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Lay Your Cards on the Table
As it turns out, all five members of the FCC signed off on a letter encouraging carriers to reach negotiated settlements on UNE terms and conditions. While ILECs such as Bell South, SBC and Qwest have made overtures recently to try and reach a negotiated settlement, those efforts have been given a quick brush-off by CLECs. We'll know by Tuesday's deadline how the FCC's unprecedented move will play out. But for the time being, my enthusiasm in seeing Chairman Powell reach common ground with Commisioner Martin is tempered by Commissioner Copps' response to the letter he had just signed: "[Consumers] will rightfully feel left out in the cold if these negotiations lead only to higher phone rates." Hardly a statement that will incentivize the CLECs to negotiate in good faith.

On the state side, we already know that a number of commissioners support the FCC's move. FERUP, the newly-anointed "Federation for Economically Rational Utility Policy," released a statement today applauding the Commission. Here's the link: FERUP March 31 PR.doc

- posted by Adam @ 3/31/2004 07:17:08 PM

It's Not Yet April Fool's Day...
The Wall Street Journal reports [subscription required] that the Republican FCC commissioners are jointly urging the warring parties in the Triennial Review to "negotiate, not litigate."

It is difficult to call any transaction occurring against the current regulatory backdrop as "market-driven." That said, the FCC urging the parties to the telecom wars to negotiate their wholesale business relationship is a positive start.

Kudos as well to the Chairman and Commissioner Martin for an apparent rapprochement. Now, they need to use their bully pulpits to get their respective cheering sections to negotiate.

- posted by Ray @ 3/31/2004 12:22:54 PM

Vonage Vs. AT&T - Round 1
According to the Wall Street Journal, VOIP upstart Vonage has sued AT&T (subscription required) over the name of its new VOIP service, CallVantage. AT&T announced its service February 21, but didn't officially offer it until yesterday. Vonage feels the name of AT&T's service is too similar to its own and will cause market place confusion and hurt the small upstart in its competition with major telecom providers.
- posted by Mike @ 3/31/2004 10:30:42 AM

VoIP: Make Room for Three
AT&T is not the only firm making VoIP news this week. Yesterday, Level(3) Communications announced new Internet-based voice services. Interestingly, E911 services are among the services included in the new VoIP offerings.
- posted by Kent @ 3/30/2004 01:35:13 PM

AT&T's VoIP Play
"Phone calling over the Internet is about to go mainstream" is the WSJ's lead on its story [subscription required] about AT&T's announcement that it will begin offering Internet calling in two states.

The story notes that cable companies are moving aggressively into the Internet calling space, and it chronicles the head-start of Vonage. Then it concludes that, "the biggest potential victims of this wave of Internet calling offerings are the Bells. Goldman Sachs esitimates that Internet calling can take 7% of the residential phone lines from the Bells by the end of 2006."

It is true that the Bells are the biggest potential victims of this new technology--if the policymakers do not avail themselves of the reform imperatives presented by what I've called this blast from Shumpeter's trumpet to rationalize a regulatory regime essentially devised in a monopoly era. Probably the most fundamental issue of telecommunications policy over the next several years will be the fight over whether facilities-based service providers like the Bells and other wireline companies--and cable, wireless, and satellite operators--will be compelled to provide access to their facilities at regulated prices to companies like Vonage, AT&T, Microsoft (?), without their own networks.

In other words, the non-discrimination and unbundling requirements developed in Computer II in 1980 were perfectly appropriate in a monopoly telecom environment. And they may have been appropriate through the 80s and into the late 90s as the Computer II access requirements turned into the Computer III Open Network Architecture requirements and the early post-1996 Act UNE requirements. But all of these "compelled access" requirements--"network neutrality" is just the latest appellation, "Computer IV" would do just as well--no longer represent sound policy in an environment in which we have multiple facilities-based broadband competitors.

I think we'll see the telephone companies and the cable companies, along with others who have or aspire to have their own network facilities, joining together to try to beat back the proponents of the compelled access regimes. It's likely to be a long, tough fight for the free market forces.

- posted by Randolph May @ 3/30/2004 12:10:14 PM

Having your cake and eating it too...
From the AT&T release Adam linked to:

"It is critical to underscore that new technologies like VoIP in no way substitute for the important, pro-competitive local phone policies established by the New Jersey Board of Public Utilities -- policies that are helping to keep phone bills down for New Jersey residents," said J. Michael Schweder, president-AT&T New Jersey and Pennsylvania.

Let's see, VoIP is not a substitute for UNE-P, so be sure to keep that, but don't regulate this new technology. Nice. I foresee a Jim Glassman article on the wonders of 'net neutrality' in the near-future.

- posted by Ray @ 3/30/2004 10:09:48 AM

Prayers for Stuart Buck and Family
Stuart Buck is in the hospital with a stroke. Never met him face-to-face, but has been a frequent stop of mine in the blogosphere. Nothing to say but my thoughts and prayers -- along with countless others -- are with him and his family.
- posted by Ray @ 3/30/2004 12:27:04 AM

AT&T Announces First Phase of VoIP
You know VoIP is coming on when Drudge is linking through to AT&T's press release.

A sign of things to come, vertical services that will be offered in the "CallVantage" service include:
- "Call Logs," which tracks incoming and outgoing calling with "click to dial" capability;
- "Do Not Disturb," which allows customers to receive calls only when they want, while letting emergency calls ring in;
- "Personal Conferencing," which enables users to set up a meeting with up to nine additional callers;
- "Locate Me," which enables home phones to find customers by ringing up to five phones all at once or one right after the other;
- "Voicemail with eFeatures," which allows customers to hear their messages from any phone or PC and forward the voicemail to anyone on the Web.

- posted by Adam @ 3/30/2004 12:20:16 AM

Croquet anyone? Go SJC!
Amidst the celebration of the Blue Devil's ascendancy...ho, hum...a real sport enters the spring season. The St. John's College-Naval Academy Annual Croquet Match is April 24 in Annapolis. Duke probably doesn't even have a croquet team.
- posted by Ray @ 3/29/2004 08:00:28 PM

Broadband Skepticism
Kevin Drum is skeptical about the universal broadband by 2007, um, er...initiative. Waiting for his view of what is, not doubt, the well-defined, deeply thought out Kerry broadband proposal.

I get both encouraged and scared of presidential candidates mentioning broadband. If these proposals get fleshed out, let's hope that markets, not regulators or appropriators, play the central role in continuing to bring broadband to the country.

- posted by Ray @ 3/29/2004 07:45:27 PM

Solution to Coase's Wandering Buffalo
The story of the infamous buffalo of South Park, Colorado has been taken to the halls of the FCC by none other than Phil Weiser. [Don't ask, but since the theorem first appeared in Coase's article, The Federal Communications Commission, it seems appropriate.] The bison wanderlust was first noted here.

Now, the proposed solutions. Coase-ian in training Eric Gunning from the Law and Econ of the Information Age seminar offers this: Cosean Dilemma Bisons v. Fishing - Eric.doc

Eric's discussion is more in depth than my glib "no one owns the fish" answer. This sounds like an issue to excite noted econ-geek Lynne Kiesling, so long as she's not too busy tending to her shrine to Mark Prior, Kerry Wood and Greg Maddux.

