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Better Late Than Never
Maybe you have already seen the piece, "Strike Up the Broadband," in the January 26 edition of the Weekly Standard, but I just read it tonight. (I know--I should have better things to do on a Saturday night than reading another article about broadband!)

The author says all the right things about how the FCC needs to quickly clarify its Triennial Review Order broadband rules, for example, by declaring that the ILECs to not have to unbundle new fiber facilities to apartments buildings and businesses. The author sums up by concluding: "Leaving broadband trapped in a regulatory morass skews the incentives for deployment, ultimately hurting American consumers (fewer products) and workers (fewer jobs). It is time for the FCC to keep its promises and bring broadband regulation into the 21st century."

Well, we here at PFF have been saying much the same for six or seven years now. What struck me about the Weekly Standard piece is the author--Jay Lefkowitz. Jay is now a Washington lawyer, but until a few months ago, as the author tag indicates, he was "head of the White House Domestic Policy Council." Wouldn't it have been nice if, in his capacity as Domestic Policy Council chief, Jay had been able to get the Bush Administration to articulate the same deregulatory broadband policy he now articulates and to convey the Administration's support for such a policy to the FCC?

Yep, it would have been. But better late than never. Maybe, from the outside, Jay can phone home and convince the Administration folks that what he says in his article is true--that "the opportunity for a new boom is just around the corner" if only the regulators will implement meaningful regulatory relief.

PS--Whatever you do, do not tell my wife I was doing this on Saturday night.

- posted by Randolph May @ 1/31/2004 09:04:24 PM

Open Source & Intellectual Property
I recently published an article "Today Linux, Tomorrow the World?" in the ezine TechCentralStation. The piece discussed the phenomenon of open source software, with particular focus on the effort by some (called "leftist academics" by me, but feel free to substitute a more neutral term if you like) to extend the model to the production of other types of intellectual creations.

One thing I have learned in writing about the topic of open source is that it usually produces intense flame wars. This effort is an exception, so far; I did get objections, but they were uniformly thoughtful and courteous, and they made some excellent points.

Attached here are my capsule descriptions of the comments, together with responses. At the end, the comments are attached in full. The names have been removed, however, since we have not sought permission to disclose them.

We look forward to more dialogue on this important topic.

- posted by James DeLong @ 1/30/2004 04:35:27 PM

Everything is Bigger.
You only have to visit Texas once to know how proud the natives are about their state, their music, their bar-b-que and just about everything in Texas.

The Texas Public Policy Foundation is wrapping up a big two-day legislator orientation session that covered a raft of issues from taxation and education to water and telecommunications policy. Ray Gifford was in Austin to speak on the telecom issues with Cato’s Adam Thierer and Bruce Fein. While Adam and Bruce duked it out over federal unbundling requirements, Ray stayed focused on local and state law concerns. Hint: The imperative for retail rate deregulation and the elimination of in-state rate distortions that result from regulation were central to his presentation. If your interested in what he covered, this paper is an excellent primer.

State representative Phil King moderated the panel. King is Chairman of the House Regulated Industries Committee and we’ll look forward to working with him as the debate heats up in the heart of Texas.

- posted by Kent @ 1/29/2004 03:46:01 PM

TRO TKO, Part Deux
Adding to Randy’s posting regarding the triennial review oral argument this morning (see two postings, below):

Delegation – As Randy indicated, Judge Edwards appeared to be skeptical of the FCC’s broad delegation on switching (and thus, UNE-P), stating that all of the cases the FCC relied on in its brief on delegation were “inapposite” and that the Telecom Act provides the states with a narrow, limited role. Judge Edwards also insinuated that the FCC saw the triennial review as a “headache” and wanted to send it somewhere else. Additionally, Judge Williams questioned whether aspects of NARUC’s argument on delegation were ripe for review.

Obviously, it's dangerous to predict how judges view a case based upon oral argument. But this line of questioning, including several other questions from the panel about what the proper remedy should be if the delegation were held to be unlawful (no easy issue, to say the least), has to look ominous from the state...uh, well at least the NARUC, perspective. And given the complexity of the case, I would be surprised to see a decision come out as quickly as some have been hoping for (i.e., February or March). In short, the possibility that states will conduct a healthy portion of their mass market switching proceedings, only to have their authority to do so struck down, appeared to increase today.

Hot cuts - this portion of the TRO probably won the runner-up award for argument time. Judge Randolph questioned the evidentiary value of the FCC’s hot cut analysis, where it appeared to base its findings on “assertions” and “statements” made by commenting parties. Judge Williams probed the parties on questions such as scalability, the batch hot cut process, and whether switches are more like airplanes or dams.

Otherwise, Judge Williams drove the debate almost single-handedly on the other issues raised today, including aspects of the impairment standard, the interplay between sections 251 and 271 (and the appropriate pricing methodology), investment incentives (the FCC's counsel declining to concede that TELRIC rates have been falling), EELs, broadband, special access, etc. etc.

- posted by Adam @ 1/28/2004 03:57:40 PM

Missouri’s Munis
In August 2002 the Missouri legislature passed a law to guide municipalities’ entry into the telecom market. Among its features, the legislation calls for an annual report from the MO PSC to the legislature on the economic impact of municipal telecom. When the report becomes available online, a link will be posted here.

There is some variance with the Missouri data collected in a survey done by The Progress & Freedom Foundation. In all, we found 19 municipalities engaged in telecommunications activity while the PSC only reported 15. The PSC found one more municipality offering Internet service, 10, than we did in October when we reported nine. The discrepancy can probably be attributed to a difference in definition: At PFF we count public utilities, like power and water, as inherently governmental entities while the state only looked at cities and other political subdivisions. In all, there was startling consistency between the reports.

More on the methodology: The PSC mailed questionnaires to 640 municipalities and received 340 responses. Then, a more detailed questionnaire was mailed to municipalities that indicated their participation in the telecom marketplace. Self- reporting was critical to the data collection and may result in a slight bias toward under-reporting in the state’s survey or inconsistency in the application of certain definitions.

Roughly half of the municipal telecom providers report that revenues don’t meet costs. The City of Albany reported, “it sold its Internet operation to a private entity because its Internet operation was too resource-intensive.” In a telling note, the report summarized that “some cities view the provision of data transmission services as a means of increasing revenues” and that there “appears to be a demand for higher speed data transmission capabilities” in rural areas of the state.

Kudos to the legislature for requiring an economic impact statement on this flashpoint in the telecom sector. The report from the PSC is a well-documented survey of the landscape with up to six appendixes, but sadly does not really assess the economic impact of this type of municipal activity.

