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Coase's Bargains, Public Ownership and Roaming Bison
Charlie Meyers' outdoors column in The Denver Post presents a classic Coase-ian situation. A roaming bison herd ignores fences and despoils the South Platte, a magnificent trout fishery.

I will forgive Mr. Meyers for missing the Coase theorem's application here. The extra-credit question: what is the problem preventing a solution? I turn that over the Law and Econ of the Information Age students.

- posted by Ray @ 2/29/2004 10:42:34 PM

For the children...
There's nothing so seemly as members of the FCC leapfrogging each other to be against indecency.
- posted by Ray @ 2/27/2004 08:13:18 PM

What's In a Name?
An ice storm in the Carolinas has delayed my reading of today's papers. No matter, the papers were chock full of good stuff yesterday. The Washington Post had a story on the race to name computer viruses. It takes readers through the process of naming the MyDoom virus. In all, some 77,000 pieces of malicious code have been identified. Usually, the names result from accepted and informal standards that have emerged in the anti-virus community. A move is afoot to formalize the process.

Master telecom polemicist Peter Huber wrote about the Attack of the ‘Cuisinart’ Regulators on the op-ed page of The Wall Street Journal. (Registration required.) While we typically think of wireless as the “unregulated” segment of the telecom marketplace, Huber dispels the notion by recounting the reasons how and why spectrum has been patiently re-combined by national providers. His bottom line: “Every rationale for chopping up the stuff of networks has thus been repudiated by the market. The Cingular merger should be approved forthwith, and without conditions.”

He clings to the unfashionable idea that networks have value because they combine various assets. If only regulation on the wireline side of things would recognize this obvious truth. More networks, and more investment in network facilities, are rewarded by innovation and increased consumer demand. I for one would not want to be a “Cuisinart” anything…and Huber’s piece is a fine argument against using the government to “chop up” telecom networks.

- posted by Kent @ 2/27/2004 01:32:33 PM

The Wealth of (Creative) Nations
A new and interesting-looking book is described on the AEI website -- Poor People's Knowledge: Promoting Intellectual Property in Developing Countries.

According to the blurb: "This book is about increasing the earnings of poor people in poor countries from their innovation, knowledge, and creative skills. . . . The contributors' motivation is sometimes to maintain the art and culture of poor people, but they recognize that except in a museum setting, no traditional skill can live on unless it has a viable market. Culture and commerce more often complement than conflict . . . . "

It sounds like more support for the view that property rights and markets are important instruments for the promotion of culture as well as wealth.

- posted by James DeLong @ 2/26/2004 04:49:06 PM

Grover Come Home
Today the Washington Post reports on a letter sent from a dozen telecommunications and regulatory scholars to conservative leader Grover Norquist. The letter calls for a national broadband policy to promote deregulation. As a friend, colleague and usual ally, the letter calls for Grover to join the fight for free markets and deregulation. And we all know Grover is not one to avoid an opportunity to fight for limits on government meddling.

What may be lost on readers of the news story is a pattern of support for new governmental interventions in the telecom marketplace and new economic regulation. An earlier post goes right to the heart of the issue with an excellent link. No reason to expect the give and take on this issue to go away anytime soon.

I do have one major quibble, and it is with the copy desk at the WP where I assume the headlines are written, there is nothing unusual about disagreement among conservatives or scholars. It is part of the discovery and education process.

- posted by Kent @ 2/26/2004 03:21:29 PM

Mossberg Likes VoIP
Well, everybody's having their say about VoIP. (BTW, if you want to act like you are "in the know" then you pronounce it "V-OY-EEP", rather than "Vee-Oh-Eye-Pee". One day about two months ago, without any warning, those of us in the know switched pronunciations, probably for metaphysical reasons.)

Anyway you say VoIP, everyone is talking about it. In today's Personal Technology column in the Wall Street Journal, Walter Mossberg, under the headline "Vonage Makes Phoning Through the Internet Convenient and Cheap," writes: "If you're sick of your local or long-distance phone company, you now have an alternative: Internet phone calling." What's all this crazy talk about local phone competition?

Mossberg reviews the features and pricing that makes Vonage's offering attractive. But for anyone having difficulty understanding why "V-OY-EEP" services like Vonage's are interstate services that should be (and must be) effectively free from state economic regulation, consider the following from Mossberg's column:

[I]f you don't want to keep your current phone number, you can choose a new one, free of charge, from nearly any area code in the country. So, you could be in Des Moines, but have a New York City phone number. And you can move your adapter box to another location, even overseas, and plug it into a phone and a broadband Internet connection. You will still be covered by your same rate plan, and will still appear to be calling from your own phone number at home. Plus, Vonage offers "virtual phone numbers" for an additional $5 a month each. These extra numbers can have different area codes, but will ring on your regular phone. So, if you lived in Boston and your mother lived in San Francisco, you could add a virtual San Francisco number and when your mother called you, it'd be a local call.

What's a PUC to do? Get restraining orders to prevent Vonage's customers from moving their adapter boxes across state lines? Maybe there will be a new crime: Transporting a Vonage adapter box accross state lines with intent to continue making cheap phone calls. May get you up to a year in the state penitentiary.

Sooner or later, there will have to be a recognition that, in today's competitive environment, it's time for a new deregulatory telecom paradigm that will be applicable to all service providers, and one that is not dependent on VoIP Metaphysics. Sooner is better.

- posted by Randolph May @ 2/26/2004 03:02:53 PM

Computer Games
Tyler Cowen has some interesting thoughts on computer games, art and culture, over at Marginal Revolution.
- posted by James DeLong @ 2/24/2004 03:26:46 PM

The Senate Looks at VoIP
The Senate Commerce Committee held a hearing this morning on VoIP. [It is that link above the very important "Seafood Processor Quota Hearing." Finally, the Senate will address that smelt overfishing epidemic!]

The statements are here: Senator McCain, Senator Alexander, Chairman Powell, Jeff Citron of Vonage, Glenn Britt of Time Warner Cable, Glenn Post of CenturyTel, Stan Wise of the Georgia PSC, and Kevin Werbach of Supernova Group.

All witnesses have high praise and hopes for VoIP. But the consensus breaks down there. Not surprisingly, no one is for "unnecessary regulation" (which usually has a burgeoning constituency). Senator Alexander, Glenn Post and Stan Wise give voice to the "regulate it more" position. By contrast, Senator McCain, Chairman Powell, Jeff Citron, Glenn Britt and Kevin Werbach argue that VoIP should be left relatively unregulated. My sympathies lie with the latter group.

VoIP does bring the defects of the current intercarrier compensation system to the fore, however, and these are difficult issues to resolve. It would be a colossal mistake to drag a new technology into the old regulatory paradigm, but the legitimate reliance interests on the old intercarrier compensation model cannot simply be ignored. It will be a signal exercise in regulatory prudence to work it out. Good luck, Mr. Chairman.

- posted by Ray @ 2/24/2004 02:50:36 PM

Sununu’s VOIP Salvo
Senator John Sununu enters the VOIP fray this morning with an op-ed in The Wall Street Journal. (Registration required). He promises to introduce legislation soon to prevent undue regulation of Internet telephony. The contours of his legislation include 1) VOIP defined as an information service, 2) federal jurisdiction for VOIP and other Internet-based applications based on the Commerce Clause, 3) and he says “my bill will protect this data service from taxation.”

Cynics might argue that the legislative process is long and cumbersome and so there is little to cheer in the mere announcement of legislation. Fair point. The FCC will take action before the U.S. Senate. Nonetheless, the legislature is ready to join the fray on an important regulatory issue and this is good. However, there is a secondary good achieved by Mr. Sununu this morning. It is educational. We have an attractive and articulate Senator from a swing state promoting a pro-growth, un-regulatory position for the digital economy. In many respects, he is echoing the sentiments of a prominent federal regulator on these issues. It is an interesting one-two punch but if there is no follow-up from the White House, an opportunity to take action on an innovation agenda for the economy – and for consumers – will be missed.