- posted by Ray @ 3/29/2004 03:01:22 PM

Utah goes wobbly
The Utah PSC is reconsidering the pricing flexibility it recently granted to Qwest based on reports that Comcast doesn't offer service in certain areas. Sigh. I think that only unregulatable VoIP will deliver the communications world from the legacy regulatory morass.
- posted by Ray @ 3/29/2004 02:58:39 PM

As if having to listen to Dick Vitale ogling on about the Dukies for three months is not enough, Duke nation has now entered our own blogosphere. Now, I would not consider myself the sort of anti-Duke fanatic that Coach Krylewskizeshefskee defended his players against last week. But note how those in Duke nation, even in victory, question the refereeing. I thought it was Xavier's Anthony Myles, causing all sorts of problems in the paint, who picked up 4 quickies in the second half and fouled out with 12 minutes left.

I digress, but I would point out that a bracket filled out by an unnamed Duke advocate does not have the Devils reaching the championship game.

- posted by Adam @ 3/29/2004 12:09:43 PM

The Devil's Playground
Devil's Playground? No, I'm not talking Las Vegas, or even TELRIC proceedings before some of my favorite PUCs. I'm referring, of course, to the Final Four, where the Blue Devils--that braveband of brothers--will make their 14th appearance this weekend. They beat Xavier 66-63 to earn a trip to San Antonio.

You can get all the skinny you want at the GoDuke site. I'll just say: Hat's off to a valiant effort by Xavier's Musketeers, who made a great March Madness run. I'm sure they are saying, "Dang that Deng." Freshperson Deng, born in the Sudan, scored 19 points and was named tourney MVP.

So, on to San Antonio and Connecticut. As one of our presidential candidates is fond of saying: "Bring Em' On!"

PS ONLY for ACC fans--Okay, I can't resist adding: Could you believe those two fouls called on my namesake, Duke's Shavlik Randolph, after clean blocks? OK, he's not really my namesake, but John Shavlik's. John Shavlik was a great player for N.C. State in the 1950s, when the Wolfpack was coached by the great "Old Grey Fox", who won four ACC crowns and six Dixie Classic tourneys. Shavlik Randolph grew up in Raleigh, home of the Wolfpack. If you want to know the Old Grey Fox's true identity, contact my trusted research assistant, Becca Fuller, who is a N.C. State alum, an avid State fan, and a real winner in the John Shavlik and Old Grey Fox tradition.

- posted by Randolph May @ 3/29/2004 09:58:11 AM

Yep, you got that right. I'm not touting broadband, but that braveband of brothers known as the Duke Blue Devils. Last night they dispatched a tough Illinois team 72-62. BraveBand? Yep. Chris Duhon, nearly the smallest guy on the court, playing hurt with bruised ribs, leading the Devils by example and grabbing a game-high 10 rebounds, dishing out 8 assists! J.J. Redick manfully fighting through his late season shooting slump to score 17. The amazing freshperson Luol Deng contributing 18. I could go on....but you'll probably want to go to the GoDuke site yourself for more details.

Next up is Xavier Sunday afternoon. Tough game. One way or another I'll let you know what happens in the braveband's quest for glory.

And, now having made the leap from broadband to the braveband, maybe I won't even feel the need to put the results in terms only true digerati can appreciate. After all, in Ray's Gifford's very first post on this site, he explained that, while this space is mostly reserved for digital policy issues, "the blogging muse might lead us into unforeseen places." Such as: "I am sure, for instance, that Senior Fellow Randy May might mention his alma mater once or twice, particularly during tournament time."

Yep. Ray got that right. He's a pretty smart fellow. After all, he attended college and law school at two institutions where the students prefer books over basketball. Pity the poor soul during March Madness!

- posted by Randolph May @ 3/27/2004 01:33:06 PM

That Blast You Hear
VOYEEEP! VOYEEEP! VOYEEEP! In my piece on CNET yesterday titled "Heeding the Blast of Schumpeter's Trumpet," I argue that the emergence of VoIP is like a trumpet blast warning that old regulatory paradigms must give way to new ones. Specifically, I suggest that as VoIP (and other IP technologies) further displace the amount of traffic carried on the old circuit switched telephone networks, there should be four paradigm shifts: (1) regulatory classifications based on existing distinctions should give way to a technology-neutral deregulatory regime; (2) state authority to regulate communications should give way to federal primacy; (3) The existing universal service regime should be replaced with a more limited, rational regime; and (4) The FCC's typical mode of developing regulations in open-ended rulemaking proceedings should give way to the use of more common law-like approaches.

Why "Schumpeter's Trumpet"? That's just my way of imagining that the coming de-construction of the old regulatory regime put in place during the analog heydey will be followed--sooner rather than later--by a new deregulatory regime worthy of the digital world. In other words, that our policymakers will be foresighted enough to give us some "Creative Re-Construction" to replace the Schumpeterian "Creative Destruction."

- posted by Randolph May @ 3/26/2004 08:07:26 PM

Rural Broadband
Recently, the USDA awarded $11.3 million in community broadband grants to 34 communities in 20 states, a far cry from the $1.4 billion in loans and loan guarantees to rural telecom providers promised by Secretary of Agriculture Ann Veneman in 2002. The purpose of these grants is to spur the technological development in rural America, which comprises 75% of the nations land, but only 25% of the population. The 2002 Farm Security and Rural Investment Act also included $20 million in federal funds to finance rural broadband. While providing the entire country with up-to-date broadband solutions is a noble endeavor, it is one best left to private enterprise. As demonstrated by Tom’s paper on municipal ownership of telecom, it is in the best interest of the taxpayer and the consumer for government to allow private enterprise to build and provide broadband solutions. For government to involve itself in an industry as uncertain and competitive as telecommunications makes little sense.

Bush actually sees these grant programs as pork barrel spending and much to the chagrin of the Wireless Communication Association and the FTTH Council. In a speech in New Mexico today, Bush spoke on the importance of affordable broadband access to all Americans, but omitted any mention of federal funding, which begs the question "who will pay for this?"

- posted by Mike @ 3/26/2004 03:47:04 PM

And then........
President Bush talked about broadband today, too, calling for universal high-speed access by 2007.
- posted by Adam @ 3/26/2004 03:31:17 PM

A Presidential Candidate Says the B-word
Alas, broadband policy is on the table. From the transcript of John Kerry's speech today:

I will set out the details of this economic plan in the weeks ahead. I’ll focus on raising American competitiveness:

-- Spurring the growth of new industries like the broadband technology that will dominate the future.

-- Lowering health care costs that put American businesses at a competitive and price disadvantage.

-- Making sure our children have the education and our workers have the training and skills they need.

-- And lowering energy costs which burden businesses and consumers and creating half a million new jobs in renewable fuels to make America energy independent of Mideast oil in ten years.

A reference to broadband before health care, no less?