- posted by Kent @ 1/28/2004 03:38:07 PM

Well, I just sat through the two and a half hour oral argument before the DC Circuit reviewing the FCC's August 2003 Triennial Review Order. With the usual disclaimer that what is said at oral arguments is sometimes not a good predictor of results, here are two quick impressions:

1. The three judge panel, especially Judges Edwards and Randolph, seemed very concerned that the FCC violated the 1996 Telecom Act by delegating too much decisionmaking authority to the states to determine whether "impairment" exists for network bundling purposes. I'm not certain the court will reverse on this point, but the chances look pretty good it will. Never one to say, "I told you so," I'll merely point you to my piece, "A Call for Real Federalism," published in Legal Times in March 2003. There, commenting on the FCC handing over to the state PUCs too much authority, I said: "In the end, such a misuse of federalism, properly understood, leads to unsound communications policy making. And the bet here is that it will lead to yet another defeat in the courts for the FCC’s network sharing rules." (Apart from the legal issue, to understand why, as a policy matter, telecommunications networks are changing in a way that renders the traditional state regulatory role much more problematical, see Doug Sicker's "Delocalization" paper released yesterday by PFF.)

2. On the impairment issue itself, Judge Williams did most of the tough questioning, seemingly trying to figure out a way--consistent with the statute's ambiguity--to rule that the FCC is still tilting too far in the direction of too much mandatory unbundling. Judge Williams clearly believes--as do I--that excessive unbundling is a disincentive to new investment by both the ILECs and CLECs. What is less clear is whether there is an effective remedy that Judge Williams and his colleagues can envision themselves imposing under the statute as currently written that will require the FCC to materially further restrict unbundling. I don't think the court wants to get itself in the position that Judge Greene was in after the AT&T breakup of overseeing the intricacies of the telecom industry. And I doubt the Supreme Court will allow the DC Circuit to put itself in that position.

What a pity that Judge Williams was not one of the key drafters of the 1996 Telecom Act or the FCC Chairman leading the effort to draft the initial overly regulatory unbundling rules. Oh well, he probably would not have wanted to trade in his robes!

Anyway, and importantly, the court didn't give any overt indication that it is inclined to reverse the FCC's elimination of the unbundling mandate for new fiber and packet-switched facilities, that part of the TRO order that is more future-oriented than the circuit-switching part. Assuming the FCC makes some important clarifications on reconsideration that allow ILECs more broadly to roll out new fiber without the unbundling obligation hanging over their heads, it looks like the positive deregulatory step the FCC took regarding new facilities will probably stand up in court.

PS--I didn't stick around for the post-argument spin, but I suspect, as was the case in New Hampshire after the results were reported last night, the spin out of the war rooms of all of the contesting parties, whether CLECs, ILECs, the states, or the FCC, was: "We won because...[fill in the blank here yourself]."

- posted by Randolph May @ 1/28/2004 01:32:32 PM

And the Survey Says…
According to Tuesday’s Wall Street Journal, Harris Interactive just released a poll finding that three-quarters of adult Americans believe downloading music from the Internet and reselling it is wrong, but that downloading for personal use in “an innocent act.” Interpretation of this finding is clouded by Harris Interactive’s decision to ask a single question combining both of these issues. It is not clear whether the results are mainly attributable to the agreement that downloading and reselling is wrong or agreement that downloading for personal use is OK. (In addition, the survey did not distinguish between unauthorized P2P downloads and downloads from the rapidly growing authorized online music services.)

Further complicating interpretation is the fact that nearly two-thirds (64 percent) agreed that “musicians and recording companies should get the full financial benefit of their work.” How companies and artists could be expected to obtain full value if free music downloading is permitted was not covered in the survey.

Since many Americans engage in P2P downloading for personal use, it is not surprising that they would like to think the activity is innocent. The price is right. But if unauthorized P2P transfers are treated as innocent, many consumers will opt for free content, free-riding on the increasingly small number of paying customers who foot the bill for content creation. The availability of high quality content will suffer. Consumers as a group will be better off under a regime that protects rights in content and thereby promotes the development of legitimate markets in digital content. (For more on market approachs, see the recent study by Professor Robert Merges.)

- posted by Bill Adkinson @ 1/28/2004 12:52:26 PM

It's not over 'til it's over
Everyone who follows the IP business knows about RIAA v. Verizon -- the D.C. Circuit ruling that section 512(h) of the DMCA does not empower a copyright holder to lay a subpoena on an ISP demanding the identity of an unauthorized P2P music downloader, unless it has already filed formal legal action against an unknown "John Doe."

It turns out that the issue is not closed. RIAA subpoenas are also being litigated in the 4th and 8th Circuits, and in those venues the industry is arguing that the D.C. Circuit was wrong. The cases are still at the trial level, or at preliminary stages of appeal, so briefs are not yet available, but the crux of the RIAA’s argument can be found in the opinion of the district court that was reversed by the D.C. Circuit. Also, the industry has not yet decided whether it will seek rehearing en banc or Supreme Court review of RIAA v. Verizon.

An analysis of the issues, written before the D.C. Circuit decision, is here. Many experts were surprised by the D.C. Circuit decision, so the other circuits could come to a different conclusion.

- posted by James DeLong @ 1/27/2004 04:30:31 PM

Cost of Capital in New Hampshire
This one is going to dive deep into regulatory arcana, so run for the exits (or the back button now).

Verizon is none too happy about a recent NH PUC Order setting its cost of capital in the state. Indeed, Verizon is "shocked and troubled," emotions not easy for a corporate entity to muster.

The New Hampshire Order goes through a discounted cash flow analysis of Verizon New Hampshire to arrive at an average weighted cost of capital of 8.2% (see page 70 of the Order). This figure is the product of Verizon's imputed capital structure, estimating the cost of long- and short-term debt, along with the cost of equity. The pressing question now: Who cares?

First of all, Verizon cares. The decision on its cost of capital forms the kernel for all its wholesale and retail rates in New Hampshire. A higher cost of capital leads to higher rates; conversely, a lower cost of capital leads to lower rates. For Verizon, a lower cost of capital makes them less likely to invest in New Hampshire, particularly if the regulator-set rate is below its actual cost of capital. CLECs care, but in the opposite direction. A lower cost of capital makes for lower wholesale rates. Paradoxically though, the CLECs' presence and competitive threat to Verizon is the very thing that would tend to inflate Verizon's cost of capital. A low cost of capital is associated with Verizon's former status as a regulated monopoly.

Consumers, meanwhile, want the right cost of capital. Call it the Goldilock's principle: a too high cost of capital assumption leads to artificially high rates; a too low cost of capital assumption leads to low rates, but also reduced investment -- and the short-term pleasure of artificially low rates will be more than offset by the long-term effects of reduced investment.

