucky firms to recover their investment for several more years, even for facilities that are no longer in service. This means that even if their revenues continue to shrink, their subsidy entitlements will grow on a dollar for dollar basis. Similar firms in other states aren’t so fortunate.

As signed into law, HB 168 made it hard for consumers to monitor the cost of this arrangement. Since the legislation prohibited voice service providers from establishing a surcharge on bills consumers can see how much they are contributing, the firms have been forced to find less transparent ways of recovering this assessment. Fortunately, the legislature has since amended the law so that a fee can appear on bills beginning next year.

As manager of the fund, the Public Service Commission is attempting to act as a prudent steward. Telecom companies that contribute to the fund but receive little if any benefit, including but not limited to AT&T, are attempting to look out for millions of Georgia consumers who stand in the same shoes. These consumers would like to save money like everyone else, and they would also like to know that pubic resources are being managed responsibly. There is nothing sinister about that.

The White House Didn’t Pull the TSA Petition Early

In the worlds of technology and government, I’m fond of joking, paranoia is just having a long time-horizon. Advances in data processing will make identifiable what is now anonymous. That “voluntary” pilot program will become full-fledged and mandatory.

But we need not apply the paranoid principle to the White House’s handling of the petition I started a few weeks ago asking the White House to have TSA follow the law. The petition ended on time. There’s no good evidence that its ending was hastened to cut off a late run at getting to 25,000 signatures.

Some folks had gotten the idea that we would have until midnight last Thursday, but it expired around mid-day. That’s about the same time that I created the petition weeks earlier, which is consistent with my assumption that the system is designed to expire petitions automatically when the time allowed for them to run has elapsed.

We could kvetch about losing some momentum when the petition function went down for a few hours around the time a great story came out on Wired’s Threat Level blog. But the folks at Whitehouse.gov added a full day to all petitions to make up for the maintenance outage. The time to complain was then, and I didn’t, so that complaint has expired.

There’s lots of other stuff that is interesting about all this. It’s made me interested as a matter of political science what role petitions have in organizing and motivating people, and what role they have in signaling the importance of issues to elected (and unelected) officials.

On balance, petitioning is a small net positive—even when your petition fails to reach a requisite number. This petition has organized and motivated people, and it has signaled to government officials that this issue matters. We could have done more with a White House response, but we would have to have done more to get signatures first!

A petition shouldn’t be the only effort at changing policy, and this one certainly isn’t. While the petition was gathering signatures, the Electronic Privacy Information Center was renewing its legal challenge to the TSA policy. The Competitive Enterprise Institute weighed in with a well crafted and widely joined amicus brief.

The D.C. Circuit Court of Appeals promptly ordered the TSA to answer EPIC’s petition. It is common for courts to simply reject petitions of this kind, so this is important progress. I don’t know whether anyone in the court was aware of the public interest in this, but I do know that people on Capitol Hill and in the White House have taken note of it. Success.

I’m pleased by getting … I dunno—85% of what a petition is for. I have no reason to believe that the petition was monkeyed with, and you can bet I would exploit the PR opportunity if I thought it had been!

Thanks to all who signed and forwarded the petition to friends and colleagues. You’ll be with is in the battle to bring TSA within the rule of law as it continues.

I’m confident of success! Given a long enough time-horizon…

Why Has Creative Destruction Sped Up in Recent Times?

A reporter recently interviewed me for a story and asked a terrific question: Why is it that business model disruption and creative destruction seem to have sped up in recent times?  My guess — and excuse me if this seems too obvious — is that it must have something to do with the very nature of intangible, digital technologies of the new economy versus the tangible, analog technologies of the old economy. That is, in markets built largely upon binary code, the pace and nature of change becomes relentlessly hyper-Schumpeterian precisely because digital technologies and platforms are more easily disintermediated and leap-frogged than earlier tangible technologies and platforms were.  And so we get creative destruction on steroids.

Consider, for example, what constituted a “social networking site” in the old days versus today. Our old social networking sites and services in the past were town squares, parks, school parking lots, shopping malls, as well as media like newspapers, magazines, and even the mail. When we socially networked in those environments, we were creatures of our fixed, “real-space” environments as well as their many natural constraints. Disrupting, replacing, or even replicating those environments, technologies, or platforms was a monumental undertaking precisely because of the enormous costs associated with doing so.