- posted by Adam @ 3/26/2004 03:20:06 PM

WSJ in the Fray
The Wall Street Journal editorial staff has once again announced telecommunications policy as an undervalued factor in the economy – undervalued that is, by the Bush domestic policy team. Today’s editorial (requires registration) goes too far to say FCC Commissioner Kevin Martin “might well become the first FCC regulator to get a President fired.” But, their points hit hard and true when they write, “the Administration is poised to make the same mistake it did on steel tariffs—choose a short-term political calculation over a free-market approach that would better serve the specific industry and the country as a whole.”
- posted by Kent @ 3/26/2004 11:18:21 AM

Florida Goes Wobbly
The Speaker of the Florida House, an aspiring US Senator, is now backtracking and wants to repeal Florida's (modest) rate rebalancing law. This is unfortunate, and underscores -- as Judge Posner might say -- the difficulty of escaping the legacy of "Taxation by Regulation."
- posted by Ray @ 3/25/2004 04:24:12 PM

Federalists In Our Midst?
Yesterday’s ruling in Nixon v. Missouri Municipal League turned on the interpretation of a few words in one section of a particular statute. It is my guess that it won’t be long before the first draft of history is re-written so that the case is a reflection on the operation of federalism in telecommunications policy. (Perhaps this is more of a reflection of the amount of time I spend with politicians working in state capitols. To them, almost anything out of Washington D.C. is a matter of federalism.)

It is useful to remember that a champion of federalism is not necessarily the same as a champion of states’ prerogatives. Federalism is a particular system for organizing government and its powers. Specifically, it distributes those powers. As outlined in the Declaration of Independence, the Constitution, the Federalist Papers and other documents of the Founding, American federalism distributes powers across three sovereign levels: the individual, the several states, and the national government. If federalism has a bias, it is to the amount of government rather than the locus of its power. The system is designed to limit public activity and to preserve personal autonomy.

Telecommunications regulation has its share of fair-weather federalists. In 1999, the Court wrote in Iowa Utilities Board, “But question in this case is not whether the Federal Government has taken the regulation of local telecommunications competition away from the States. With regard to the matters addressed by the 1996 act, it unquestionably has.” Recall that AT&T was the big winner of that case arguing for local competition rules from the national government. The shoe is on the other foot in the unbundling cases. Indeed, the TRO petition at the D.C. Circuit was from USTA, who argued for national rather than state rules to govern unbundling.

This week's decision pitted “local” interests against a state attorney general and the FCC’s refusal to preempt a state statute. (Characteristically, the FCC managed to end up on all sides of the issue. The Commission’s action went against the Municipal League yet three commissioners wrote in favor of policies that favor municipal entry into the marketplace.)

Federalism is not the same as support of state or local power over national authority. Nor are federalists hypocritical to sometimes argue for state authority while other times arguing for authority to reside in Washington, D.C. True federalism requires prudential distribution of authority and responsibilities. While preemption questions are near always difficult and invariably contested, today’s ruling is a welcome addition to the canon. It gives strength to the idea of a national communications policy, a policy that is sorely needed.

An earlier post on federalism is at this blogsite.

- posted by Kent @ 3/25/2004 11:33:17 AM

Mandated A La Carte Nonsense
Unfortunately, Senator McCain's Senate Commerce Committee is providing a forum for Consumers Union to continue its decades long harangue about what it calls "escalating cable rates." CU is under the mistaken impression that cable has some sort of monopoly on American eyeballs. Forget about satellite TV, the video streaming Internet, DVDs, digital over-the-air broadcasters, and so on. In CU's world, cable faces no threat of straying eyeballs from these competitors.

In the aftermath of failed cable rate regulation for several years in the 90s, CU's current burgaboo is to have the FCC force cable operators make available their programming on an a la carte basis so consumers could pick only those channels they want to pay for. Wow! Put aside for a moment the fundamental point that in a competitive marketplace, providers will offer consumers the services they want in packages (or no packages) of the sizes and shapes they demand. Just close your eyes for a moment and imagine the proceeding at the FCC in which the "expert" agency will determine which channels are mandated to go in which packages at which prices based on what theory. And the ensuing, never-ending proceedings to change the package or the pricing mandates. It's downright scary. (Okay, you can open your eyes now.)

If viewers think they are paying too much for cable or satellite programming, or get tired of watching DVD's or browsing the Net, can't they just choose to rely on "free" TV? There they can watch Average Joe VI, The Bachelor V, The Littlest Groom III, and, oh yes, Temptation Island IX, where four couples go to an island where there are 25 single guys and girls and....well you know........

- posted by Randolph May @ 3/25/2004 10:29:20 AM

Nixonian Wisdom
Yesterday, in a case brought by the Missouri Attorney General Jay Nixon, the Supremes held that states may preclude cities and counties from providing telecom services. See my post below on "Defeat for Government-Owned Telecoms." General Nixon summed up the heart of his win in the Supreme Court yesterday this way: "The real message here is, they [cities and counties] have to get permission to exceed what their core purpose is. They have enough trouble with sewers and police." Amen.
- posted by Randolph May @ 3/25/2004 09:21:06 AM

A Case of the Vapors
Tech Central Station ran another TRO-induced editorial last week defending the “omniscient and benevolent” Commissioner Martin from the “wrath” of free market conservatives. Add the regulator hagiography as a new genre in the post-TRO media deluge. The editorial appears to imply that regulators will be granted an exemption from capture theory as long as they do not protect the Bell “monopoly.”
- posted by Adam @ 3/24/2004 02:21:41 PM

Defeat for Government-Owned Telecoms
Just quickly scanned the Supreme Court's decision this morning in Nixon v. Missouri Municipal League holding (8 to 1) that the FCC lacks authority to preempt municipalities from providing telecom services. The court held that Section 253 of the 1996 Telecommunications Act, which grants the FCC the authority to preempt state laws which have the effect of "prohibiting the ability of any entity" to provide telecom services, does not extend to preemption of state laws precluding munis from entering the telecom business.

Apart from the intricacies of the statutory interpretation question, the bottom-line result is a good one from a policy perspective. As PFF has documented, more and more municipalities are entering the telecom business. This is not good for consumers, taxpayers, private sector providers, or a competitive free marketplace for telecom. See our two recent studies here and here.

And don't miss this truism from the Court, which bears repeating often enough to sink in: '[W]hen government regulates itself (or the subdivision through which it acts) there is no clear disctinction between the regulator and the entity regulated." Amen and amen.

- posted by Randolph May @ 3/24/2004 12:26:31 PM

Yesterday I was in Austin for a hearing of the House Regulated Industries Committee. I testified along with eleven others including Grande Communications CEO Bill Morrow, Texas PUC Chairman Paul Hudson and former U.S. House Majority Leader Dick Armey. Today, Ray Gifford is in Sante Fe speaking at an annual regulatory conference at New Mexico State University. Hyperlinks as well as more color commentary about what was seen and heard at these meetings to follow.

Travel is not all it is cracked up to be in those airline magazines, but getting into the capitals has its own rewards. Take for example what happened yesterday: the ranking minority member of the committee took photographs - not unlike a tourist - of Armey as the former legislator addressed the committee. I guess that even wonkish hearings can have celebrity witnesses.

- posted by Kent @ 3/23/2004 05:49:28 PM

Suspended on TRO
A pair of state regulatory commissions have suspended TRO proceedings. The New Jersey Board of Public Utilities suspended its proceeding on Wednesday while reserving the right to pick it up again if there is a stay in USTA. The New Mexico Public Regulation Commission dropped the TRO on Tuesday. Similarly, the Kentucky Public Service Commission announced that it intends to halt its TRO case on April 14. A hearing examiner in Delaware recommended suspension of the TRO case and the Delaware Public Service Commission cancelled hearings scheduled for April 13. The DPSC is set to meet on April 6 to consider ending the proceeding entirely. Regulators in Arkansas and Massachusetts are considering the same question.