But what is the right answer for the cost of capital? Like many regulatory determinations, the process pretends to a rigor and precision that is just not there. You can express DCF analysis mathematically (this page has a good discussion of DCF analysis, which has much wider application than just the regulatory sphere). But the big decisions arrive in estimating the discount rate and other forward-looking assumptions that predict the risk that a given firm faces. These numbers are by no means clear. Indeed, they are particularly difficult to estimate in a dynamic market like communications where the technology, market definitions and players are in great flux.

DCF analysis is therefore so plastic that it allows illegitimate concerns to drive the analysis. Thus, if the desire is "low rates" then arriving at a low average weighted cost of capital is a way to do it. And this is the problem. The inability to make any analytically rigorous input assumptions allows secondary concerns to predominate. Do I want to induce entry --even artificial entry -- into the market? Then derive low wholesale rates that will make entry attractive. Cost of capital assumptions are just the ticket, too, for they plug into the rate formulas at an elemental level and hence cascade through the rate structure. However, it is very difficult to say definitively that the NH PUC decision is wrong. It looks low. It uses some questionable assumptions, to be sure, but there is enough indeterminacy in the analysis that it is on the outer bounds of defensible-ness.

DCF analysis, like so much rate setting, is an exercise in analytic futility. And I know of what I speak. In 2002, I set a cost of capital for Qwest of 9.55% here. I am not denying it must be done, but you don't want to do it very long, and regulators need to be conscious of the effects and incentives they face when making these exceedingly difficult decisions.

This brings me to my final point about the difference between regulatory versus market supervision of an industry. When regulators get something wrong, those errors will be durable and difficult to reverse. Decisions will be made in New Hampshire -- by Verizon and by CLECs -- based on this remarkably low cost of capital. Reliance interests will congeal around this and -- if it was erroneously low -- it will be difficult for the NH PUC to back out of it, for they will be raising rates if they do.

In contrast, markets use DCF analysis to value companies and decide whether they are worthy of investing in or not. Erroneous DCF analysis in a market leads to an investor losing money, a disciplining effect that tends to concentrate the mind. Furthermore, investors' incentives to get DCF analysis "right" are strong. Do it right, you make money; do it wrong, you lose money. Contrast that to regulators' incentives where low-balling the cost of capital yields lower rates, but the negative effects are foisted off on the company and its shareholders. [Mind you, low rates issuing from an accurate assumption of the cost of capital are a good thing. Mistakenly low estimates of the cost of capital slowly desiccate the company you are regulating.]

Verizon, of course, has choices where it can allocate its capital, and this will provide the long-term discipline to the NH PUC and other regulators tempted to reach unrealistic cost of capital assumptions. Verizon will invest where it gets the best return. NH may not be that place.

- posted by Ray @ 1/26/2004 06:27:47 PM

Compulsory licenses
The Cato Institute has just posted a piece by Professor Robert Merges of the University of California-Berkeley entitled Compulsory Licensing vs. the Three `Golden Oldies': Property Rights, Contracts and Markets. The accompanying press release says: “America's creative energy and entrepreneurship are known the world over. Property rights, contracts and voluntary markets have played a primary role in the development of our vibrant industries. . . . . Merges argues that these, the ‘building blocks of all creative endeavors,’ are just as relevant in the digital era as ever, and, in fact, underpin the conditions for ‘future growth and diversification’ in intellectual property.”
- posted by James DeLong @ 1/26/2004 12:53:56 PM

"It's Coming Right at Us!!"
Shame on Comcast for bringing more competition to the state of Washington. Recent rules adopted by the Washington Utilities and Transportation Commission require that “local exchange” carriers serving over 2% of the access lines in the state file service quality reports. Instead of just admitting that the application of its new rule to a CLEC was facially absurd and granting Comcast a full exemption, the Commission tossed Comcast a “bone” by mitigating any penalties against the company in exchange for the development of an alternative QoS reporting regime.

The WUTC’s actions remind me of an episode of South Park where young Stan goes on a hunting trip with his uncle and his uncle’s war buddy. Whenever they see a wild animal, they yell “It’s coming right at us!!” and open fire with automatic weapons, bazookas, etc. No matter that the deer, or rabbit, or whatever target it is that gets obliterated is just sitting there minding its own business.

So now Comcast Digital Phone will enjoy an “alternative” regulatory regime originally intended for a monopoly POTS provider. And other CLECs such as AT&T and MCI may ultimately be put in the WUTC’s crosshairs as their market shares increase. To other states rewriting their telecom rules, the lesson is simple but obviously forgotten: in a competitive market, deregulate down from previously existing rules, don’t regulate new entrants up.

- posted by Adam @ 1/23/2004 04:28:39 PM

Commissioner Abernathy's speech yesterday at the Catholic University digital convergence conference is available here. She sets out a pretty clear path for minimal regulation of the voice application: keep it all in interstate jurisdiction; no economic regulation and tread carefully in imposing social policy regulation like E-911. A very concise statement.
- posted by Ray @ 1/23/2004 02:12:00 PM

Steroids and No Digital Economy
Conservatives are piling on the president for his domestic policies these days, particularly in the wake of the State of the Union address. See here, here, here and here, for example. I think this is healthy for both the President and those of conservative temperament. It shows that conservatives have not lost the independence of mind to chasten the administration when it lapses into lamely buying-off interest groups, and it helps the administration, it is hoped, rediscover its principles inside the whirlwinds of political expediency.

I would add to the tut-tutting that the administration is missing in action on the digital economy. An unregulation agenda -- for broadband and the Internet -- could be a bedrock principle of a positive economic agenda. Indeed, the Augean stables of the FCC provide years of toil for an ambitious, dedicated free-marketeer. Furthermore, though I realize my interests are somewhat parochial, I would be willing to bet that the digital economy is a more important public policy issue than steroid use in sports. But nary a mention in the State of the Union. Sigh.

All too often, the administration seems to regard digital economy issues as a zero sum game between warring factions: the IXCs and the RBOCs in broadband; the networks and the broadcasters in media ownership; the content owners and the consumer electronics sector in copyright. With no immediate political payoff, and much contradictory lobbying, they seem to wish the issues would just go away. But nonfeasance is a policy, too, and with real negative economic effects. The principles they purport espouse are sound -- markets, competition, innovation. It is time to act on them.

- posted by Ray @ 1/23/2004 10:00:21 AM

Regulatory Reform and the President--Redux
In my post below, I referred to Don Evans' inclusion of regulatory reform as one component of the President's six-point jobs plan. Last night, in what from my perspective was, overall, a very good State of the Union address, the President discussed his jobs and growth agenda. In that context, he referred glancingly to "relief from needless federal regulation" for small business owners.

