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We Say "Negotiate, Not Litigate"
In an op-ed piece appearing in yesterday's Washington Times, Adam Thierer (Cato Institute), James Gatusso (Heritage Foundation), and yours truly urged that, in the wake of the DC Circuit's decision vacating the FCC's sharing rules, state and federal regulators not throw up roadblocks that provide disincentives for the ILECs and CLECs to negotiate with each other to reach mutually satisfactory interconnection agreements.

The bottom line, we said:

"The D.C. Circuit decision has opened a window of opportunity to escape the regulatory and litigation morass that has prevailed since the 1996 Telecom Act passed. But if regulators act as if nothing has really changed, then nothing will. It is past time for regulators to abandon the last century's public utility model in favor of a market-oriented regime in which industry participants have contract freedom so, like others in a competitive marketplace, they can decide themselves how to meet customer needs by voluntary agreements."

Eight years after the 1996 Telecom Act was passed, don't you agree it's time to stop litigating and start negotiating?

- posted by Randolph May @ 5/31/2004 01:00:05 PM

California Nannies Think Consumers Are Ninnies
Not only does California see the need to interject itself into the contractual relationship between consumers and wireless phone companies (see Adam's post below), but the state senate there passed a bill this week limiting Google's freedom to offer "G-Mail" to customers. As PFF Adjunct Fellow Paul Rubin has written about the so-called California Consumers Bill of Rights passed by the California PUC, such regulations limit consumer freedom and choice.

But, of course, that is really the point of these regulations. The regulators, and now the state senate, do not think that people are smart enough to make decisions for themselves. Of course, there is a potent necessity for the law to protect against fraud. But these are run-of-the-mill bargains between consumers and companies -- yet still California government presumes to have the perspicacity and certainty to know best what terms should govern.

Fortunately, Governor Schwarzenegger has two appointments to the PUC in January, and of course veto power over the legislature's overzealous and specious "privacy" concerns. Let's hope that he has more trust in the people than the rest of California government.

[Incidentally, for Rubin and Lenard on privacy, go here.]

- posted by Ray @ 5/28/2004 02:23:30 PM

Naked DSL
Following in the footsteps of Qwest, Verizon is reportedly offering unbundled DSL service, at least on an unadvertised basis, in some states. Leaving the public policy and legal implications aside, the tying of DSL and voice service has always been a questionable business strategy, given wireless substitution, the onset of VoIP, and growing broadband competition.
- posted by Adam @ 5/28/2004 11:57:59 AM

Bill of Rights
Despite a recent a study indicating that wireless customers are satisfied with the quality and coverage of their services, the California PUC adopted a “Telecommunications Bill of Rights” yesterday. The new rules will apply to “all forms of telecommunications service.” After months of wrangling over Commissioner Wood’s proposal, Commissioners Brown and Kennedy made their own modified recommendations. Brown’s proposal was adopted under a 3-2 vote. The rules cover marketing, billing and service practices. For instance, if a carrier makes changes to an existing contract that would result in higher charges or more restrictive terms and conditions, they must provide 25-days notice and give consumers the right to opt out of the contract within 30 days. Perversely, customers also have a blanket right to get out of any contract they have entered into within thirty days, without penalty. The CTIA has promised to challenge the new rules.

As the CA PUC has tentatively concluded that VoIP is a telecommunications service through an Order Instituting Investigation, it is possible that the new “Bill of Rights” could be extended to cover those services as well. Along with the recent NY order deeming VoIP to be a telecom service, this represents a retrograde move by the states away from unfettered competition.

- posted by Adam @ 5/28/2004 11:10:27 AM

Playing the Metaphysical Card
Okay, this isn't about the metaphysics of VoIP, but the metaphysics of something as unhip as plain ol' prepaid calling cards. (Forget that. What do I know about unhip?) Recall my original definition of "metaphysics" as "of or relating to the transcendent or to the reality beyond what is perceptible to the senses" or "highly absract and absruse".

The May 25 edition of Communications Daily [subscription required] reports that the Universal Service Administrative Co. is investigating whether AT&T has "saved" $140 million in USF contributions by classifying its prepaid calling cards as an "information" service not subject to the contribution requirement rather than a "telecommunications" service which is. So, Communications Daily reports that, according to AT&T: "The cards are considered 'enhanced' because they're sold to retail outlets which brand them and add advertising messages..."

Read that again slowly. And then tell me that the current regulatory regime that distinguishes between "information" and "telecom" services based on whether there has been a change in "the form or content" of the information as sent and received doesn't need to be reformed to comport with the realities of today's communications marketplace. Under the current regime, maybe everything turns on how the calling card is branded...