All told, about half of the state commissions will have dropped the TRO before the 60-day window expires. An earlier post on this subject can be found here.

- posted by Kent @ 3/19/2004 11:50:03 AM

In Re: Triennial Review Order
Efforts to help the Department of Justice have few bounds. I mean really, who is against justice? Nonetheless, eyebrows must have been raised when letters began arriving at the DoJ with advice for the Attorney General and Solicitor General.

Last week, NARUC leaders sent a letter to the President urging appeal. Soon enough, a handful of Senators sent a letter across town arguing for more regulation. Not to be outdone, yesterday 130 members of the U.S. House sent a letter to the President applauding the D.C. Circuit. (They even had the good sense to favorably mention the views of “conservative think tanks” on the issue.) Chairman Barton and Ranking Member Dingell have also weighed in with Olson against appeal.

Today we see a new entry. Rather than detouring their correspondence through 1600 Pennyslvania, a group of nine state regulators have written to Solicitor General Olson suggesting the best course action is for him not to seek certiorari in USTA. These regulators prefer to see energy spent on workable rules rather than additional appeals. To their credit, their arguments are based on the law not preferred policy outcomes.

The narrow aim of these policymakers is procedural certainty; it is not a specific policy outcome. Amid the hubbub over the unbundling rules, one point made by these regulators could easily be missed and deserves amplification. They write to General Olson:

“[I]t is frequently represented that the state regulators speak with unanimity on this issue. They do not.”

- posted by Kent @ 3/18/2004 05:30:30 PM

Contracts and Property Rights
National Review Online has an essay by Harold Furchtgott-Roth that goes straight to the bottom line: the telecommunications sector will revive when policymakers focus on contracts and property rights.
- posted by Kent @ 3/18/2004 03:34:21 PM

When Ad Hominem Is OK
Jim Glassman accuses the deregulation side of the telecommunications debate of engaging in ad hominen attacks on him and his brethren:
Debaters know this: When the other side issues ad-hominem attacks it means that it doesn't have good arguments. And ad-hominem is the favorite mathematical formula for the FOB crowd.
Fine rhetorical pirouette here--censorious, with a tinge of being wronged.

Tech Central Station--an excellent publication arguing for markets everywhere but in communications--seems not to follow the its host's direction in allowing Lawrence Kotlikoff to direct calumny toward George Gilder. Call it the guru exception -- ad hominem attacks on them are ok, particularly if they are for communications deregulation.

- posted by Ray @ 3/17/2004 12:00:32 AM

Curiouser and Curiouser-Law and Economics in TRO-Land II
Back on March 3, in my blog "Law and Economics in TRO-Land" I criticized Congressman John Conyers' suggestion that certiorari should be sought to review the DC Circuit's TRO decision because, in his view, the court "is out of touch with mainstream economic concerns." Although I'm sure I disagree with Conyers' views on economics, I pointed out there that what is important in considering whether to seek cert is whether the court's interpretation of the 1996 Act is correct. The court doesn't sit to make economic policy.

Now comes the March 15 "Dear John" letter from Senators Stevens, Burns, Hollings, and Inouye, urging Attorney General Ashcroft to seek cert. It is principally devoted to arguing that, in the Senators' view, the DC Circuit decision will have an adverse impact on consumers and jobs. I disagree, of course. Unfortunately, the reality is that--until the FCC's UNE rules are scaled back--many more forests will be decimated as various parties debate the impact of the current unlimited unbundling regime.

With all due respect, what strikes me as especially odd about the Senators' letter is that to the extent it refers to the law at all, it cites Section 251(d)(3), ignoring completely Section 251(d)(2), the "impairment" standard provision that is at the heart of the DC Circuit's decision. [The court held that the states' challenge to the premptive scope of Section 251(d)(3) was not ripe for decision.]

Ultimately, arguments about whether the Supreme Court should be asked to grant cert must be grounded at least to a large extent in the law, and the law that actually was at the core of the DC Circuit's decision, the provision containing the "impairment" standard. Arguments like the ones contained in the Senators' letter are enough to send the Attorney General back to the hospital with another gallstone!

- posted by Randolph May @ 3/16/2004 05:11:06 PM

Universal Service in an Age of Skype
To Bob Crandall's delight, I am increasingly puzzled how universal service subsidies can be maintained in a world of Skype-like(with its 8.9 million-plus downloads) and Free World Dialup-like VoIP. What do you assess to get your subsidy? Numbers? No money there. Inter- and intra-state telecommunications revenue? Nor there either. And how do you track it down? If Kazaa knows anything, it is impenetrable "catch me if you can" corporate structures. Is USF as we know it doomed? And who is going to tell those square state Senators?

- posted by Ray @ 3/15/2004 11:54:01 PM

Skype Moving Towards Commercialization
This is no Kazaa. Skype, a P2P VoIP provider, received a $19 million investment which it intends to use to connect to the telephone network.
- posted by Adam @ 3/15/2004 11:38:46 PM

ITunes at 50 Million and Counting
ITunes passes 50 million downloads. Wow, people will pay for content they value.
- posted by Ray @ 3/15/2004 11:18:19 PM

The Post on Powell
Last week excerpts were posted here from FCC Chairman Michael Powell’s recent speech at NARUC. Ray noted its defensible and prudent path toward competition.

A follow up post appeared to pick nits with the Chairman’s choice of literary characters. Little did we know that over at The Washington Post our blog on digital policy issues is so closely read. Yesterday’s Style Section, page C03, included a blurb on the NARUC speech and it use of literary license. The wags over at the Post wrote,

Hold on a sec. Huck wasn't the one who conned people into doing chores for him. Surely he [Powell] meant Tom Sawyer?

Upon our inquiry, a Powell aide offered: "Chairman Powell sincerely regrets confusing the Mark Twain characters and will make sure that in the future never the twain shall meet. The staffer who's responsible will be whitewashing the commission's fence."

If it is any consolation, I for one am willing to lend a hand to the Chairman. Those digs over at the Portals are more than enough for one person to handle.

- posted by Kent @ 3/15/2004 06:13:46 PM

More on the NYT/National Debate copyright controversy
The fight is escalating, as the New York Daily News reports that ten more sites have picked up the original parody.

Also, the Times is accused of abusing the notice and takedown provisions of the DMCA by sending the ISP a shotgun complaint devoid of detail about the alleged copyright affronts. Why, one might even think the Times wants to rely on corporate muscle and superior resources to avoid any debate about free speech and the rights of parody.

Were I a content producer with a stake in maintaining the workability of the DMCA and its copyright protections, I would not like this trend of events. The content providers have a huge stake in ensuring that users of the DMCA turn square corners.

So let us call attention to subsection (f) of section 512 of the DMCA, which says:

"(f) Misrepresentations. -- Any person who knowingly materially misrepresents under this section --

"(1) that material or activity is infringing,
". . . .
"shall be liable for any damages, including costs and attorneys' fees, incurred by the alleged infringer, . . . or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing . . . ."