Very good. But the need for relief from needless federal regulation is, of course, not limited to small business owners. It was probably too much to hope that in a speech necessarily dominated by national and homeland security issues the President would have time to devote more attention to reform of the nation's communications policies. These outdated regulations need to be brought in line with the realities of the digital age--and sooner rather than later. It shouldn't be too much to hope the Administration will devote the necessary attention to leading an effort to accomplish communications policy reform.

See below for a six-point telecom reform plan. Such reform does not cost the federal treasury money to implement like other new programs. But meaningful progress on the reform front would stimulate new investment and help create new jobs.

- posted by Randolph May @ 1/21/2004 10:58:31 AM

Regulatory Reform and the President's Economic Plan
On January 16, the USA Today editorial page launched a broadside against President Bush's economic program. Donald Evans. President Bush's Secretary of Commerce, responded to the attack in the counterpoint USA Today op-ed entitled "Bush Plan Is Good for the USA." Secretary Evans countered by referring to the President's six-point jobs plan, which in addition to tax relief, includes "health care reform, expanded free trade, litigation reform, regulatory reform and a comprehensive energy plan."

Now, I think President Bush's economic plan is generally on-the-mark, especially the emphasis on tax relief, free trade, and litigation reform. But, as you might expect, the reference to regulatory reform caught my eye. We all know that unnecessary and overly burdensome regulation can act as a drag on the overall economy, just like excessive taxes. So Secretary Evans is correct to include reg reform in the six-point jobs program. But I'm not sure that the Administration has really focused enough on regulatory reform thus far. Can someone point me to the Administration's substantive regulatory reform agenda?

Anyway, if the Administration is looking for targets of opportunity, communications policy is certainly an inviting bullseye. Not nearly enough has been accomplished since President Bush took office. If the Administration wants to stick to six-point plans, here's one for communications policy: (1) Create a deregulatory uniform regime for broadband; (2) Resist calls to regulate the Internet, including new services like VoIP; (3) Reform the outdated universal service system by reducing the size of the existing subsidies and further targeting the remaining subsidies to those in need; (4) Move further towards creating a property-rights regime for spectrum management; (5) Reduce the role of the states in regulating communications; and (6) Streamline and reform the FCC--which, as communications regulation is reduced, simply shouldn't remain the same 2000-person agency it has been for the past decade. (I understand that while the FCC itself can accomplish much, some of the above items would require congressional action to fully implement.)

Well, you may have your own regulatory reform items, and, if so, don't hesitate to write or call. Anyway you slice it, though, there's much work still to be done, and it would be heartening indeed to see the Bush Administration clearly articulate a deregulatory communications agenda. And then provide determined leadership.

- posted by Randolph May @ 1/18/2004 02:36:28 PM

In Praise of the Liberty Fund
My most recent Amazon order just arrived. You see, I just finished volume 15 in Patrick O'Brian's Aubrey-Maturin series and could hardly go long without the 16th novel. [Note: gratuitous Patrick O'Brian plugs are among the self-indulgences I grant on this blog, along with impertinent discussions of fly-fishing and baseball. Plus, with this guy playing Jack Aubrey in the movie, my wife finally sees some merit in those "sea novels" I so delight in.]

In any event, along with the Wine Dark Sea, I picked up Economic Forces at Work by Armen Alchian. Alchian is an economist whom I've never read, but his work is held in such esteem that I figured I should read up on him. Once the book arrived, I recognized the style and print as that of the The Liberty Fund (finally, the point of the headline reached!).

I don't know anyone at The Liberty Fund, and just looked up its mission on the website, but its publishing is indispensable, not to mention a burgeoning part of my library. The fund publishes important liberty-minded philosophers, economists and historians, and that is just a terrific benefit to society. Among other authors, the Fund keeps Michael Oakeshott's writing available in this country. For self-styled conservatives, Oakeshott has much to teach and, I think, is offers the right disposition for a conservative in a post-modern age. [If anyone is game to start a pretentious blog-conversation on and Oakeshott/Hume-an conservatism counterposed to a Natural Law-based conservatism, let's get started!]

The meandering point to this post is to simply praise the work of The Liberty Fund, and to thank them effusively for keeping so many great writers' thoughts available.

- posted by Ray @ 1/17/2004 04:41:48 PM

It's Recess Time
I just heard that President Bush has given Charles Pickering a recess appointment to the federal bench. In my September 8 column for Legal Times, "Checkmate in the Judges Game," I recommended that, in light of the Democrats' Senate filibusters of the President's judicial nominees, he offer some of the stalled nominees recess appointments. At the time, I think I was the first, or certainly among the first, to urge in writing the recess appointment course of action.

As I said in my column, even apart from the merits of any of the specific nominees--and I am not here commenting on Mr. Pickering's qualifications--a few judicious judicial recess appointments are so likely to rile up the Senate filibusterers that the action may well ignite a healthy constitutional conversation. This constitutional dialogue would concern the appropriate role of federal judges in our judicial system, including those who sit below the Supreme Court; preferred modes of constitutional interpretation; the level of deference that the Senate should accord the President's judicial nominations; and the boundary that separates the “extreme” from the “mainstream” in our constitutional jurisprudence.

Not unimportant topics for discussion in a democracy during an election year!

- posted by Randolph May @ 1/16/2004 04:12:27 PM

iTunes: Time’s “Coolest Invention of the Year”
Time’s decision to name Apple’s iTunes the “coolest invention” of the year illustrates an important point: realizing the benefits of the digital content revolution depends not just on cool technology, but also on establishing economic institutions and business arrangements that promote vibrant marketplaces.

iTunes is an example of an economic innovation, as Time’s description makes clear: “It is a disarmingly simple concept: sell songs in digital format for less than a buck and let buyers play them whenever and wherever they like – as long as it’s on an Apple iPod.” Restricting use to iPods may offend the sensibilities of those who despise limits or insist on interoperability. But it is essential to making the economics work and cannot plausibly exert an anticompetitive effect.

iTune’s success, measured in sales and number of imitators, is impressive – it has clearly moved the ball forward. But we are still a very long way from establishing the economic foundations for vibrant markets in digital content. To reach this goal, we will need innovations that enable authors to better protect their rights to distribute works online – through more effective copyright enforcement, use of digital rights management tools, and other means.

- posted by Bill Adkinson @ 1/15/2004 05:44:56 PM

Run! Its an Election Year!
PFF is not a political organization. In fact, it is a refuge from mindless regurgitations about Iowa and New Hampshire. But politics has intruded into our Eden, in that we have found Howard Dean’s Principles for an Internet Policy.

Most of it is the soporific politico-speak one expects every four years, but one feature is striking. The Internet is portrayed as a sort of manna from heaven, not as a product of the intelligence, money, and entrepreneurial nerve of thousands of people and corporate entities. Thus the statement is long on distributing the fruits of the Internet and short on encouraging its continued development, long on “we all did this” and short on “no, some of us did it and the rest are free riding.” Like, what about deregulation of telecom? Or protection of intellectual property? Adam Thierer of Cato characterizes the position as: “Collectivism In, Property Rights Out.”