- posted by Kent @ 2/24/2004 10:33:54 AM

Recess Appointment No. 2
Back in September, I wrote a piece in Legal Times called "Checkmate in the Judges Game" urging President Bush to use his recess appointment power to try to break the Senate filibusters holding up several of his key judicial nominations. I wasn't really that optimistic that he would do it, but in January, the President appointed Charles Pickering to the Fifth Circuit Court of Appeals on a recess basis. And today he has given a recess appointment to the Eleventh Circuit to William Pryor, Jr., the Alabama Attorney General, who was nominated to the bench more than 10 months ago and whose nomination had been favorably reported out of committee.

Here's what I wrote back in January in this space when Judge Pickering received his recess appointment:

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

Well, that's still my view. An election year is a good time, maybe the only time, to have a constitutional conversation about the role of the courts, the confirmation process, and proper modes of constitutional interpretation. Such a ongoing dialogue--and the education that results--is essential to maintaining a culture which repects the rule of law.

- posted by Randolph May @ 2/20/2004 08:30:06 PM

VoIP in the States
Jeff Pulver has a useful update of state proceedings to consider the regulatory status of VoIP. Public choice theory devotees might try to predict the outcomes of the various proceedings based on the access-dependence of the rural incumbents' in the various states. Through this prism, Alabama, North Dakota, Minnesota and Utah would be the most likely to give in to the impulse to regulate VoIP. Minnesota of course has already tried, and Calfornia sure seems to want to.
- posted by Ray @ 2/19/2004 05:37:56 PM

Et tu, Glenn?
Glenn Reynolds, the 800-pound gorilla of conservative bloggers, sympathizes with a New Jersey woman who is suing the RIAA for enforcing its copyrights against unauthorized downloaders.

He does not address the pragmatic question: what is the alternative? If music is not protected so it can be sold in a marketplace, then how will a continuing flow of professional-quality product be provided? The “let them sell T-shirts” approach is risible; the numbers for the “give concerts” approach do not add up; and the compulsory licenses idea dissolves under scrutiny, as discussed in a nice recent paper by Professor Robert Merges.

The RIAA execs hate suing people. Nor do they enjoy getting pummeled from both left and right. If anyone gives them a viable option, they will seize it. But no one has. So their strategy has to be to maximize availability of legitimate downloading services and at the same time raise the costs of illegal downloads.

And, really, what is the objection to this? The alternative is to destroy the music-production system, and it is unlikely that fans would find that to their liking.

- posted by James DeLong @ 2/19/2004 02:28:12 PM

Eldred and Economics
Professors Stan Liebowitz and Steven Margolis, who have done fine work on the intricacies of network issues and the Microsoft case, have published an analysis of the amicus brief filed by a pack of economists in Eldred v. Ashcroft (last year’s Supreme Court decision on the extension of copyright terms).

Their conclusion: “There are important aspects of the economics of copyright that were ignored or not fully considered by the Eldred economists. They overlook factors, such as the elasticity of supply of creative works, which might reverse their conclusion about the impact of copyright extension on the creation of new works. They neglect the possibility of network effects in the market for derivative works that might make a copyright commons uneconomic, independent of any impact on supply. Finally, they avoid the difficult empirical work that would be needed to provide an answer to the question they entertain.”

Read it: Seventeen Famous Economists Weigh in on Copyright: The Role of Theory, Empirics and Network Effects (AEI-Brookings Joint Center for Regulatory Studies, January 2004).

It is a nervy piece, considering that the brief was signed by some of the true big-foots of the profession, but it is also an important one. I admit to an interest here; I was feeling lonely because of my criticism of the economists’ brief in a PFF paper last year, Intellectual Property in the Internet Age: The Meaning of Eldred (see pages 13-15), and I am happy to have company, especially because my lawyer-based treatment lacks the elegance of Liebowitz and Margolis.

- posted by James DeLong @ 2/19/2004 09:43:40 AM

Universal Support for Powerline Broadband
Among its VoIP activity last week, the FCC approved an NPRM on broadband over power lines (BPL). All five members supported it. After the standard support for a promising new technology, the commissioners mentioned interest in how BPL relates to homeland security and critical infrastructure and consumer choices among “multiple, facilities-based providers” of broadband services. Commissioner Martin focused on the role of regulation to prevent interference while Commissioner Copps lamented – and dissented in part – that the hard questions about “CALEA, universal service, disabilities access, E911, pole attachments, competition protections” were not considered by the NPRM.

Special mention should be made of Commissioner Adelstein’s statement. Some may argue that radio frequency interference is reason enough for Commission rules. But Commissioner Adelstein goes one step further and gives the NPRM statutory grounding:

A little noticed provision of the Communications Act, Section 157, reads that “[i]t shall be the policy of the United States to encourage the provision of new technologies and services to the public.” I am fully committed to that mission to promote new technologies, and to provide a framework for innovation so they can succeed. In order to do so, we must first resolve the technical interference issues addressed in this NPRM.”

Kudos for his fidelity to the law. But after last year’s disastrous attempt to produce the TRO in a timely fashion, let’s hope that we are not back in this space next year reminding the Commission of another instruction from Section 157: “If the Commission initiates its own proceeding for a new technology or service, such proceeding shall be completed within 12 months after it is initiated.” Consumers shouldn’t have to wait a year for regulatory clarity in VoIP and BPL.

- posted by Kent @ 2/19/2004 09:30:41 AM

Civility, in an IP debate? Hah!
I spoke too soon when I said, last week, that civility has broken out in blog exchanges about the Free Culture Movement. Larry Lessig is seriously irritated with my comments. He says:

"But here’s the real question. Do these DC types (a bit of bit-head thinking, I agree, but sometimes it is necessary) really just not read? Or is this willfulness inspired by the belief that their funders don’t read?

“And Mr. DeLong: If you’d like to debate this in a context where misstatements can be corrected directly, I’d be honored to debate you. Obviously, that would have to be an ‘open’ context, where people were “free” to disagree with you and quote you without your permission. I hope that isn’t too communistic for your taste. “

I feel similarly aggrieved – “How can he say that? Clearly, he fails to appreciate the true subtlety and nuance of my thought!” And I have accused the FCM folk of themselves being bit-headed. (The familiar logical argument, "You're another!") So I think a debate would be a fine idea.

PFF has its annual Aspen Summit coming up from August 22-24, and we will certainly invite Professor Lessig to come and discuss these matters. But that may be too long to wait, so we will also see if we can set something up on one coast or the other before then.

I suspect that we will find that we have some common ground, and some areas of sharp disagreement, and bringing these and the reasons behind them into focus would be useful.

- posted by James DeLong @ 2/18/2004 04:47:09 PM

Can the Reulators Regulate Their Way to Deregulation?
Adam Thierer, the Cato Institute's director of telecommunications studies, has just penned a cogently argued "Open Letter to Pro-Regulation Conservatives." As usual, Adam is pretty pointed--and pretty much on point. In this piece, he takes on Jim Glassman, Grover Norquist, and Bruce Fein--generally pro-free market thinkers and supporters--for their pro-regulatory stances and lack of faith in the marketplace when it comes to the telecom industry. Well worth reading.

Adam correctly points out how the FCC's unduly excessive infrastructure sharing regulations do little to bring about real facilities-based competition. The 1996 Telecom Act may have mandated that the FCC require facilities-sharing to some degree for some period of time, but not to an unlimited degree for an indefinite period of time. Conservatives usually oppose this type of overzealous, no-end-in-sight regulation.