Of course, that term "knowingly" is a barrier, given the uncertainties about parody as fair use. On the other hand, a shotgun complaint is quite vulnerable -- a judge might say it swept in material that the copyright holder should have known was not infringing, and this is sufficient to trigger subsection (f). So The National Debate could wind up with enough money to fund itself for a while.

In the meantime, the bloggers keep condemining the Times. See here, here, here, and here. The Electronic Frontier Foundation does not seem to have noticed, though, perhaps because it is too busy attacking the RIAA to worry about small fry like the NYT or the importance of political criticism.

- posted by James DeLong @ 3/14/2004 11:58:34 AM

Regulatory Blackmail
Yesterday, the Ohio PUC allowed SBC to increase the rates it charges for unbundled loops to competitors on an interim basis. The rate increases ($2 in rural areas, $2.50 in suburban, and $3 in urban) will be subject to a true-up after a full pricing proceeding. The press release and order (effective in 30 days) are here and here.

Then AT&T issued a press release proclaiming that it will no longer offer two of its local calling plans and will determine the rate increases that residential customers will need to pay for the company “just to remain in business in Ohio.”

Please. The PUC’s decision was based on the “ever-increasing risk of competition and its corresponding influence on SBC’s cost of capital.” By way of background, the existing loop rates were established in 1999, based on an Ameritech cost study from 1997. CLECs have captured 20 and 25 percent of the residential and business markets in Ohio, respectively. 96 percent of all residential CLEC access lines are serviced by UNE-P, with the other 4 percent by UNE-L or resale. In other words, there is virtually no facilities-based residential competition in Ohio.

Available data illustrates why. Billy Jack Gregg’s latest update at NRRI reveals that Ohio’s UNE-loop rate is the lowest in the country, with an average UNE-P rate behind only California and Illinois. And according to the PUC’s order, the new interim rates would still be below the corresponding rate levels in the other states in SBC’s region. If there is one state in SBC’s region where the usual price squeeze argument does not play out, it is Ohio.

At bottom, AT&T’s response reflects a classic public choice problem. So long as a certain segment anticipates a non-trivial chance to get something for nothing from regulators, they will try to do so. (For another example from this week’s news, see the backlash to Chairman Powell’s call for a compromise on the TRO. By taking a middle course, Powell allowed the opposition to stake out a more extreme position. If he had just said “the court has spoken,” perhaps they would be the ones seeking a transition plan.)

Recall how we’ve gotten here. Due to political pressure, regulators sought to induce quick competition into the market after the ’96 Act. UNE-P was the mechanism they concocted to do so, and cutting prices through use of the TELRIC methodology resulted in what Ray would call “a rent-seeking orgy.” The dissent to the Ohio PUC order exhibits this exact rationale, stating that “[w]hile it is our goal to have facilities-based competition, we are currently in a transitional phase.” Wrong. The transitional phase is over. The interest in seeing UNE-P persist ad infinitum is now entrenched.

Fortunately, the pricing aspect of the game appears to have run its course. Gregg’s data shows that national UNE prices rose slightly during the second half of 2003. But as the Ohio PUC has discovered, trying to put the toothpaste back in the tube will inevitably lead to attempts at regulatory blackmailing. With the possibility of additional upward adjustments after the FCC concludes its TELRIC proceeding, expect more of the same from the “consumer protection” PR machine.

- posted by Adam @ 3/12/2004 06:10:04 PM

And in This Corner – Ink vs. Photon
The New York Times has used the DMCA to force a website called The National Debate to take down a parody page called “Columnist Corrections.”

As anyone who follows current political controversy knows, some people, known as “conservatives,” are upset with what they charge is partisanship and inaccuracy on the part of NYT columnists, compounded by Times policy of not correcting alleged factual errors. The parody was a list of corrections that the critics think should have been made, but weren’t. It did indeed use the Times logo, and someone coming on the site could have possibly have thought it was for real, if they did not look very closely. (Except for the content, the critics note with glee, which was impossible because the Times does not confess error. See Glenn Reynolds.)

The paper reacted with a letter saying: “Your actions are deliberately designed to confuse people and are clearly illegal. By using The Times's name, logos, advertisements, live links, design and layout, you are blatantly infringing upon our exclusive rights.” It insisted that the site be removed, and sent a take down notice to the site’s ISP, alleging copyright violations.

The blogosphere is fighting back. The National Debate has taken down the site, but others are re-posting the offending column (seven, at last count), and they have added a notice at the top that says, more or less, “this is a parody and not a real NYT site.” So if the Times' lawyers chase them, the NYT will clearly be in the position of using copyright law to suppress political controversy, not to protect real economic interests or prevent confusion. The critics are moving from glee to ecstasy, and The National Debate is reporting the controversy in detail, missing no opportunity to mock the Times.

The notice and takedown provisions of the DMCA are reasonable provisions designed to protect intellectual property against the depredations made possible by the Internet. But this situation points up a problem – they should not be used for political purposes, and in the context of political controversy and parody, the doctrine of Fair Use should receive a broad reading. The NYT recently published an article called “The Tyranny of Copyright,” (available for $2.95) and it should rethink its position here before it becomes fodder for a sequel.

It used to be said, “never pick a fight with someone who buys ink by the barrel.” But the guerrillas of the Internet have photons by the google, so now things are a bit more even.

- posted by James DeLong @ 3/12/2004 11:48:50 AM

A Solution to the Access Charge Dilemma?
Today's Business Week Online is reporting that industry groups have reached agreement on the broad contours of access charge reform. Under one proposal, charges would no longer be recovered through long-distance bills, but through local, wireless, and Internet access. The final proposal may be presented to the FCC next month.
- posted by Adam @ 3/12/2004 11:01:23 AM

© On Leprechauns?
Over at Marginal Revolution, Tyler Cowen has an interesting post on WIPO copyright proposals for culture. Folklore is the genesis of his discussion and he then proceeds to throw down a challenge that I cannot sufficiently meet. Can you?

Professor Cowen asks: By what economic reason – excepting an argument that “we cannot trust their courts” – should we not allow copyright protection for folklore?

It seems to me that the exercise of a right requires excludability. If I cannot kick you off of my land, then it is not really my land, is it? By extension, if I cannot explain in advance what aspects of folklore or culture are mine and mine alone, it is hard to assert a right to them. In a related manner, a copyright requires a specific description of the work. That is, copyrights are fixed and limited. A people’s folklore does have an edge – the Celtic mythology is different than the Norse – but the edges are quite blurry. It is hard to say that a story about a sailor and his long-neglected and lovely wife could be exclusive to any seafaring nation.

- posted by Kent @ 3/12/2004 10:23:24 AM

RE: Powell's Speech
As noted below, the Chairman offered a fig leaf and recommended compromise to state regulators. One way to read last week’s Circuit Court ruling is to see Powell as the big winner. Clearly, he dissented last year on the aspects of the TRO that received the most stinging rebuke from the court. But he did not gloat. Rather, he set out to explain his reasoning on the delegation question. In part he said,

“What the Commission may not do, however, is recruit -- like Huckleberry Finn--someone else to do the job Congress specifically directed us to do. Just as States are charged with setting UNE prices and it would not be proper for them to turn that responsibility over to the FCC --- as States themselves argued to the Supreme Court in Iowa Utilities --- the FCC cannot abandon its responsibilities to the states—no matter how competent or credible they may be.”