To be even-handed, the Administration has been quiet about these issues, too, especially about deregulation, and it doesn’t even have the excuse of being out of power. If the attitude of all parts of the political class toward the Internet is “the Lord will provide and we will distribute,” it will not be a happy 2004 for techies.

- posted by James DeLong @ 1/15/2004 11:46:59 AM

What's the Frequency, Kenneth?
While it seems like this is the year of VoIP, spectrum management should garner just as much attention (if not more) in the long run.
No issue seems to sit more perfectly between the technological/engineering and legal/regulatory spheres than spectrum policy. Yet, my guess is that many of the many "telecom lawyers" still have a certain level of discomfort with some of the technical aspects of their trade, while techno-geeks could care equally as much for the nuances of property law. Fortunately, bright folks out there are thinking and writing about the subject from both sides.

For the uninitiated, the FCC's Spectrum Policy Task Force Report is a good start, but a recent article by Paul Margie picks up where that report leaves off and is a great read. In it, Professor Margie argues that the FCC's legal standard for permissible interference is inconsistent and suggests a Coasian (i.e., resource maximizing) approach to be taken going-forward.

- posted by Adam @ 1/14/2004 05:09:29 PM

Digging into Privacy
The January 9 edition of Business Week magazine is jam-packed, featuring a cover on Rupert Murdoch and several articles on VoIP. My guess is that most of the digerati missed the following tidbit from a story on the revitalization of the home improvement chain, Home Depot.

In the past couple of years, Home Depot has dropped $40 million on security cameras to reduce what Tomé calls "shrink" -- retailspeak for shoplifting and the otherwise unexplained disappearance of merchandise.

"We've lowered our shrink levels, but we know we're still not best in class," she says. (How good are the cameras? A Home Depot employee following Tomé notes that when detectives in Florida discovered a murder victim had been buried with a Home Depot shovel found near the grave, they gave the price-tag bar code to Home Depot officials, who tracked the shovel to the store that sold it, determined the time of purchase from sales records, and then gave the security tapes to detectives -- who immediately spotted their suspect.)

My take: Private firms should protect their property including through surveillance, data collection and other techniques that drive some self-styled privacy advocates crazy. I’m sure we are not too far removed from claims that Home Depot is subsidizing Big Brother’s black helicopters to the tune of $40 million. Nonsense. Most importantly, it is incumbent upon consumers, investors and employees alike to understand that information may be collected many places outside of the home. We should expect, nay, even celebrate private sector investments that improve the quality and quantity of information.

- posted by Kent @ 1/14/2004 11:54:23 AM

Shut those eyes!
One advantage of an interest in intellectual property is that the topic presents so many bizarre and entertaining questions. The latest conundrum: Can the Chicago Cubs collect money from the owners of buildings that overlook Wrigley Field for erecting rooftop bleachers? ESPN reports on the state of play; Eugene Volokh has a nice discussion of the legal points on The Volokh Conspiracy (scroll down to 01/13/04 3:21 p.m.).

- posted by James DeLong @ 1/14/2004 08:49:25 AM

Heartland Newsletter on Telecom
Lynne Kiesling has an article in a telecom newsletter of Heartland Institute. She writes of the Illinois Commerce Commission,

The ICC chose to set those rates at approximately half the average rate chosen by other states. It did this by calculating the hypothetical costs of a firm operating at maximum efficiency and full capacity and using a depreciation rate much lower than private businesses use.

So far, a standard description of regulatory price setting. But, Lynne is more clever than your average bear. She goes on to provide the following useful analogy.

It’s as if you drove your SUV from Chicago to Springfield carrying two passengers, and they agreed to reimburse you for their share of the gas – but they each pay you only for the gas you would theoretically have used if you were driving a Toyota Prius with four passengers. SBC asked, in effect, that the vehicle’s real fuel economy and number of passengers be used to determine what each passenger owed.

More of her blog observations can be found at www.knowledgeproblem.com. And, in the interest of disclosure, the same issue of Heartland’s Information Technology Update features a certain study on municipal ownership .

- posted by Kent @ 1/13/2004 04:26:18 PM

Verizon v. Trinko: The Limits of Antitrust
When I first wrote an essay on Verizon v. Trinko, I kept wondering – with all these interesting issues, which ones will the Court actually decide? Today’s answer: Almost all. More important, it got them right.

The case arose in the shadow of the 1996 Telecommunications Act, which requires that Baby Bells like Verizon provide a variety of services to competing companies (CLECs) at regulated prices. CLECs and retail customers (like Trinko) have supplemented the regulatory remedies by filing treble damage antitrust actions against Baby Bells, alleging that deficiencies in performing these obligations constituted illegal refusals to deal with a competitor. The petition raised diverse questions – standards for monopolist’s conduct, the interplay between the antitrust and the 1996 Act, and even plaintiff’s standing to sue.

Trinko represented the Court’s first opportunity to address these issues, and it found for Verizon on nearly every ground. First, the Court (per Justice Scalia) found that Verizon’s “alleged insufficient assistance in the provision of service to rivals is not a recognized antitrust claim under this Court’s existing refusal to deal precedents.” It explained that duties to deal with competitors should be “exceptions” adopted “very cautious[ly],” since they can interfere with procompetitive conduct and are difficult for courts to administer. (This treatment was somewhat reminiscent of the Court’s approach to predatory pricing claims.)

Second, the Court emphasized that the 1996 Telecommunications Act is “much more ambitious than the antitrust laws” in seeking “to eliminate … monopolies.” The Act and its implementing regulations therefore greatly reduced the potential for antitrust harm. The majority also cited the difficulties that a court would face in evaluating behavior and implementing remedies in this dynamic marketplace. And three more justices separately concurred, arguing that Trinko lacked standing to sue under the antitrust laws.

Teasing out implications for Section 2 analysis will keep scholars busy. But of more immediate interest is how this will affect the resolution of the various sister cases that have been awaiting this decision. Here the implications seem doubly clear. The Court refused to extend liability for refusals to deal to cover the alleged activity citing both substantive antitrust doctrine and the existence of a “more ambitious” regulatory system. Most importantly, it made this determination “on the pleadings,” permitting dismissal without costly discovery. Plaintiffs are likely to be hard pressed to maintain antitrust actions under these standards.