While Adam doesn't mention property rights in his letter, I might add that the regulatory sharing mandates obviously are in derogation of the property rights that the service providers otherwise would have with respect to determining the use of their facilities. Apart from any property-rights concerns from a legal perspective relating to the FCC's infrastructure sharing mandates, as a matter of prudential policy, conservatives usually think twice before endorsing regulatory regimes that materially impact property rights.

To me, anyway, this is all as much a matter of classical liberalism, properly understood, as some conservative Rorschbach test. The real issue, as Adam's letter asks Messrs. Glassman, Norquist, and Fein to ask themselves is this: "If you believe in free markets, do you really believe that the regulators can regulate their way to meaningful deregulation?"

- posted by Randolph May @ 2/18/2004 02:34:00 PM

Procedural Modesty
In his news conference after the FCC's Thursday meeting on VoIP, TR Daily reports that William Maher, chief of the FCC's Wireline Competition Bureau, said: "One thing I think is clear is that the Commission took the step of proving that it would evaluate services in a fact-specific, case-by-case, thoughtful way, rather than trying to make very broad, sweeping generalizations."

We'll have to reserve final judgment until the full text of the FCC actions in the Pulver.com case and in the new VoIP Rulemaking proceeding are released. But the sentiments expressed by Mr. Maher favoring a case-by-case adjudicative common law approach has much to commend it as an approach for minimizing regulatory overreaching. Although I tried--see my February 3 piece "VoIP Regulation--A Plea For Procedural Modesty"--I couldn't have put it much better than Mr. Maher.

I reiterate: The Commission's forthcoming NPRM likely will produce sounder policy that is not unnecessarily regulatory--and likely produce such a result in a more timely fashion--if the Commission avoids "broad sweeping generalizations" and offers instead concise, focused proposals for comment. Open-ended rulemakings encourage regulatory logrolling and regulatory tit-for-tats , or this-for-thats.

Three cheers for procedural modesty!

- posted by Randolph May @ 2/16/2004 07:58:52 PM

Arnold Kling on the atavistic desire to regulate VoIP
What he said. If he thinks Commissioners Adelstein and Copps are bad, he hasn't looked in on the CA PUC recently.
- posted by Ray @ 2/13/2004 09:38:43 PM

Triennial Blowback
Responding to a motion by CO Office of Consumer Counsel, the Colorado PUC stayed its mass market switching and hot cut proceedings this morning until the DC Circuit issues its opinion in USTA v. FCC (with, from what I could tell on the webcast, a 3-0 vote). While there are pros and cons in doing so, the PUC's decision makes sense given the statements and questions raised by the judges during oral argument in that case.

This follows Virginia's decision to stay its switching proceedings two weeks ago, where the VA Corporation Commission concluded: "We find it has not been established that the FCC's delegation of authority in this matter is lawful."

- posted by Adam @ 2/13/2004 12:10:00 PM

The Regulators' Dilemma
Yesterday’s FCC ruling that pulver.com’s FWD is an interstate information service is a good first step, but it also was the easiest one to take (this coming with a 3-2 vote, no less!). While Chairman Powell has shown great leadership in pushing the issue to the forefront, states may be tempted to fill the regulatory void before the FCC's newly initiated VoIP proceeding concludes.

California is one of those states. On Wednesday, the CPUC asserted jurisdiction in order to determine the “extent of regulation on VoIP carriers,” including intercarrier compensation, universal service, and public safety.

You might also try to assert jurisdiction over Atlantis while you’re at it. With the FCC’s decision, “computer-to-computer” VoIP applications such as pulver.com, Skype and who knows what will be free from the economic regulations traditionally imposed on common carriers.

Imposing heavy-handed regulations at the state level (assuming they are not preempted) will only cause the technological end-run to progress farther toward the edges of the network. To the extent that states are “successful” in regulating VoIP providers (likely those residing at the physical layer), regulations would only cause companies to shift their VoIP services toward greener c-to-c pastures. Furthermore, there will be spillover costs to other states and their consumers. See Doug Sicker’s paper for the full details.

Covad’s Jason Oxman pointed me to an article in Wednesday’s Wall Street Journal which helps to illustrate this point. The article describes how manufacturers now include expiration dates on bottled water that purportedly has a shelf life of one or two years. The Department of Homeland Security and the Red Cross advise people to replace stored water before it expires.

But bottled water, according to the FDA and human reasoning, never goes bad. So why the expiration dates? Because New Jersey, for no reason the article's author could discern, requires them. And since it’s easier and more cost-efficient for manufacturers to comply with the New Jersey law, they label every bottle.

Instead of jumping the gun on VoIP (because, despite all the hype, there is time to properly sort out the multifarious public safety and law enforcement issues), states should tackle those well-known but politically inexpedient issues in order to set the proper conditions for the coming VoIP age: rate rebalancing, universal service and access reform.

- posted by Adam @ 2/13/2004 01:18:19 AM

Broadband Fiasco
The WSJ's lead editorial this morning, "Broadband Fiasco" is right on about urging the Bush Administration to get behind deregulatory telecom policies in order to stimulate broadband deployment and use in this country. The editorial needs to be read widely, but especially by Bush's economic policy team.

The key WSJ point: "By subjecting the phone companies to regulations that exempt cable, satellite and wireless companies -- as if those classifications still mean anything to people outside the regulatory world -- the government is not only picking winners and losers but also limiting consumer choice. It's long past time that the government establish a clear national broadband policy that puts all competitors under the same rules."

I highlighted the pointlessness of relying on arcane, almost supernatural arguments tied to outdated regulatory definitions in my CNET piece entitled, "The Metaphysics of VoIP." That's what the WSJ means when it says "as if those classifications still mean anything to people outside the regulatory world."

PS--Well, I can't resist saying I like the WSJ's opening line: "Long before Janet Jackson's Super Bowl stunt, the Federal Communications Commission was debating the issue of unbundling -- telephone networks, that is. We only wish the FCC took this as seriously as it does Ms. Jackson's nudity." It reminded me an awful lot of my blog entry of February 2 posted in this same space:

"FCC Gets Further Mired In Unbundling Issues

Well, in the aftermath of the Super Bowl halftime show featuring the unbundling of Janet Jackson, FCC Chairman Michael Powell has instructed the staff to open an immediate inquiry into what he termed the "outrageous" broadcast. He promises the investigation "will be thorough and swift."

The FCC already has been mired down for years in debates over unbundling, but these not-so-sexy proceedings have involved the unbundling of telephone network elements. Maybe when the commission uncovers, swiftly, how the star of the halftime show came to be unbundled, it will then be able to apply that same passion for speediness to finally straightening out unbundling of the telephone network. (Whether JJ's competitors are impaired....well, I'm not going there!)

- posted by Randolph May @ 2/11/2004 03:02:35 PM

More FCM
Kevin Werblach’s blog this morning has some interesting additions to the dialogue over the Free Culture Movement. Something unusual seems to be going on here -- a serious outbreak of civility in an Internet discussion.
- posted by James DeLong @ 2/11/2004 11:52:28 AM

Lobbying The Court
Donna Sorgi , vice-president of federal advocacy for WorldCom, is quoted in the Feb. 10 edition of TR Daily [subscription required] as stating that CLECs are almost sure to lose the Triennial Review appeal. She goes on to say that in light of the forthcoming anticipated adverse decisison "it is it critical for all of us to meet with our Congresspeople . . . so that when the adverse decision comes out, as we expect it will as early as late February, we can have key public officials, particularly prominent Republicans, speak out and demand that this decision get reviewed by the Supreme Court on behalf of consumers and the companies offering competitive services."