Notwithstanding the reference to Huck Finn when he probably meant Tom Sawyer, Mark Twain’s parable about work is instructive in another way. Below is an excerpt from a speech I gave last fall at the Roaring Fork in Austin, Texas. I spoke to a group of legislative staff who are working on a rewrite of the telecom law.

And as I crouched down, paint bucket and brush in hand, I began to think about what I would share with you today. I kept coming back to that great American hero, Tom Sawyer. Try as I might, I could not think much about unbundling or market-share apportionment, IXCs and ILECs and CLECs could not wedge their way into my head.

All I could think about was our literary friend Tom. In fact, I even pulled the book off the shelf and took a quick peek this morning. The lesson Twain imparts is familiar enough. Work is what you are obliged to do and play is what you are not obliged to do. However, the essence of this little episode is quite striking. Tom Sawyer gets paid to have others do his Saturday morning chore.

Starting with his pal Ben Rogers, he convinces others to whitewash his Aunt Polly’s fence. Amazingly, he also forces his buddies to pay him for the privilege. By the end of the morning he is far richer. Among his new treasures are a kite in good repair, a dead rat on a string, 12 marbles, a spool cannon, a tin soldier, tadpoles, firecrackers, a one-eyed kitten and a dog collar.

As Twain tells us, “Tom was literally rolling in wealth.”

As the Chairman indicates, Twain tells us something about the delegation question. And, Twain also has a something to say about other telecom questions (of sorts). Consider that Tom persuaded others (without any regulation!) to pay him while they did his work. MMmmmm – Collecting economic rents while others do the work of maintaining facilities. It sounds vaguely familiar.

- posted by Kent @ 3/12/2004 10:17:04 AM

Taxation by Regulation
Ray and I attended the AEI-Brookings forum on VoIP this morning. The panelists included Bobs Crandall and Litan, Reed Hundt and Harold Furchtgott-Roth.

Bob Crandall and Reed Hundt’s world-views collided. Hundt, for example, believes narrowband is “far less” regulated than broadband. On universal service, his view is that, since political realities dictate that we’re going to subsidize something, it might as well be broadband. I gathered that this wouldn’t be “little broadband” like DSL or cable modem service, but what Hundt calls the real communications revolution: “big broadband” networks with speeds greater than 10Mbps. Imagine being able to incorporate this theory into your everyday life without repercussions - if you take me out to lunch, then I’m going to get the most expensive thing on the menu. Hell, I'm not paying for it!

A nationally subsidized broadband policy, according to Hundt, would cure us of our ills. We’d recoup the millions of jobs that we’ve lost over the past several years. We’d close the broadband penetration gap with Korea. (Which would be fine, if only the United States were similarly confined to a geographical area the size of Michigan.)

Bob Crandall premised his discussion on Judge Posner’s classic article, Taxation by Regulation. The main function of regulation, according to that article, is to move money between competing interests. The battle now is not about market power, according to Crandall, but how carriers will be able keep prices up once VoIP takes off. Also at stake are the $27 billion in taxes that the current access and USF schemes impose on customers every year. A rewrite of the Telecom Act is therefore necessary, concluded Crandall, in order to eliminate the excessive costs of "taxation by regulation."

Hundt, on the other hand, does not see any need for a rewrite of the rules. And why would he? His own legacy would be at stake.

- posted by Adam @ 3/10/2004 06:00:03 PM

Powell Offers a Compromise to States
From today's NARUC speech:

In that light I want to call for action and enlist your help:

• Beginning today, competitors and incumbents should enter into a 30 day negotiation period. I call upon both sides to work earnestly to arrive at commercially negotiated rates for access. The Statute authorizes and encourages commercial negotiation of interconnection agreements and it would be irresponsible for the critical industry players not to make meaningful efforts to do so. I urge states to encourage these negotiations.

• If those negotiations fail, however, I will propose to my colleagues that the FCC adopt an interim set of rules to protect against precipitous disruptions that might result after day 60 because of the court’s ruling. I fully appreciate that my colleagues and some states have indicated their interest in pursuing an appeal of the USTA II decision. I disagree with that course, for I am convinced it will prolong the morass of litigation, and extend the already lengthy and punishing period of uncertainty. Nonetheless, nothing in this interim plan would prejudice my colleague’s ability to pursue that course of action if they deem it appropriate.

• To absolutely ensure stability and to eliminate the possibility of consumers experiencing significant disruptions, I will work with my colleagues to craft an 18 month moratorium and transition to protect existing UNE-P customers from sudden changes in their service.

• I will also instruct our staff to begin developing a framework and proposals for new rules that are judicially sustainable and faithful to our mandate to advance local competition. I encourage state commissioners and staff to work with the Commission in this effort. No matter what twist or turns continued litigation will bring, eventually this matter will likely require further regulatory decisions. We must not waste a moment in developing ideas for new rules, so we can act quickly once the litigation merry-go-round finally stops spinning.

Working in partnership, we can identify the reasonable middle ground – if we can put aside entrenched positions associated with one industry group or another. Doing so will require compromise. It will require moving past jurisdictional battles and toward recognition that both of us – state and federal regulators – owe a duty to get this right for consumers. We are entering a remarkable information era that delivers value for consumers and economic growth for America. Working together we can make meaningful competition a reality.

To date, these soothing words have not been reciprocated. To the contrary, NARUC has already launched a lobbying effort aimed at the administration. Powell's proposal ensures that the reliance interests of current UNE-P customers are attended to. In all, it is a defensible and prudent path toward a consumer-beneficial competitive regime.

- posted by Ray @ 3/10/2004 12:02:26 PM

NARUC on Commissioner Copps
The NARUC press release on Commissioner Copps's speech today calls it "a well-written but concise presentation,..." Wonder how Chairman Powell will do tomorrow.
- posted by Ray @ 3/9/2004 10:13:52 PM

Wireless Overtakes LD
As reported in Wireless Week, consumer spending on wireless services reached $89 billion in 2003, exceeding (for the first time) spending on long-distance calling plans by $11 billion.

But wireless is not yet a clear substitute for wireline service, according to the TRO.


- posted by Adam @ 3/9/2004 06:00:40 PM

This morning’s Communications Daily reported that approximately 25% of states that launched Triennial Review Order cases have suspended those dockets as a result of the D.C. Circuit ruling. Comm Daily has counted 10 states suspended of the 42 state proceedings and an additional three states that have a temporary halt pending a final decision this week. Among the forces that argued against the TRO’s unbundling regime, Comm Daily reports that Verizon is seeking suspension of state proceedings across their region, SBC “has no plans to request” a halt but would support others who made such a request and BellSouth would neither seek suspensions nor support others’ request for a suspension in their states.

This information was at the heart of several questions to panelists at today’s Regulatory Source Associates conference held concurrently with NARUC’s winter meeting. While I didn’t poke my head in on the NARUC committees and cannot speak to their tenor, it is fair to say that the state commissioners I heard are dealing with a dose of cognitive dissonance.