Today, by contrast, our social networking spaces are increasingly intangible and digital. Disruption becomes much easier, and significantly cheaper, in a digital environment. This explains how the walled garden communities of the late 1990s (AOL, CompuServe, etc.) disappeared in less than a decade and gave way to sites like MySpace, which itself has already been disrupted by the likes of Facebook and Twitter, among others. And so the cycle continues, and it seems to be speeding up, probably because so much more of our modern economy is built on foundations of code.

This is not to say that every digital age giant will be easily displaced or disappear overnight. But the possibility of that happening has increased exponentially compared to the relative likelihood of the disruption of comparable platforms and technologies in the past.  The lesson here seems rather straightforward: tangibility matters.

[For further reading on this point, see “The Laws of Disruption” by Larry Downes and I also discussed some of these issues in my paper, “The Perils of Classifying Social Media Platforms as Public Utilities.”]

Thoughts on Latest FTC COPPA Rule Revisions & Online Child Safety / Privacy

It was my honor today to be a panelist at a Hill event on “Apps, Ads, Kids & COPPA: Implications of the FTC’s Additional Proposed Revisions,” which was co-sponsored by the Family Online Safety Institute and the Association for Competitive Technology. It was a free-wheeling discussion, but I prepared some talking points for the event that I thought I would share here for anyone interested in my views about the Federal Trade Commission’s latest proposed revisions to the Children’s Online Privacy Protection Act (COPPA).

________

The Commission deserves credit for very wisely ignoring calls by some to extend the coverage of COPPA’s regulatory provisions from children under 13 all the way up to teens up to 18.

that would have been a constitutional and technical enforcement nightmare. But the FTC realized that long ago and abandoned any thought of doing that. So that is a huge win since we won’t be revisiting the COPA age verification wars.
That being said, each tweak or expansion of COPPA, the FTC opens the door a bit wider to a discussion of some sort age verification or age stratification scheme for the Internet.
And we know from recent AG activity (recall old MySpace age verification battle) and Hill activity (i.e. Markey-Barton bill) that there remains an appetite for doing something more to age-segment Internet populations

But challenging compliance issues remain with expanded COPPA regulations.

How do third parties accurately determine whether a site where they place a cookie or serve an ad is “directed at children” or “likely to attract an audience that included a disproportionately large percentage of children under age 13”
Let’s be clear about what is happening here:  = the redefinition of terms we see the agency undertaking here will result in an expansion of liability via regulatory relabeling
there certainly is an incremental benefit associated with tweaks to the COPPA rule that strengthen its privacy protections, but it is equally true that there are corresponding incremental costs…

With each tweak or expansion of COPPA, the FTC potentially increased regulatory compliance costs, which could impact market structure, innovation, and consumers options and costs.

FTC estimates that approximately 85-90% of operators potentially subject to the COPPA rule qualify as small entities; up from prior estimate of 80%.
“Rule may entail some added cost burden to operators, including those that qualify as small entities.” (p. 28) Specifically, “operators will each spend approximately 60 hours” complying with the disclosure requirements of the rule (p. 32), although the agency doesn’t offer much of any explanation for how it came up with that number and, despite hearing from several  commenters that compliance hours were being underestimated by the agency, the FTC says it won’t revise that estimate upward.
Regardless, the agency at least acknowledges that a real burden exists and, if it is true that these burdens will expand because of the latest revisions to the rule, then competition and innovation could suffer
We should want to foster an online ecosystem where small entrepreneurs can thrive and compete against giants like Disney and Viacom
They can comply with these expanded regulatory compliance costs, but not everyone else can, esp. to the little guys
Which means fewer options for both parents and kids
Or, it could also mean that we start seeing prices go up where none currently exist.

Still not clear to me what the actual harm is here that we are trying to address, nor is it clear to me how these new rules really do much on the ground to make kids safer online.

Parental notification is not the end of the online safety story.
Indeed, when it comes to online safety, it is not what happens before kids get in the door that counts, it’s what happens after kids get inside that really matters.