Well, I know I am probably a bit old fashioned, but it just seems to me that one appeals to the Supreme Court in briefs based on legal arguments. Not by rallying the troops to "speak out" and "demand" the Court do this or that. Lobbying, of course, has a long and noble history--and, what's more, it's protected expression, of course. But the lobbying activity is better directed to get the lawmakers to change the law--if that is what WorldCom thinks needs to be done--not to get the lawmakers to demand that the Supreme Court take a case and decide it a certain way.

As I said, I'm old fashioned that way....

- posted by Randolph May @ 2/11/2004 09:58:33 AM

Net Neutrality, Private Ordering and FCC Jawboning
Chairman Powell's speech at Silicon Flatirons is receiving a fair amount of attention, and rightly so. Kevin Werbach has some comments, as does Professor Lessig.

I think some ambiguity in the speech allows proponents and opponents of so-called net neutrality to see what they want. While the Chairman endorses the principles of maintaining end-to-end, he affirms that there is no need for regulation:

Based on what we currently know, the case for government imposed regulations regarding the use or provision of broadband content, applications and devices is unconvincing and speculative. Government regulation of the terms and conditions of private contracts is the most fundamental intrusion on free markets and potentially destructive, particularly where innovation and experimentation are hallmarks of an emerging market. Such interference should be undertaken only where there is weighty and extensive evidence of abuse.

Two presentations made before the chairman's speech at SFTP bear on this. Howard Shelanski and Simon Wilkie -- both former FCC chief economists -- discussed the economic case for 'net neutrality' regulation, and in different ways urged caution before regulating. I think Professor Shelanski's conclusions are quite right: "Policy makers should presume the end-to-end principle but should not make it an unconstrained objective." Only if you are in a situation of a physical layer monopoly might you be worried about mandating an end-to-end principle.

It seems to me that the end-to-end principle is valuable, but should not be unduly elevated so as to impede consumer-beneficial network-side integration and discrimination. For instance, you can imagine a broadband provider, either as a way to effectuate (good) price discrimination or offer consumers a sorting function, will implement in-network solutions that consumers would benefit from. Indeed, some security and sorting might even be better if not relegated to the ends. So long as the consumer knows, I see no problem with this. Another example might be a "walled Internet" package for children, where the broadband provider takes it upon itself to sort and limit access to the many non-kid friendly parts of the Internet. Do it yourself at the ends, you say? Why if I am willing to pay my broadband provider to do that function for me should I be denied that choice as a consumer?

In student questions, the Chairman emphasized that there are beneficial forms of "discrimination" and that he would never want to prohibit bundling and packaging that consumers might find beneficial. Integration might allow providers to add a inframarginal customer, for instance, or meet the needs of the Weiser "dumb consumer."

Finally, I am not all that fond of the "regulation by jawboning"
school that this speech represents. One needs only to look at the Brand X Internet case to see its potential weaknesses. That said, in the words of Professor Wilkie, you can foresee both a good and bad equilibrium developing in the broadband market. Because you don't know which one we will end up in, it is probably prudent to hold out the possibility of regulation to correct the bad equilibrium, but also set out your principles such that you signal you are a long way from actually seeing that bad equilibrium and hence regulating.

- posted by Ray @ 2/10/2004 06:25:53 PM

GAO's Most Recent Cable Study
In a report released by GAO today, entitled, “Wire-Based Competition Benefited Consumers in Selected Markets,” the agency concludes “there are measurable consumer benefits in markets with BSPs [Broadband Service Providers] compared with markets without such competition.” GAO itself rightly emphasizes that there are doubts about “the degree to which the BSP model is replicable throughout a broader set of markets.”

Putting aside particular questions relating to the GAO study’s methodology, such as the very small sample of markets, I wonder about the value of GAO’s focus only on “wire-based competition” for multi-channel video services. Sure, more competition is welcome from any quarter, although GAO does question the soundness of BSP [aka “cable overbuilders”] business, financial, and marketing plans. Most importantly, however, as the FCC’s just released annual Video Competition Report makes clear, the cable industry faces plenty of competition in the digital multi-channel marketplace from a variety of facilities-based providers using multiple technologies, not least of which are the still-growing direct-to-home satellite service providers. Presumably, that’s why GAO is not recommending saddling cable operators with any new regulatory requirements.

Wouldn’t it be nice, though, if GAO—rather than embarking on its own costly study—had just waited for the FCC to release its most recent congressionally-mandated annual Video Competition Report (now in the tenth year!) and simply issued a one-liner affirming what should be obvious to all: Due primarily to technological advances, the multi-channel video market, indeed the broader digital broadband marketplace of which “video” is just one (increasingly inseparable) segment, is effectively competitive and offering consumers a broader array of choices than ever before in history.

- posted by Randolph May @ 2/10/2004 05:35:47 PM

More on the Free Culture Movement
Kevin Werbach takes issue with my post yesterday on the Free Culture Movement, arguing that successful open source projects are indeed based on property rights because they depend on well-defined software licenses.

His point has some merit. The open source movement has several branches. Some of these are hospitable to a regime that is partly private and partly public, a rough analogy to the physical world, in which we depend on a mixture of private lands and a commons infrastructure of roads, communication rights-of-way, and other public facilities. In the software area, the Berkeley Software Development license would fall into this camp.

Other parts of the movement are not hospitable to property rights. The Free Software Foundation is dedicated to the idea of using property rights in the form of the “copyleft” General Public License to undermine copyrights in proprietary software -- a sort of ju-jitsu trick.

Lessig’s Creative Commons is a neat attempt to bridge these gaps, providing licenses for every ideological taste. It is a very useful enterprise.

In my view, the Free Culture Movement in general tends to be overwhelmingly tilted toward the FSF view and much too little inclined toward the BSD. Nor does it recognize the importance of property rights in spreading ideas and culture, a point made in a recent article by R. Polk Wagner. However, I would be delighted to be proven wrong in this judgment of the FCM.

I take umbrage at Werbach’s characterization of me and my ilk as “copyright maximalists.” It is clear as a matter of historical experience and common sense that property rights get cut and trimmed to fit the technological and transaction-cost realities of the age. This is inevitable and proper -- my book Property Matters: How Property Rights Are Under Assault and Why You Should Care (1997) devoted several chapters to this theme. (You can buy it for a buck and a half on Amazon.) Harold Demsetz looked at this issue in his classic 1967 article, Toward a Theory of Property Rights.

The Internet is creating new technological and transaction-cost realities, and property rights are getting cut to fit, sometimes with a razor and sometimes with a meat-ax. This is both good and bad, and I have been on both sides of the issue. For example, I have defended both the music industry and the music downloaders within the space of 1,000 words, which is a pretty good trick.

Take another example: Should I have linked to the Demsetz article in the above paragraph? It is a link to the American Economic Review, which is a copyrighted publication. My view is that if Google finds it, I can link to it. If the linkee does not want this, it has the responsibility of protecting itself. The transaction costs of any other property regime are too high. In the Montana of the 19th century, the farmers had the responsibility of fencing their fields to keep the cattle out; it was not the ranchers’ duty to fence in the range. I am also influenced by fair use considerations in the context of a political discussion, and by the impossibility of accessing the article even for payment. But the AER might take a different view of finding my cattle in its field.