Maybe it is simply a dose of caution in case the Circuit ruling is reversed en banc or at the Supreme Court. Maybe it is simply too soon; the ruling is less than a week old and it takes time to digest. Or, perhaps many more state officials than we have heard from thus far recognize that a massive unbundling regime is more valuable as a tool for full regulatory employment than it is as a tool to spur investment and competition. It gives state commissions plenty to do and plenty of power to lord over the private sector. Yet without federal skirts to hide behind, the rational choices of state officials may tip toward facilities-based competition and away from what the D.C. Circuit would call “synthetic competition.” Until last week, state officials could pass the blame. But looking forward at the short and medium term, accountability for the performance of telecommunications markets will hit closer to home.

- posted by Kent @ 3/8/2004 05:47:11 PM

Use Tax
The Associated Press reports that California and New York have joined the ranks of 20 other states that include a line on tax forms for individuals to report use taxes. Use taxes apply to goods purchased in other states and then brought home to a different jurisdiction. Sometimes these goods are purchased while traveling – like a suitcase to bring home trinkets from Disneyland. By most standards, the suitcase and the trinkets are all covered by use taxes. Oftentimes to the dismay of revenuers, a form of tax arbitrage takes place. That’s one reason why so many furniture and outlet stores exist in Newark just outside of high-tax New York.

One big problem with the use tax is enforcement. Regardless of how difficult it is to enforce compliance, there is no excuse for states that fail to even ask citizens to pay the tax. I don’t like sales or use taxes. As commerce and economic wealth trends toward digits, transaction-based taxes should become a thing of the past.

Nonetheless, if there is a properly enacted tax, then we ought to pay and it ought to be collected. There is a duel obligation: one for citizens and one for the state. Here in North Carolina, the use tax is universally known as “Line 16” for its place on the standard form. Now New York and California have their own place for the use tax. And, importantly, purchases made using the Internet can be taxed according to the laws of the state where the buyer resides.

- posted by Kent @ 3/8/2004 09:48:21 AM

Room for Cautious Optimism?
Dave Svanda, Maureen Helmer and Brett Perlman released an open letter today arguing for a "Fresh Regulatory Approach." We former regulators always have oodles of gratuitous advice for our former colleagues, but I think there is some sense to what they argue. The letter calls for intercarrier compensation reform, hands off VoIP, retail pricing flexibility (not deregulation, but it's a start), and a layered model analytic approach to regulatory questions. The letter also notes the dynamism of the marketplace and acknowledges -- if I am not reading too much into it -- the Schumpeterian nature of competition that is going on.

As a zeitgeist-check document, it should inspire a mild optimism post-TRO. The letter is not a rending of garments and gnashing of teeth post-TRO reaction we have seen elsewhere (see Adam's post below, for example). It is a serious attempt to start a dialogue.

- posted by Ray @ 3/5/2004 02:41:37 PM

George G. on George W.’s Broadband Policy
George Gilder launched a broadside at the broadband policies of the Bush Administration in today’s The Wall Street Journal. (Registration required.) He seeks a “bold White House policy to free the Internet from last century’s rules—designed for long-gone monopolies—[that] would spur the entire telecom and technology sectors to gear up for a new era of optical and wireless networks.”

Gilder goes on to argue, “Dissolved must be the entire artificial and litigious distinction between local and long distance communications that assigns the local loop to local regulators and long distance to lobbyists and litigators.” Like any good opinion essay, Gilder has plenty of facts to support his arguments. But one has to ask, “To whom within the Administration is it directed?” It is not clear than anyone who answers a telephone with a “456-” prefix is aware of the problem at hand.

- posted by Kent @ 3/4/2004 05:02:08 PM

The Spin Zone
Focus groups must indicate that people shudder with fear when hearing the word “monopoly.” Sample the following post-TRO decision press releases:

This decision is not in the public interest, but is instead in the interest of four Bell monopolies.

The court sharply restricted the ability of MCI and other companies to offer local phone service to residential customers by denying competitors the right to lease the facilities still controlled by local Bell monopolies.

Unfortunately, the D.C. Circuit's decision turns back the clock to the days when monopoly control of the marketplace gave consumers nothing more than poor service, high prices and little choice.

Voices for Choices-
If the Administration declines to appeal to the Supreme Court, these consumers will be forced back to the very Bell monopolies they have consciously tried to leave.

And Covad-
The FCC's pro-competition policies have already allowed 20 million customers to choose competitive local service providers other than the Bell monopoly.

I can only assume that the market definition CLEC interests are employing is extremely narrow – ignoring wireless, cable telephony, VoIP, and the millions of customers who have switched to both UNE and facilities-based CLECs. In many ways, this is as meaningful as saying McDonald’s has a monopoly on McDonald’s French fries – well, yes, but is this the relevant market for a market power inquiry? And what if the market is dynamic?

On the other hand, simple PR tactics are what telecommunications regulation has descended to.

- posted by Adam @ 3/4/2004 11:15:30 AM

We Interrupt TRO-Blog for some BPL Blogging...
Broadband over powerline is continuing a slow, but promising roll-out. Cinergy has teamed with Liberty Media to bring a commercial offering to 55,000 Cincinnati customers starting next week.

And now back to the fixation on the narrowband, twisted copper voice platform that is the TRO...

- posted by Ray @ 3/3/2004 11:37:47 AM

Law and Economics in TRO-Land
Well, the DC Circuit's Triennial Review decision--and reactions to it--will provide much fodder for bloggers over the next days and weeks. [Note to myself: Don't overindulge yourself and get bogged down in bloggerville.]

But it's hard to resist this one. John Conyers, ranking Democrat on the House Judiciary Committee, is quoted in today's Communications Daily [subscription required] as saying the court "once again showed that it is out of touch with mainstream economic concerns." Come again? As a long-standing member of the Judiciary Committee, Conyers should know better. What the court is supposed to do is interpret the law written by Congress to make sure the agency is acting consistent with its congressionally-delegated authority. The court's role is not to get touchy-feely "with mainstream economic concerns", whatever that means. That would be an odd role for the court to play. What is it supposed to do? Consult the President's Council on Econnomic Advisors, or Congress's Joint Economic Committee?

What the court did do in the TRO case is recognize that one of the principal statutory purposes of the 1996 Act is the stimulation of investment in new facilities, and that to the extent the FCC requires excessive unbundling of incumbent network facilities, this sensisble statutory goal is defeated. Interpreting a law in a way that takes proper account of the fundamental understanding of economic incentives that undergirds a statutory provision is sound judicial decision-making. And good law and economics.

- posted by Randolph May @ 3/3/2004 10:51:03 AM

Out on a Limb
In the rough and tumble world of blogging, if you don't go on the record early, there is little room for self-congratulatory posts later. Therefore, my predictions:

A new energy will infuse state commissioners who were never comfortable with the TRO unbundling requirements. Today's decision will give these commissioners the cover to forestall, or more likely, forego, previously scheduled proceedings. They will abandon those who seek cert from the Supreme Court and they will walk away - hands clean - of their friends who petitioned the court on behalf of states. Furthermore, at next week's NARUC meeting, which features Commissioner Martin keynoting before the telecom committee on Monday morning, the hallway discussions will be a bit more raucous than normal.