- posted by Bill Adkinson @ 1/13/2004 03:27:02 PM

Relics: Buggy Makers and Songwriters
My hometown paper, The Rocky Mountain News, just got around to publishing David Bernstein's NYT piece on piracy's effects on songwriters. The piece details the story of 75 year-old composer Charles Strouse, who wrote Annie and Bye, Bye Birdie. Strouse's royalties from his compositions have dropped by half since 2002, which his publisher attributes to piracy. The story is one of an emerging genre that makes the point that piracy affects the livelihoods of real people, as opposed to faceless corporations, from whom it is apparently much easier to rationalize absconding with intellectual property.

Anyway, the "pro-downloading" antidote to the plight of songwriter Strouse is offered by Wendy Seltzer, a lawyer with the Electronic Frontier Foundation. She offers that the music industry itself is to blame for its problems, and further:

"Songwriters 'will have to learn how to adapt to the new technology,' Seltzer said. 'The buggy manufacturer doesn't have a place in the world of automobiles.'

Now, if I follow the analogy correctly, in the age of the automobile, there was no place for buggymakers. That means that in the age of downloading, there is no place for songwriters. Huh. I guess we'll really have to start loving the standards.

- posted by Ray @ 1/13/2004 02:03:08 AM

Carly Fiorina: Singing in Harmony
HP chief Carly Fiorina used her keynote address at the Consumer Electronics Show to proclaim HP’s commitment to promoting high quality content and combating piracy:

“We all know that the best system in the world won’t mean much if the content you’re receiving isn’t rich, and exciting, and meaningful to you. From creation, to distribution, to consumption, we are working today to ensure that the music and the movies that will be a part of your digital entertainment system are as rich and compelling as they can be.”

How will HP do that? By joining hands with the content industry, figuratively and literally, to fight digital piracy. Fiorina described how HP is collaborating with content providers, sharing the stage with music and movie industry notables (e.g. Jimmy Iovine, Sheryl Crow, Ben Affleck) and singing the praises of iTunes, DreamWorks, and the Sundance Film Festival. She not only condemned Internet piracy as “illegal and wrong,” she outlined specific steps HP is taking to combat it.

Fiorina’s vision reflects enlightened self-interest – recognizing mutual interest in protecting incentives for the creation of a steady stream of high-quality music, games and movies. PFF has long emphasized the mutual dependence of four sectors – computer, software, telecomm and content – that must all work together to provide valuable digital content to consumers. Jeff Eisenach and I have dubbed this the “virtuous circle.” But the feuds between the content industries and the tech and telecomm sectors over content protection have often degenerated into a vicious circle.

Does this signal the end of the battle between Hollywood and the tech and telecom industries? Hardly. Finding common ground will remain difficult. But let’s hope we see more of Carly Fiorina’s spirit of cooperation and enlightened self-interest.

- posted by Bill Adkinson @ 1/12/2004 12:05:31 PM

Colorado Talks Sense on VoIP--And Then Some
Well, if you have to spend Saturday afternoon reading about VoIP, I can't commend a much better piece than Colorado PUC Chairman Greg Sopkin's special concurring opinion in the PUC's order closing down its VoIP investigation. See Ray's January 6 post below ("Florida and Colorado Talks Sense on VoIP") for the PUC link and an excerpt.

I assume that Chairman Sopkin himself would readily acknowledge he is fortunate to follow in the footsteps of another clear-thinking Colorado PUC Chair. It is easier to continue down the right path, rather than having to reverse course. Nonetheless, Sopkin's opinion explaining why VoIP should not be regulated like traditional telephone service, and especially why states should not assert regulatory jurisdiction, is one of striking force and persuasiveness.

In "The Metaphysics of VoIP" I predicted that too much of the debate about how to classify and regulate VoIP would turn on philosophical-type discourse regarding the name given the VoIP service, the shape of the terminal equipment, the terminology used to promote the service, the heritage and parentage of the company offering the service, and the like. But no metaphysician is this Professor Sopkin. Sure enough, he just hones in on the economic and marketplace realities at work here. Example: VoIP presents "a massive arbitrage opportunity." (Okay, let's see how many others can prove my metaphysics prediction wrong!)

Oh, and like his predecessor, Chairman Sopkin can turn a phrase, as when he refers to the Internet as "that job producing, life-enhancing giant." Ah...the poetics, if not metaphysics, that sometimes take hold of those toiling in the [de]regulatory gardens.

- posted by Randolph May @ 1/10/2004 02:25:20 PM

Is This A Typo--Or What?
The January 8 electronic edition of TR Daily contains a headline in the TOC that reads: "Hundt Advising Howard Dead on Building Telecom Platform." (Emphasis mine.)

Now, TR Daily is a fine publication known for good reporting and very few typos. Hmmm....maybe this was a Freudian slip. The story says former FCC Chairman and FOA Reed Hundt is now advising the Dr. Dean on telecom policy. In my view, the overly expansive network sharing policies Hundt engineered in implementing the 96 Act played no small contributory role in the telecom boom and bust cycle from which we now may just be emerging. Reed Hundt's notion that the government would support new entrants through a massive wealth transfer--mandatory facilities-sharing at below market prices--ultimately led to new investment drying up. Coupled with an unhealthy dose of irrational exuberance pervading the financial markets, Hundt's policy contributed to severe financial stress in the telecom industry.

Well, maybe Hundt is just what the doctor ordered to survive the cold winter nights ahead in the snows of Iowa and NH. But for the rest of us, as the headline intimates, the impact on telecom policy may be deadening.

- posted by Randolph May @ 1/9/2004 11:02:37 AM

California Talks Sense on VoIP, Too
Add California to Florida and Colorado as VoIP mavens. Last fall, California regulators held that VoIP providers would be required to meet the same certification requirements as traditional phone companies. This week, however, California PUC Commissioner Susan Kennedy indicated that the Commission will await further FCC guidance, stating that they previously were "acting first and asking questions later."

Business Week Online has a series of articles on VoIP, including an interview with Commissioner Martin and more on Skype, which sure looks like the next lightning rod of P2P technology.

- posted by Adam @ 1/8/2004 11:57:12 AM

Underestimating Wireless in Iowa.
Today David Yepsen writes for the Des Moines Register about the dangers of too much reliance on polling data to predict the Iowa caucuses. Yepsen is to political reporting and conventional wisdom in Iowa what David Broder is to the Washington Beltway: He sets a standard. In his column today, he notes the challenges that pollsters are having as a result of changes in the telecommunications marketplace. In part he writes,

A couple observations about these polls, particularly ones of likely caucus-goers: Some may understate Dean's support. He's getting a ton of it from younger voters, and those people are big cell-phone users. It's difficult, if not impossible, for pollsters to contact the correct cell-phone numbers when they make random calls of likely voters.

It must be alarming for public officials to read this column and to see the rationale for monopoly-era regulation disappearing into thin air.