Finally, contrary to the claims of the FCM, the trend in copyright has not been a one-way road to expansion. As a former Register of Copyrights pointed out:

"During the past 90 years, to solve political controversies and to hand out economic freebies to sympathetic supplicants, Congress has sweet-talked authors into giving up their right to say yes or no to a use of their works -- the essence of a property right -- in exchange for a longer term. A long list of special pleaders now gets free use of copyrighted works, including small businesses, veterans' groups, bars, scholars, restaurants, fraternal groups, marching bands, Boy Scout troops, nursing homes, libraries, radio broadcasters and home tapers. Another long list of powerful industries gets to use copyrighted works in exchange for a small government-set fee, whether the author likes it or not: cable and satellite companies, record companies, juke-box operators, public broadcasters and, most recently, Internet companies."
(Ralph Oman, Letter to Editor, Washington Post, March 11, 2002, p. A20.)

The FCM should be making important contributions to the process of redefinition, but so far what we hear from it is why property rights are bad, in whatever context happens to be under discussion at the moment, except, perhaps, for the spectrum problem mentioned by Werbach. The FCM should be on both sides of the issue – “here is where rights should be trimmed, and here is where they should be expanded.”

- posted by James DeLong @ 2/10/2004 10:42:27 AM

Net Freedom
Chairman Powell issued a new policy statement yesterday at the Silicon Flatirons symposium which is now available at the FCC's website. Building upon recent speeches in which the Chairman has described the digital migration as giving "power to the people," Powell stated that consumers have a high expectation of maintaining the choices they currently enjoy due to the Internet's open architecture. In a warning of sorts, Powell added that industry should embrace openness and choice to avoid future regulation. It's not "charity," Powell emphasized, but "good business."

Powell also outlined four principles of what he called "net freedom," including the consumer's choice to (1) access legal content; (2) applications or application development; and (3) attach equipment to the end of the network. Most important, in Powell's view, is that (4) consumers must receive clear information from broadband providers about the packages they offer.

Answering questions from the audience, Powell added that he is not calling for network providers to be "big dumb wholesale providers" and the FCC would still need substantial evidence of consumer harm in order to bring in regulation. He challenged industry to publicize (and compete upon) the fact that they adhere to the principles, and also challenged consumers to hold industry accountable, as they are the "ultimate judges of what is working." At bottom, Powell concluded, the market is a dialogue between producers and consumers, and industry needs to be more responsive to "the digital generation."

The timing of the speech could not be more promising for VoIP providers as the FCC is set to rule on the Pulver.com petition and issue the VoIP NPRM later this week.

(Sidebar - kudos to the law students at The University of Colorado for asking succinct questions of the Chairman, instead of the usual "look at what I know" soapboxing by industry reps and academians that normally goes on during the Q&A sessions at these conferences).

- posted by Adam @ 2/9/2004 09:42:30 PM

Copy Left (continued) OR The Free Culture Movement
The story so far: On January 25, the NYT Magazine ran an article by Robert Boynton called the “Tyranny of Copyright?” which lauded Professor Lawrence Lessig of Stanford and various other members of the “free culture movement,” aka “the Copy Left.”

Now, Professor Lessig has blogged two “important quibbles” about what he regards as “an otherwise great article”:
• The division of credit; Lessig thinks the article makes too much of his former home, Harvard, and not enough of contributors from other places.
• Lessig characterizes as “silly” the article’s use of the term “Copy Left” because “the movement” is not of “the [political] Left.” Nor does this capture the meaning of “copyleft,” the term coined by the Free Software Foundation.

Lessig also notes that PFF “launched an attack on ‘the movement.’” Bill Adkinson of PFF did make what we would prefer to call a comment, but let that bide, since Lessig does not address its substance.

Today’s Episode: Those on the other side of the Free Culture Movement care little who gets the credit or blame for it, but the question of its political orientation is a fascinating one.

The FCM does not think that production and consumption of intellectual creations should be organized by property rights and markets. Instead, it favors a mechanism of production based on the open source software movement, in which software is made available at no charge, and is also freely modifiable by the world at large. When asked how the producers of intellectual products would be funded, the FCM talks of patronage, government subsidy, taxes on hardware with subsequent distribution to creators, provision of services related to the creations, and advertising.

Realistically, since so much of the FCM is academically-based, a further answer is redistribution from tuition-paying parents and university endowment funds. (I can’t resist noting that one of the most valuable pieces of property one can have in the contemporary U.S. is a tenured chair at a major university. It is worth a couple of hundred grand per year, most of the teaching is off-loaded onto untenured peons, you can work on what you want, and you won’t be fired, except, perhaps, for supporting a political conservative.)

In the end, because the other methods are insufficient, under an FCM regime most funding would have to come from government support, either through subsidy or through taxes or fees that are then redistributed according to government-mandated formula.

In my view, this combination of hostility to property rights and markets plus faith in government management is the defining characteristic of the political left. But I do not really care about the label. Whatever you call it, it is a bad idea.

Nor was the NYT article “great.” It was a piece of vapid incoherence. It threw into one big stew issues of economic support for creativity, freedom of political debate, the interactive nature of artistic endeavor, and issues of “fair use.” It accepted the exaggerations and obfuscations of the FCM as gospel. It cited Linux as a general model, despite the reality that Linux is the product of its own specific context, and is not a model for much of anything, including software. It failed to distinguish, except in one throw-away phrase, between the many different types of creative products – music, movies, software, games, books, magazines, newspapers, and academic journals -- all of which present distinct issues.

There is no doubt that the FCM is raising some real issues, and pointing to some real problems. But, IMHO, the fact that it is in fact politically motivated detracts from its ability to develop solutions to those problems. And yes, I think it is indeed of "the Left," in the sense that it is opposed to property rights and markets, and would ultimately, in effect if not by intent, undermine the human freedom and economic progress that depends on these institutions.

- posted by James DeLong @ 2/9/2004 12:25:15 PM

A vastly inferior understudy
The unfortunate cancellation due to illness by Professor Lessig at Silicon Flatirons today left the indefatigable Professor Weiser and me to stand-in as the opening speakers at the conference this morning. "Sunday morning at the Improv with Phil and Ray" was doubtlessly less compelling, and certainly more off-the-cuff, than what Professor Lessig would have said.

Soldiering on, we at least discussed the themes that Phil saw as unifying the conference: openness of the Internet layers, public choice perils inherent in a changing regulatory environment, digital technology and copyright, and the institutional competence of courts and agencies. Naturally, I am categorically against openness, see public choice dangers everywhere, defend copyright in its ragged glory and view neither courts or administrative agencies as competent to make regulatory decisions. Next question? (Boy am I in trouble if I convey irony less well than I think I do.)

And, despite what I think was a principled divergence -- I do so hate the word attack -- that PFF (Bill Adkinson, actually, we have no corporate view) expressed about the Copyleft worldview, we sorely missed the presence of Professor Lessig at the conference. Though I disagree with him quite a lot, there are few minds more interesting to try and disagree with. I will further concede, as his post notes, the unfortunate connotations that the "copyleft" moniker brings, but will not put myself above using it for its rhetorical evocativeness. After all, the taxonomy has been approved by none other than the New York Times!

- posted by Ray @ 2/9/2004 02:46:31 AM

The power is in the facial hair
As promised, deep and insightful overview of the Silicon Flatirons Conference. The afternoon panel discussed the net neutrality principle with, among others, Simon Wilkie and Howard Shelanski. Very interesting discussion. However, a more important discovery emerged. Combined with earlier SFTP appearances by Joe Farrell, we can now conclude that a key qualification for FCC Chief Economist is having a beard and moustache. [Though Howard's web page displays a freshly shorn face, he has rejoined the follicularly fecund fold by the time of the conference.]
- posted by Ray @ 2/9/2004 02:10:43 AM

Blogging from Silicon Flatirons
This Sunday and Monday, The Silicon Flatirons Telecommunications Program is hosting its major conference of the year: The Digital Broadband Migration: Toward a Regulatory Regime of the Internet Age. Many digital rock stars present, including Chairman Powell, Larry Lessig, DC Circuit Judge Stephen Williams, and Craig Mundie of Microsoft.