My evidence for these predictions? Very little. It is a hunch based on conversations with commissioners from around the country in the last year. Most won't go as far as Florida Commissioners Charles Davidson and Rudy Bradley, Tom Welch from Maine or Greg Sopkin from Colorado who issued the following joint statement this afternoon.

We applaud the D.C. Circuit for restoring order to the Triennial Review process. An economically rational resolution of the issues addressed in Triennial Review is vital to ensuring sustainable, economic competition in the telecommunications industry. Whereas regulatory certainty is critical for investment to return to the telecom industry, the TRO inherently created more uncertainty. It created the possibility that the same set of facts can lead to materially different regulatory outcomes based on state venue. As noted by the D.C. Circuit, "regrettably, much of the [FCC's] resulting work is unlawful."

But many will quietly walk away from costly, cumbersome proceedings that they never really wanted to do in the first place. Resurrecting the unbundling rules in 60 days would be difficult work in any situation. But it is impossible without support from a cohesive supporting cast among state commissions. The solidarity of opinion among state officials is a thing of the past, just like the unbundling rules.

- posted by Kent @ 3/2/2004 11:07:44 PM

Eight Years Is Long Enough
In the statement I issued on the TRO, I said:

“The court's decision is another strong judicial rebuke to the FCC's seven-year adherence to an excessive unbundling regime. The court's clear holding on the Commission's delegation of decision-making authority to the state commissions is particularly noteworthy. And, the court's repeated recognition that excessive unbundling stifles infrastructure investment, contrary to one of the 1996 Act's paramount goals, is key. With the ball back in the FCC's court, that agency is once again at a crucial crossroads. This time, it must heed what the courts have been telling it for years, and put in place a lawful and less regulatory facilities-sharing regime.”

Unfortunately, within two hours of the court's decision, Commissioners Copps, Martin, and Adelstein issued a hasty statement saying that they "have instructed our General Counsel to seek a stay and to appeal the D.C. Circuit decision to the Supreme Court..."

Whoaaaa! Slow down, brother. Wouldn't you think that these commissioners would want to pause and reflect a bit longer on the court's reasons for issuing another stinging judicial rebuke? I'm sure that more will be said here and elsewhere concerning the intricacies of the court's decision, but you don't have to be a law school graduate to figure out the court is saying it's past time to scale back the UNE regime, especially with regard to the switching element.

And you don't have to be a law professor to figure out it is not meant to be a compliment when the court ends its decision with these words, by way of explaining the extraordinary 60-day deadline it gave the Commission for revising its rules: "This deadline is appropriate in light of the Commission's failure, after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings."

Wouldn't it be nice if Commissioners Copps, Martin, and Adelstein would take a deep breath, sleep on the decision, and come to work tommorrow with a willingness to heed the court's directions?

- posted by Randolph May @ 3/2/2004 04:54:53 PM

Groundhog Day at the FCC
The DC Circuit has spoken. Score it a 10-8 round for the ILECs.

The states that stayed their mass market switching proceedings were proven correct today (and fortunately, the court's decision came out quickly enough to spare the other states from wasting even more time and resources on their own proceedings). On its delegation of the mass market switching investigations to the states, the FCC was once again given the back of Judge Williams' hand. The FCC can, for instance, go to the states for "advice and policy recommendations," but if this means that somewhere down the line we'll have a section 271-like model for mass-market switching determinations, I am troubled to my core.

Notably, the Court did not remand the FCC's definition of impairment, but gave the Commission an "FYI" of sorts. The FCC's impairment definition "is vague almost to the point of being empty" with respect to whether operational and entry barriers "make entry into a market uneconomic." Nor did the majority, according to the court, show how below-cost retail rates constitute an entry barrier "where TELRIC rates are so low that unbundling does elicit CLEC entry." Nor did the court consider whether the FCC majority gave intermodal alternatives proper weight. So it goes.

The FCC's refusal to order unbundling of hybrid loops, FTTH, and line sharing was upheld by the court and caused Ray to issue the following statement from the tarmac: "Consumers will benefit from undoing this crazy quilt, legally incoherent FCC decision. The court's ruling is a vindication for a broadband vision for U.S. communications."

Agreed. Unfortunately, assuming today's decision stands it's hard to see how consumers benefit from another Triennial Review (or whatever it should be called after eight years) that draws time and resources away from the FCC's VoIP, intercarrier compensation and universal service reform proceedings. I only hope that Chairman Powell is able to lead the Commission to consensus the next time around - sans the late night politicking and compromises which doomed portions of the TRO from the start.

Oh yeah, with further appeals and another FCC proceeding likely on the horizon, the lawyers did just fine today, too.

- posted by Adam @ 3/2/2004 04:54:13 PM

So Ordered
The Court stayed the TRO ruling for 60 days, but didn't leave a lot of room for misunderstanding about how it regards the FCC. "This deadline is appropriate in light of the Commission's failure, after eight years, to develop lawful unbundling rules, and its apparent unwillingness to adhere to prior judicial rulings." Ouch.

- posted by Kent @ 3/2/2004 03:22:40 PM

John Chambers of Cisco on Need for Broadband Policy
John Chambers of Cisco said this in an interview with the San Francisco Chronicle:

Are there specific policy actions you need to see?

A: Well, I think we've made good progress on education, but we've got to realize that it was just that. We've got to continue to raise the bar.

The second is broadband build-out. This is the infrastructure of the future, and we're the only G-8 country that doesn't have a broadband policy. We ought to have it for every American who wants it, with choice, by the end of this decade. Here we are in Silicon Valley, and a lot of my employees have trouble even getting it.

- posted by Ray @ 3/1/2004 01:01:00 PM

IP as Capital: Yoda Speaks
Alan Greenspan spoke last Friday on the topic Intellectual Property Rights. He noted:

”In recent decades. . . the fraction of the total output of our economy that is essentially conceptual rather than physical has been rising. This trend has, of necessity, shifted the emphasis in asset valuation from physical property to intellectual property and to the legal rights inherent in intellectual property. Though the shift may appear glacial, its impact on legal and economic risk is beginning to be felt.

“Over the past half-century, the increase in the value of raw materials has accounted for only a fraction of the overall growth of U.S. gross domestic product (GDP). The rest of that growth reflects the embodiment of ideas in products and services that consumers value. This shift of emphasis from physical materials to ideas as the core of value creation appears to have accelerated in recent decades.”

Greenspan elaborated on the topic, mostly with questions rather than answers. But they are good questions. Such as:

“If our objective is to maximize economic growth, are we striking the right balance in our protection of intellectual property rights? Are the protections sufficiently broad to encourage innovation but not so broad as to shut down follow-on innovation? Are such protections so vague that they produce uncertainties that raise risk premiums and the cost of capital? How appropriate is our current system--developed for a world in which physical assets predominated--for an economy in which value increasingly is embodied in ideas rather than tangible capital?”

This issue of the nature of capital, the reality that it is increasingly conceptual rather than physical, is fascinating, crucial, and seldom discussed. For more on it, see works by Margaret Blair, then of the Brookings Institution, and Baruch Lev, a scholar at NYU. See also my articles on the stock options controversy, here and here, and the references therein.

- posted by James DeLong @ 3/1/2004 09:21:47 AM

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