- posted by Kent @ 1/8/2004 11:28:02 AM

Can Great Men Stomach the TRO?
This week I had lunch with a state regulator who feared the following possibility: What if his state commences with the painful and costly TRO proceeding only to have the DC Circuit rule shortly thereafter that the FCC must take another look at its granular prescriptions? It very well may be all the pain of a proceeding without the gain of a resolution for the providers – ultimately the consumers – in his state.

All the kerfuffle about the order is certainly warranted. But I was surprised to have the same conversation flow naturally from a discussion of how some regulators – admittedly few – are taking this calm before the storm as an opportunity to “re-evaluate,” “assess” and “look hard” at whether serving as a state official in 2004 is a good use of their time and talents. Has the FCC made such a mess that even the most engaged officials don’t want any part of the clean-up efforts?

This conversation led me to reconsider Ray’s “Great Man” (01/02/04). At what level do the “challenges” of regulatory policy cross a significant threshold? While great men and women are attracted to challenging tasks – in this case, creating an environment where competition can flourish – there must come a point when such impediments as the TRO will push talent away from the public sector and into other avenues. Who wants to spend her time and energy for naught? Perhaps we have a public choice corollary to the law of diminishing returns.

- posted by Kent @ 1/7/2004 02:18:01 PM

The Triennial Review and Bad Behavior
The opening shots in the DC Circuit's review of the Triennial Review Order concluded on December 31st, with briefs filed by the FCC and state commissions, among others. Given the accelerated timeline that the DC Circuit is reviewing the case under, one overarching issue which did not make the parties' briefs (perhaps due, in part, to strict word limitations) is worth noting: did the FCC engage in an unlawful rulemaking process under the Administrative Procedure Act?

To recall some of the lowlights: the FCC voted on a press release in February. In his own press release following the vote on the Order, Commissioner Adelstein candidly acknowledged that some of the Order "quite frankly give[s] me pause" and that the vote on the Order took place "before we have seen a draft reflecting the latest cuts." Commissioner Adelstein added that some of the offices "reached some agreements on major issues at the eleventh hour" and I mean that literally, around 11:00" and that he was "very uncomfortable voting on this item before the offices have seen the draft order, because as we all know, the devil is in the details."

Then Winter turned into Spring, and then Summer. And Saddam was toppled. And Major League Baseball played out much of its regular season. And then, the text of the Order was finally released in early August. (With an errata making substantive changes to the Order a short time thereafter, no less, after a number of challenges already had been filed in various circuit courts). In the end, the FCC's development of the TRO after its supposed vote on it took its practice of issuing a press release before releasing a final decision to a new level, crushing the previous FCC record for dilly-dallying of fifty days.

Prior to the DC Circuit's consolidation of the case (and the fresh round of filings), and through emergency stay petitions before the FCC, parties such as Allegiance and Sage Telecom had made plausible arguments that substantive changes to the TRO following the vote on the press release, following ex parte meetings and the errata, violated the APA. And there would still seem to be a justiciable issue as to whether unprincipled compromises were made before the votes were cast. Unfortunately, the FCC's actions may never receive the scrutiny they so seemingly deserve. Or perhaps this issue was just so 2003.

- posted by Adam @ 1/7/2004 12:43:43 PM

Homer Nods
Usually rational blogger Glenn Reynolds has been replaced, at least momentarily, by a pod person. He notes today that: (a) Used copies of an out-of-print book by his wife were selling for $99.95; (b) She made it available in pdf format; (c) The price of used copies has held firm or even gone a up a bit. Therefore, he says, the RIAA should conclude that free downloads do not cannibalize sales of music.

The problem is that a used copy of an out-of-print book has three forms of value: Information value; Convenience value (viz., a neat binding rather than the loose-leaf pages of a pdf printout); and Rarity value. If the book becomes posthumously popular, then both the convenience value and the rarity value can increase even if those who care only about information value meet their needs via the pdf version.

If Glenn’s wife were now to bring out a new edition in paperback (no rarity value), I think she would find that her pdf distribution did indeed reduce her royalty check, like, to pennies, even as the popularity of the book skyrocketed.

Furthermore, to analogize this situation to the perfect and unlimited copies of digital music downloading, where information value is all important, makes no sense at all.

- posted by James DeLong @ 1/7/2004 12:32:56 PM

Florida and Colorado Talk Sense on VoIP
Florida Commissioner Chuck Davidson has the right instincts on state utility commissions regulating VoIP, and looks oh-so-cyberliciously cool in the New York Times story and accompanying photo: "Mr. Davidson wants the federal and state governments to let Internet-based phone service blossom, free from regulation, taxes and surcharges."

In related news, the Colorado Commission recently closed a docket inquiring into the "metaphysics of VoIP," to borrow a well-coined phrase. The concurring opinion by Chairman Sopkin gets it exactly right:

"In my view, we should treat VoIP not as a problem, but a new opportunity for regulators to look at changing how the use of wireline infrastructure is compensated – through subsidies, intercarrier charges, and regulated rates. These traditional regulatory devices distort the market and cause inefficiency, lack of competition, and net consumer harm. Instead of trying to impose anachronistic rules on new innovative technologies, we should reform anti-free-market state regulations to allow traditional companies to compete with new entrants on a more level playing field. This serves yet another purpose: new entrants will not have much incentive to avoid playing by the rules if the rules are less costly. If we do nothing, it is only a matter of time before a great exodus from traditional telephone service occurs, endangering the existing telephone network"

Read the whole thing.

- posted by Ray @ 1/6/2004 04:34:25 PM

A Watchdog Hounds the Metaphysicians!
In my post yesterday, "I'll Be Doggone--It's A Watchdog," I riffed about the metaphysics of classifying groups like PFF, wondering about why some groups earn the (coveted?) "watchdog" label from the big city "liberal" press, while others are relegated to something just above hound dog status. [Note to all my friends at the NYT and Washington Post: On this point, I'm mostly, but not completely, just poking fun. So don't take it too seriously.]

But if you really want to watch the metaphysicians in action, follow the debate about to rage about the regulatory classification of VoIP. See my piece "The Metaphysics of VoIP" just published on CNET.

My bottom line, of course, is that regardless what the metaphysicians say about how VoIP does or does not fit into the existing classifications, there is no sound rationale for subjecting VoIP to economic regulation, regardless of who provides the service. Or, as we use to say where I come from, "that dog [you can call me watch...or you can call me hound...or you can call me...] won't hunt!

- posted by Randolph May @ 1/6/2004 04:32:56 PM

I'll Be Doggone--It's A Watchdog!
If you have some extra time on your hands in 2004, you might want to set aside a few minutes each day to watch how the big-time press labels non-profit research organizations of PFF's genre, that is, non-partisan, non-profit research organizations. For example, we're most often labeled "conservative", sometimes even "right wing". And that's fine, although organizations on the other side of the philosophical spectrum are much less frequently labeled "liberal" or "left wing." (You can do your own study, but make sure you exclude from your computer search hockey players on both wings.)