The Constructive Alternative: Education, Self-Regulation, Codes of Conduct & Best Practices

When sites create digital communities and invite kids in, I think we can all agree that we want them to be well-lit online neighborhoods where they can interact safely
A major recent report on parental attitudes about COPPA revealed that what the vast majority of parents want—and this certainly includes me—is helpful tips and advice about what sort of sites and services are appropriate for their kids at a particular age.
And parents also want some assurances that those online communities take some simple, common sensical steps to keep their digital worlds and applications safe.



This is why the ongoing dialog about best practices for these sites is so important. Specifically, what is most needed are:

Smart ground rules for acceptable behavior;
Clear standards for what will not be tolerated; and,
Limitations on certain types of functionality and data collection.





Ex: Everloop’s “3 Cs of Conduct”

“BE COOL: Everloop is a safe, fun place for everyone…so no swearing, cheating, bullying or general bad behavior allowed. If you do any of that, we might have to boot you from the loop.”
“BE CLEAN: Everloop is not about drugs, alcohol, sex, race or any inappropriate stuff like that. We will block offensive posts.”
“BE CONFIDENTIAL: Play safe on Everloop — don’t share your real name, address, phone number, email or passwords with anybody.”





Ex: Club Penguin = limits functionality within a well-protected walled garden; with outstanding moderation



But let’s be clear: Even with those sorts of sensible ground rules and best practices in place, a lot of kid-oriented sites and apps are still going collect some data and serve up some ads.



I know many of you have heard me say it a million times before and are probably getting a little tired of it, but I am going to go ahead and say it again (and with passion): There really is no free lunch! Trade-offs are inescapable in these matters.



Perhaps in a perfect world we’d have:

An infinite number of highly innovative sites
That never collected any data or served any ads
But yet were still free of charge to parents and kids





But that is pure fantasy-land talk.



Yet, what I fear most about the constant expansion of the COPPA regulatory regime is that some people get caught up in that sort of a fairytale and ask us to pretend that no such trade-offs exist.  In other words, some seem to believe that we can have something for nothing.



Before we go further with more extensive Internet regulation, therefore, I hope we think hard about those trade-offs and about the more constructive steps we might take to encourage education, self-regulation, and best practices for sites that cater to kids and not get caught up in a technopanic about the supposed threat of kids seeing a few ads and having a little data collected about them.



Because, in most cases, those fears are being greatly overblown while the wondrous benefits we currently enjoy thanks to advertising are being greatly discounted or ignored.

Universal Service Subsidies & Public Choice Economics: Yet Another Case Study

Those of you who spend a lot of time thinking about public choice economics and the problem of cronyism more generally might appreciate this little blurb I found today about the Universal Service Fund (USF).

It goes without saying that America’s “universal service” (telephone subsidy) system is a cesspool of cronyism, favoring some companies over others and grotesquely distorting economic incentives in the process. And the costs just keep growing without any end in sight. Just go to any FCC meeting or congressional hearing about universal service policy and listen to all the companies insisting that they need the subsidy gravy trail to keep on rolling and you’ll understand why that is the case. But plenty of policymakers (especially rural lawmakers) love the system, too, since it allows them to dispense targeted favors.

Anyway, I was flipping through the latest copy of “The RCA Voice” which is the quarterly newsletter of what used to be called the Rural Cellular Association, but now just goes by RCA.  RCA represents rural wireless carriers who, among other things, would like increased government subsidies for–you guessed it–rural wireless services. Their latest newsletter includes an interview with Rep. Don Young (R-AK) who was applauded by RCA for launching the Congressional Universal Service Fund Caucus, whose members basically want to steer even more money into the USF system (and their congressional districts). Here’s the relevant part of the Q&A with Rep. Young:

RCA VOICE: “How important is it for carriers serving rural areas to be engaged with their members of Congress on USF issues?”

REP. DON YOUNG (R-AK): “The more carriers engage with both their Representatives and Senators, the better. While the early bird may get the worm, the bird that doesn’t even try definitely won’t get any worms. The same applies to Congress.”

Well, you gotta admire chutzpah like that! It pretty much perfectly sums up why universal service has always been a textbook case study of public choice dynamics in action. Sadly, it also explains why there isn’t a snowball’s chance in hell that this racket will be cleaned up any time soon.