I will be on a panel with Professor Lessig, Judge Williams, Phil Weiser, Jon Nuechterlein, Dale Hatfield and Terry Bienstock, the GC of Comcast. I will be playing the role of the silent valet to these quite impressive fellows. As usual, credit goes to a man who is probably right now somewhat nervous, undoubtedly high-strung, verging on frazzled, waiting for snowstorm to hit at the time of his conference opening, Prof. Phil Weiser, digital intellectual and conference organizer par excellance.

Adam Peters and I will be there blogging away from the conference. If Phil doesn't have wi-fi in the CU Law School courtroom, we will ridicule him mercilessly for his technological backwardness.

- posted by Ray @ 2/6/2004 03:21:06 PM

I'll be damned, markets work!
Comm Daily[subscription required] reports that AT&T Wireless and T Mobile have signed wi-fi roaming agreements for the Denver, Philadelphia and San Francisco international airports. I am really happy given the time I spend in the Denver AT&T Wireless-wired airport with my T Mobile account.

Notably, all of this happened in a unregulated market without a mandate. The respective carriers made a business decision to host each other's traffic at an agreed upon price. They win; consumers win. Regulators didn't tell them to, didn't dictate prices to them, or anything. And here I was about to call for the mandatory unbundling of AT&T Wireless's wi-fi monopoly at the Denver airport.

- posted by Ray @ 2/6/2004 03:02:31 PM

The Regulatory Right Jabberwocky
"Somehow it seems to fill my head with ideas -- only I don't exactly know what they are!"
Lewis Carroll, Through the Looking Glass

Grover Norquist is an indispensable foe of taxes, a place where we strongly agree with him. But he knows very little about broadband.

This is on display in a January 26, 2004 letter he sent to the White House. It is a classic of the public policy as agitprop genre. Unfortunately, ATR does not have it up on its website, so I shall quote liberally from the copy I received.

The genre is aimed at a specific audience: policymakers with limited grasp of or patience with the arcana of communications policy but who nonetheless might be swayed by political epithets and non sequiturs.

The letter starts spectacularly. What bugaboos get Republicans' blood boiling? Why Hillary Clinton, unions and government bureaucrats, fully three of the four horsemen of the apocalypse:

It is with great concern that I learned of the attached letter you received from Senator Hillary Clinton and signed by several other Democratic Senators, calling on the White House to create a "national policy on broadband," a specific catch phrase refined by a handful of union-dominated monopolies and government bureaucrats to micromanage broadband deployment.

The enthymeme here is, if these (bad) entities support deregulation, then all good Republicans should oppose them and by extension therefore support regulation.

This Through the Looking Glass Moment then slides into equating a call for broadband deregulation with industrial policy, the practice of government regulators deciding market outcomes:

Senator Clinton's embrace of an industrial policy model for our technology and telecommunications economy should come as no surprise: many in the Clinton administration ... were strong advocates of copying industrial policy models of our international competitors, such as Japan's Ministry of International Trade and Industry (MITI).

Thus ends the first non-sequitur.

To be sure, the Clinton FCC under Reed Hundt pursued an aggressive industrial policy of unbundling and market outcome manipulation in order to induce competitors into the narrowband communications markets. Indeed, the market is still trying to recover from the Reed Hundt hangover. For my part, I do not know Senator Clinton's full meaning when, in her letter, she states: "We fear that the absence of a clear government broadband policy is stifling capital investment and in many cases denying consumers the benefits of new technologies they want and need." But that sure doesn't sound like a call for government enacting preferences for broadband to me.

ATR's letter turns the issue on its head. The current hyper-regulatory mess is called the free market. Moves toward a less regulated broadband regime are deemed industrial policy. Right now, a host of legal and regulatory actions have the broadband incentives in upheaval. The Brand X Internet case leaves the cable players uncertain; the Triennial Review and murky status of section 271 unbundling freezes Bell fiber plays. Though the rather grandiose title "National Broadband Policy" sounds industrial policy-ish, it turns out to be a rather straightforward retreat from pervasive administrative regulation toward a reliance on traditional market norms of contract and property.

Moreover, the unfortunate reality in communications is that policymakers don't have a choice about making industrial policy. The country's entire communications history is nothing but one big experiment in industrial policy, and a failed one at that. From the Kingsbury commitment in 1913 through Carterfone, the MFJ and the Telecommunicatons Act of 1996, Congress and the states have given one big fat industrial policy invitation: Do what is in the public interest. What does that mean? It used to mean regulate entry, regulate prices, regulate quality, order cross-subsidies. What do you get? A thriving market for regulatory favor, distorted rate structures to benefit-favored rate classes.

Industrial policy anyone?

By the Norquist measure of industrial policy, a court interpreting and enforcing a contract constitutes industrial policy. After all, in a contract suit, the government decides who wins and who loses. Yikes.

Admittedly, the task of undoing formerly protected phone monopolies and working out the regulatory status of new technologies like broadband and VoIP is difficult and perilous. For better or worse, "industrial policy" must be made because the '96 Act commands it. The question is whether this industrial policy points toward markets or sinks into the regulatory status quo. A move by the FCC to clear up cable modem's legal status and categorically eliminate unbundling requirements for fiber would go a long way to getting the forward-looking investment incentives right.

The straw man rejoinder to this is that I want to deregulate everything and unleash depredatious monopolists on the land. Far from it. First of all, there is no monopolist in the broadband arena. It is a new market being vigorously contested by competing platforms. Second, I am not against the regulation contemplated by the '96 Act. Indeed, I see a place for vigorous, narrow regulation of the interconnection relationship, and even the need for a modest, time-limited unbundling regime.

Grover, who has been such a champion of so many worthy causes, needs to delve deeper than this p.r.-firm level of broadband policy. Policy work from think tanks and advocacy groups is often accused of being bought and paid front advocacy for interested players. I do not think that this is true, or I wouldn't be in this business. But, policy work can become a race to the bottom where p.r. firm talking points crowd out more principled, measured thought. Pieces like this make that case easier to make.

Finally, here's hoping that the White House continues to listen to Grover on taxes, but listens to other conservative voices on communications policy. The fundamental metric for a free market administration to apply to telecom policy cannot be obscured behind the acronyms. Less regulation allows markets and the creative destruction of a dynamic sector more quickly to herald the digital age (and, not trivially bring jobs back to the equipment and carrier sector); the regulatory status quo will leave regulators trying to superintend the outcomes, allocate market share and redistribute rents between the communications carriers shareholders.

We do not now and have not had a free market broadband policy in this country. It is unfortunate that markets regulated only by traditional norms of contract and property need to be the substance of "national broadband policy" but in the bizzarro world of communications regulation property and contract are novel while pervasive regulation and government-determined outcomes are the norm.

- posted by Ray @ 2/5/2004 03:54:14 PM

Different approaches to regulatory practice
I am on the service list in the FCC's TELRIC proceeding because of my earlier comments. The punishment for doing this is that I end up on the parties' service lists. A study in contrast are the Reply Comments of Sprint and AT&T. Sprint: 3 pages, including signature block. AT&T: 153 pages, plus a few hundred more pages of exhibits. (AT&T also takes time to attack me as a stooge on page 55 of their Reply Comments. I would be flattered but for the intellectual laziness of it all. But with only 152 additional pages, they had a lot of ground to cover.)

Both liked TELRIC, AT&T apparently just a lot more.

Update: BellSouth came in at 77 pages, with another hundred or so pages of exhibits.