But what caught my eye this morning was the labeling of the (left-leaning) Center on Budget and Policy Priorities in the New York Times just in the past week. In a NYT editorial on December 31, the CBPP was called a "government watchdog group." In a January 4 news piece, it was labeled "a liberal-leaning research and advocacy group" in a story that paired it with the "conservative Heritage Foundation." Then, in a news article in this morning's NYT the Center was referred to simply as a "nonprofit research group in Washington."

You can read the editorials and news articles yourself, and try to figure out what's behind the different labels. Hint: If the group's work alone is cited, as in the NYT editorial "The Budget Politics of Being Poor," so there is no worry about the parallel treatment of other groups, and if it's used to support the writer's point, the group might earn the "watchdog" sobriquet.

Well, you can call me...and you can call me...anyway, regardless what you call me, I think of myself mostly as a classical liberal in the Enlightenment sense of the term--before "liberalism" got hijacked. In any event, I'll be doggedly watchful this year trying my best to keep my philosophical principles on the straight and narrow, whether you call me a conservative, liberal, member of a non-profit research organization, or just an ol' watchdog.

- posted by Randolph May @ 1/5/2004 11:28:52 AM

File Sharing
The Pew Foundation’s Internet and American Life Project released a report yesterday that concludes: “The RIAA law suits against online music file sharers appear to have had a devastating impact on the number of those engaging in Internet peer-to-peer music sharing.”

This is good news, not least because it indicates that people can be shifted over to the increasing number of legitimate downloading services, which means that creators and distributors of music will make more money, which means that we will all get the benefit of more music.

Why the pro-downloaders think this whole matter is a zero sum game of music fans versus the RIAA is a mystery. The real dilemma is how music fans can pool their money to support the producers, and the best way to do this is through property rights and markets.

- posted by James DeLong @ 1/5/2004 11:13:33 AM

Regulatory Abnegation and the "Great Man" Theory of Regulators
Randy May's post below prompted me to rib him about urging regulators to be bold. This is something he rarely and rightly does, and in his post he urges the boldness in a deregulatory direction. Misdirected regulatory boldness is something we don't need.

Randy's proposed New Year's resolution raises an interesting question about the nature of institutions and points to the rarity of a governmental agency giving up authority over its regulatees. It is of course not unprecedented, but it is rare. Moreover, the legal standards with which the communications regulators are empowered -- "public interest," "just and reasonable," "public convenience and necessity" -- are so broad and elastic that virtually any action can be justified. At best, the standards allow enough temporizing that even a deregulatory action can be quickly and easily reversed. Thus, this leads to the familiar complaints about regulatory certainty and stability. Any player has to apply a heavy discount rate to the regulatory regime having a semblance of stability.

It is generally my contention that consumers would be better off in a deregulated environment; and where transitional regulation is necessary, it must be limited in scope and duration. This has not come close to happening. Indeed, instances where regulators categorically exit their field are rare, but necessary if a competitive industry and hence consumers are going to thrive. The Fowler FCC had some successes in the 1980s. The classic cases are the Civil Aeronautics Board (CAB) under Fred Kahn and the Senator Kennedy-led judiciary committee under the counsel of Stephen Breyer. But, deregulation is the exception to the rule that legacy regulation has incredible inertia.

To explain deregulatory regulators, I need to reach for the unfashionable "Great Man" theory of history -- individuals of great intellect and political acumen who are able to navigate the shoals of rentseekers and agency-aggrandizers actually to refrain from using legal powers granted to them. [This would be in contrast to the now-fashionable "social history" method: "the 20th century peasant ate his suet, dug around his dunghill and paid his phone bill to sustain the plutocrat executives in the castle..."]

Since the advent of communications competition, the great man of the Act is Reed Hundt, who still apparently believes that smart industrial policymakers like, say, him can "manage" markets to beneficial outcomes. Ugh.

This coming year will be Chairman Powell's test as a "Great Man" of regulation. Can he actually accomplish the promising deregulatory actions he promises in his speeches? Here's hoping Randy's counseled boldness prevails.

- posted by Ray @ 1/2/2004 12:20:20 PM

Factory Authorized
This is apropos of nothing, or it may be a deep exploration of the recesses of consumer evolutionary psychology.

I have been reading (too many) post-Christmas newspapers and watching post-Christmas commercials, and many of the sales are not just sales, but "Factory Authorized" sales. My question is: why, as I consumer, do I care if the sale is factory authorized or not? If the dealer in question is pulling a fast one on those dopes back at the home office, why shouldn't I take some secret delight in participating in this subversion? Though I have no objection to retail price maintenance agreements, does this saturation proclaiming of factory authorization mean that these agreements are replete throughout industry?

I am perfectly willing to believe that there is a good reason for advertising the factory's assent to your prices (in a quarter page newspaper advertisement, taking two lines of 72 point type to tell consumers that ain't cheap, so you'd think it's accomplishing something). That said, it is a strange trope because -- to me, at least -- it conveys virtually no useful information. Experts and amateur theorists on consumer psychology, please reply. Plus, if "factory authorized" elicits some deep-seated positive consumer response, look for many "Factory Authorized PFF policy studies" in the coming year -- our swing shift does great work on public choice theory!

- posted by Ray @ 1/2/2004 10:58:18 AM

Twenty New Years Later
In today's Washington Wire column, the WSJ points out that yesterday was the 20th anniversary of the AT&T breakup. According to the WSJ, today more than half of long distance calls are wireless. (Try asking your 18 year old with a bucket of anytime, anywhere cell phone minutes what "long distance" even means!). And the Journal item notes this as well: "In 1984, the Internet was just a twinkle in Pentagon researchers' eyes. Now consumers can make calls over it."

Message to the FCC and state regulators: It's way past time to reform the regulatory regime to match the realities of what is going on in the marketplace. For all the support you need, see the Contestability report that Joseph Kraemer, Richard Levine and I released in early December documenting the surge of new competition from wireless, cable telephony, electronic messaging, VoIP, and others.

Suggested New Year's Resolution for FCC and state regulators: Say "I will be bold in 2004" twenty times. Then actually be bold by creating a much more uniformly deregulatory regime that treats comparable services in a comparable fashion--regardless of what name the service goes by or what the piece of equipment looks like at the end of the line. Reduced regulation will encourage new investment by all the various facilities providers. If the courts don't back you up--always a possibility--then at least you will have done what is right and prepared the way for any necessary legislative action.

- posted by Randolph May @ 1/2/2004 09:39:13 AM

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