Which inspires a reverie: One thing that struck me first as a law clerk and even more pointedly as a regulator was the mismatch between the often gargantuan size of lawyers' submissions and the ultimate audience; namely me. Routinely at the Commission we would get hit with multiple hundred page filings by parties, all presumably to be digested and reflected upon within the course of a week, along with dozens of other items on the docket. Of course, it was preposterous that we could actually read and digest all of the verbiage tossed our way. (The judge I clerked for quite sagely noted that the worst thing to happen to the law was the invention of the word processor because it allowed lawyers to easily go on at length.) I realize that lawyers have to cover their bases, preserve the record for appeal and exhaust all arguments, but often on the other side of the bench this came at the expense of getting to the point and giving a succinct, brief cogent argument. It almost makes one wonder whether there's an agency problem between an attorney who gets paid by the hour and the client....nah.

- posted by Ray @ 2/5/2004 07:34:20 AM

Straight Talk on VoIP
I've been a strong proponent of both substantive and procedural modesty when it comes to considering whether and how the emerging VoIP services should be regulated. In my "Metaphysics of VoIP" piece, I concluded, "given the rapidly growing competitiveness of the telecom marketplace, there is no sound rationale for traditional economic regulation of VoIP", including VoIP services provided by the incumbent telcos. As importantly, I suggested "policymakers should use VoIP to seize the opportunity to move quickly to create a uniform deregulatory environment for all the players."

In a new piece published yesterday on CNET, "VoIP Regulation: A Plea for Procedural Modesty," I urge the FCC not to initiate an open-ended VoIP rulemaking proceeding as has intimated it intends to do, but instead to proceed promptly "to create a VoIP policy framework simply by deciding the individual petitions brought before it in the least regulatory way." By adjudicating each petition narrowly on its merits, in other words by employing more of a common law step-by-step approach, "the agency is more likely to avoid regulatory overreaching." The important thing is for the Commission to resolve unsettled issues and to remove uncertainty without the inordinate delay that has typically plagued its typically open-ended generic rulemaking proceedings.

Two recent items illustrate divergent approaches to the public policy discussion regarding VoIP, one filled with straight talk and the other with obfuscation:

The National Cable & Telecommunications Association has just released a thoughtful White Paper entitled, "Responsibilities and Rights: A Regulatory Model for Facilities-Based VoIP Competition." NCTA recognizes that most of the traditional public utility legacy requirements should not be imported into the VoIP world. It eschews the metaphysical “gotcha” arguments that invoke old regulatory classifications in favor of a good-faith effort focused on trying to figure out, as a matter of sound policy, what regulatory obligations (CALEA, 911) make sense going-forward. I commend the paper for its straight talk.

Not so a February 2 piece concerning VoIP that appears on Jim Glassman's Tech Central Station by Duane Freese entitled, "Paradigm Shift or Ancien Regime?" It correctly observes--as have I--that VoIP has the potential to create a paradigm shift in communications policy. That’s true. Recall I said, “policymakers should use VoIP to seize the opportunity to move quickly to create a uniform deregulatory environment for all the players."

But then Freese’s essay employs some slick sophistry in interest of furthering AT&T's position that it should not have to pay access charges to the local phone companies for using the LECs' circuit-switched lines to originate or terminate long distance calls made using ordinary telephone handsets. AT&T maintains that as long as--get this!--any part of the long-haul backbone facilities that carry the call employ IP technology, then the call should not be subject to same access charges paid by other long distance carriers that use the LEC facilities to complete calls.

In my view, under the FCC’s current rules, as they now exist, AT&T’s position has little merit. The purpose of the access charges is to compensate the LECs’ for the use of their local circuit-switched lines, which AT&T is admittedly using. They have nothing to do with the IP long haul facilities that AT&T says it is using. But here is the real sophistry: Throughout his piece, Freese equates the payment of access charges by AT&T for its phone-to-phone service amounts with “regulation” of VoIP. This is not so, of course. What it amounts to is playing by the rules in place until the rules are changed. And paying for the use of facilities owned by others that AT&T uses to originate and terminate its calls.

Now, I’ll be the first to agree—really, for me, re-reiterate--that the FCC needs to move quickly to further reform its access charge regime and morph it into a cost-based inter-carrier compensation regime appropriate for a multi-carrier, multi-service, multi-platform, competitive communications world. Sure, it’s not an easy job and there will be political heat. But the task is on the commissioners’ job sheets, and it has been hanging fire for too long.

To get from here to there we need straight talk all around.

- posted by Randolph May @ 2/4/2004 11:34:20 AM

Copy Left: The opposite of copyright
On January 25, the New York Times Magazine published a piece by Robert Boynton on “The Tyranny of Copyright” (available for a fee). It is an admiring report on the academic “Copy Left” – especially its principal spokesman, Stanford Professor Larry Lessig – and describes their “fear that the United States is becoming less free and less creative” due to the expansion of copyright.

As I argued in an earlier piece, this depiction is utterly at odds with reality. In recent years, creativity, personal expression, and communication have all expanded beyond what we ever could have imagined, largely as a result of the digital revolution – especially the Internet. The ease of obtaining and disseminating information is nothing short of amazing.

In order to make their case, Lessig et. al. basically argue that things are going to reverse quickly and radically. For example, Boynton recites a list of the “copyright horror stories,” designating the legal actions brought by the record industry against those illegally distributing files as “the most publicized.” Even efforts to sell music online are viewed with dread. Boynton reports that:

"The Copy Left sees innovations like iTunes, Apple's popular online music store, as the first step toward a society in which much of the cultural activity that we currently take for granted -- reading an encyclopedia in the public library, selling a geometry textbook to a friend, copying a song for a sibling -- will be rerouted through a system of micropayments in return for which the rights to ever smaller pieces of our culture are doled out.”

But there is no mention of how this parade of horribles might happen in reality. One might think a serious, skeptical journalist might ask, but Boynton does not enlighten us.

Boynton makes much of Lessig’s concern that copyright terms are too long. But Internet piracy has shrunk the effective copyright period to zero for the large and growing number of people using P2P systems. Copy Leftists don't want to discuss the narrow issue of stealing music; such copying cannot be seriously defended in the name of creativity. But at bottom, they seem to believe that people are entitled to obtain works for free, immediately.

Or more precisely, they are unwilling to accept any limitations on how content may be obtained or used, even limitations that are necessary to preserve the right of creators to have a meaningful opportunity to market their work. Rather, they seek to protect the free and illegal distribution of movie and music files on the Internet, unfettered by iTunes minimal constraints or even a price tag. They often invoke comparisons with an analog world in which technological limitations largely restrained infringement. Limited restraints to reign in piracy will leave consumers with a wealth of new opportunities.

And such limited restraints are essential. Copyright is designed to be the “engine of free expression,” it promotes creativity by giving authors incentives to invest time and effort and money in creating new works. To fulfill this vital role, copyright laws must give creators effective means to protect these rights. (Indeed, the New York Times clearly recognizes this, copyrighting its works and demanding payment for use.) Most important, consumers as a group benefit from a system that eliminates free-riding, enabling the cost of a work to be spread over as many users as possible. (For more on this, see Jim DeLong’s testimony last year.) And even a system of micropayments, enabling market transactions, can benefit consumers, vastly increasing both availability and convenience of works they want. (Randal Picker's article discusses these possibilities.)

Copy Leftists suggest, contrary to this tradition, that copyright is being used to inhibit creativity, for example by delaying the ability of authors to benefit from ideas. But this is nonsense – ideas are not protected by copyright at all and may be used immediately. More generally, Copy Leftists seem unwilling to recognize the enormous public value from works available for a price under copyright, including consumer surplus.

But apparently the Copy Left does not care much for mass markets in content anyway. Yale Professor Yochai Benkler says that TV has “narcotized us,” and emphasizes that people are “interactors” who don’t just buy goods and consume. Efforts to make content markets more efficient at serving consumers are unlikely to satisfy Professor Benkler.

Benkler’s vision may be seen as elitist, utopian, or prophetic. But the fact remains the vast majority of us (well, me anyway) are overwhelmingly consumers of culture, enjoying the works created by those willing to invest their talents and money in creating music, movies, games, and other forms of digital entertainment products. The Copy Leftists are entitled to their vision. But they should not be permitted to undermine the copyright system that enables the rest of us to enjoy a cornucopia of entertainment and cultural works.

- posted by Bill Adkinson @ 2/4/2004 11:26:06 AM

More on the New Unbundling Investigation
As you know from the posts below, the FCC has opened an investigation to swiftly get to the bottom of the on-network unbundling of JJ, which, Chairman Powell called, "classless, crass, and deplorable." The FCC is promising a swift and thorough investigation.

This story may be still be unfolding, but it now appears that the unbundling incident was pre-mediatated. According to newspaper reports, JJ says the unraveling just went further than she and JT planned.

Well, having observed the FCC for going on thirty years now, my advice to CBS, MTV, and all concerned: "Make a clean breast of it and nip this thing in the bud."

My more serious advice is to the American people: If you really don't like what you see on TV, over-the-air or otherwise, let the networks and advertisers know how you feel. That's not censorship, as some will quickly proclaim, it is the marketplace working.

- posted by Randolph May @ 2/3/2004 12:06:40 PM

Great Moments in Decency Regulation
[Scene: Suburban Family Room, Sunday Evening, February 1, 2004, Room has big screen HDTV tuner, TiVo, DVD, XBox, PS2, MP3 player and a pennant that says "I love the broadcast flag". Center stage in a recliner is unnamed head of regulatory commission, MKP.]

MKP: Yeah, pass some more nachos. Well, the game finally got interesting....(muffled talk) That guy used to be Britney Spears boyfriend??!!! Huh. Kind of scrawny. WHAT WAS THAT??!!!!

(Phone rings)

MKP: Commissioner Copps. How are you, Michael?.... Yes, I saw it, yes...yes...awful, yes...horrible, yes....very shocking, yes, I was shocked....no, I don't think it had anything to do with her brother....yes, he is peculiar.....I'm not sure....I have no idea whether it was fake or not...oh, hers...still have no idea....yes, we'll get on it first thing tomorrow....I am just as outraged as you.....no, I doubt Rupert Murdoch had anything to do with it....sabotaged CBS??....hadn't thought of that....If it is a Big Media conspiracy, I am sure you'll get to the bottom of it...no, we probably can't pull Fox's license for something that happened on CBS. Yes, the second half just kicked off. See you tomorrow. [Click.] Oh, this is not going to be....

(Phone rings)

MKP: Mr. President, Mr. Rove. Yes, sirs. I saw it. Outrageous, yes, I agree...I am sure it doesn't play well in Crawford...or any of the other Red states...I am sure it doesn't...she does look just like her brother, yes...yes. he is peculiar....no, Mr. President, this would never happen in baseball...a much better game indeed...I hadn't thought about all that raised blood pressure increasing the cost of your prescription drug program,...yes, very bad...It's already on Drudge? Wow!...Yes, probably was the liberal media conspiracy, no doubt...I'm not sure we can order that the game always be on Fox from here on out...Yes, sir, we're on it. [Click.] Sigh.

(Phone Rings)

MKP: Dad, how are you? Yes, I saw it... She is prettier than her brother. Better surgeon....yes, he is peculiar...How many countries? Formal protests?...Troops loved it? Well, that goes to figure... On Al-Jazeera, non-stop? Don't they know they can't rebroadcast or retransmit that without the express written consent of the NFL? The prime minister of where? Yeah, I'll hold. [Beep over phone line.]

(Click to other line)

MKP: Mr. Karmazin, good evening. Yes, great game. I know you're America's most watched network...Yes, I've heard your demographics stink...that still doesn't excuse...But, you own MTV too, so you can't just blame them...yes, her brother is peculiar...Look, I am sorry, we are going to have to deal with this formally.

(Click over to other line)

MKP: Dad, how many countries expressed outrage? The Swedes thought it was too tame? I can't do anything about that. Look, I have to go. [Click.]

(Dials phone)

MKP: Bryan, issue this first thing in the morning. Call it "classless, crass and deplorable" or something like that.

(Fade to black)

- posted by Ray @ 2/2/2004 07:21:58 PM

FCC Gets Further Mired In Unbundling Issues
Well, in the aftermath of the Super Bowl halftime show featuring the unbundling of Janet Jackson, FCC Chairman Michael Powell has instructed the staff to open an immediate inquiry into what he termed the "outrageous" broadcast. He promises the investigation "will be thorough and swift."

The FCC already has been mired down for years in debates over unbundling, but these not-so-sexy proceedings have involved the unbundling of telephone network elements. Maybe when the commission uncovers, swiftly, how the star of the halftime show came to be unbundled, it will then be able to apply that same passion for speediness to finally straightening out unbundling of the telephone network. (Whether JJ's competitors are impaired....well, I'm not going there!)

And, BTW, what a great performance by the two teams. And Tom Brady apparently did it all without steroids!

- posted by Randolph May @ 2/2/2004 02:52:14 PM

No Unbundled Packets in MA
Continuing our tour of regulatory actions in the northeast, we now turn our attention to Massachusetts, where they are not only celebrating a Super Bowl victory, but also a definitive statement from the Massachusetts Department of Telecommunications and Electricity that packet switching at remote terminals will not be unbundled. The final order is here. In the docket, AT&T and Covad urged the DTE to order unbundled packet switching under state law after the FCC rejected such a mandate in the Triennial Review. The order is short and sweet in concluding that the DTE could not be consistent with federal law and order packet unbundling.

This arcane action however is important because it is a signal on the margin that some states "get it" on the forward-looking incentives point. If you want more remote packet switching -- an indicator of broadband deployment -- you don't order it unbundled at regulator-set rates. To get broadband deployed, you have to give the entity deploying the service -- be it cable, fiber, DSL or wireless -- the right incentives to invest. And that means the ability to sell access to the product at market, as opposed to regulators', rates. Furthermore, the choice isn't between regulated new investment and non-regulated new investment; it is between investment with market rates and no investment with regulated rates.

- posted by Ray @ 2/2/2004 10:48:06 AM

Super Bowl ©
When I could last until the end of a Monday Night Football game, I remember being treated to dramatic readings of the NFL’s restrictions on the use of the broadcast. Apparently they meant it. The NFL is reportedly sending cease and desist letters to organizers of large Super Bowl parties taking place in Las Vegas hotels and elsewhere. The NFL says these “pay-per-view” events violate the copyright laws.

Why is the NFL being a party-pooper? Well, some believe this is an effort to disassociate itself from the gambling at the Vegas locations. But the NFL says the chief concern is that the Super Bowl not become a pay-per-view event -- and that the people drawn from their homes to these events are not counted in the Nielsen ratings that determine the advertising fees the NFL receives. Oh, of course. Show me the money.

The NFL’s hard line may seem a bit extreme. But is a useful reminder of a basic economic principle: You get what you pay for. The NFL is paid to bring (Nielsen-counted) eyeballs to ads, and its incentive is to maximize that count. This is an inherent limitation on the business model for this broadcast (and others) – free content financed by paid advertising. It illustrates why simply “finding a new business model” to compete with free content on the Internet is a poor answer to today’s piracy problem. The best way to get content providers to provide opportunities to enjoy excellent content in convenient formats is to promote effective markets for such rights. Consumers will get what they pay for.

- posted by Bill Adkinson @ 2/2/2004 08:14:11 AM

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