- posted by Randolph May @ 5/26/2004 04:08:52 PM

Florida Spam Law
Florida Governor Jeb Bush is well known for his expansive email habits. He sends scores of messages each day to employees, legislators and constituents. Yesterday Bush took aim at spam when he signed legislation to give the attorney general the authority to bring a civil action against the sender, or anyone who helps the sender, of email with a deceptive subject line.

This strikes me as a fair balance. It preserves the rights of advertisers to hock their wares to consumers. Unwanted commercial email is not prohibited. However, if false or misleading information is provided – essentially fraud – there is a role for the state to play to minimize losses from bad actors in the economy.

I didn’t delve into the details of the new law, so it is unclear to me how viruses and other malicious emails will be treated by the Florida AG. These intrusive emails usually have misleading subject lines but fall short of trying to sell something. The harm to email users from a virus is more akin to trespass or property damage than fraud.

USA Today has the story.

- posted by Kent @ 5/26/2004 11:36:49 AM

Comcast dives into VoIP
Comcast plans on offering VoIP phone service to all 40 million of its customers by the end of 2006. Despite uncertainty from the 9th Circuit's Brand X case wanting to regulate cable broadband like we regulate phones, it's good to be a cable company.
- posted by Ray @ 5/26/2004 11:25:19 AM

Challenging Qwest
The New York Times profiles the challenges facing Qwest.
- posted by Ray @ 5/25/2004 12:34:02 PM

The Web of Freedom
This story from today's Washington Post about When Wu Wei's Democracy and Freedom web site is about the age-old struggle between freedom and authoritarianism. It is a truism, of course, that new technologies like the Internet can be powerful aids on the side of expanding freedom and reducing authoritarian control. Of course, new technologies, if abused, can be used to counter the forces of freedom. But, on the whole, it is much more likely that the Internet, because of efforts like Mr. Wei's, will be a force for expanding rather than restricting freedom.

Hopefully, in his continuing battles with the Chinese authorities, Mr. Wei will draw some inspiration for his Democracy and Freedom project from the free-market and free-speech principles that guide us here at The Progress & Freedom Foundation.

- posted by Randolph May @ 5/24/2004 11:01:02 AM

Yahoo Maps WiFi
The mapping tool offered by Yahoo now includes a feature that identifies WiFi hop-spots. Individual websites have been building WiFi directories for sometime but the adoption by Yahoo is sure to bring an upsurge of visibility to invisible networks. This example shows the hotspots around PFF’s Raleigh office.

Thanks to Herb Brody at MIT’s Technology Review for the pointer.

- posted by Kent @ 5/24/2004 09:45:40 AM

While Regulators Dither
Did you see the WSJ's May 17 report [subscription required] on the top stock-picking telecom sector analysts for the last quarter?

The Journal's wireline telecom sector report begins this way: "With competition from wireless phones and cable companies intensifying, most large U.S. fixed-line telecom companies saw business erode last year -- and it could get worse."

Then it quotes last quarter's No. 1 telecom analyst, Vik Grover of Needham & Co., as warning: "Large regional phone companies are suffering from so much competition and change in technology that their business model is no longer viable."

Maybe Mr. Grover is a bit too gloomy, but he does pick telecom stocks for a living, and, apparently, is pretty good at it. I bet he's shaking his head in wonderment at the policymakers' slow motion debates concerning whether wireless is really a "substitutable" or merely "complementary" service for wireline or whether VoIP is an "information service" or a "telecommunications" service.

For my money, I bet Mr. Grover would agree with me that it's time for policymakers to eschew the regulatory "metaphysics" and heed the blast from Schumpeter's trumpet.

- posted by Randolph May @ 5/23/2004 02:10:40 PM

Legislation to Overturn Trinko
Reps. Sensenbrenner and Conyers have introduced legislation to overturn the outcome of Law Offices of Curtis J. Trinko v. Verizon. In that case, the Supreme Court ruled that an antitrust suit against Verizon could not co-exist with the already comprehensive administrative scheme under the Telecommunications Act of 1996. This bill would change that and thus subject phone companies to potential antitrust liability -- along with the already comprehensive administrative regulatory regime. Certainly the economic rigour of antitrust law would be welcome but not in addition to the current administrative regime. Antitrust instead of administrative regulation, now there's an idea. Bet somebody really smart has already thought of it.
- posted by Ray @ 5/21/2004 03:49:09 PM

Building an Empire: The Vonage Vote
Wednesday the New York PSC determined that Vonage is a “telephone corporation.” The result: more regulation. Vonage will be classified as a competitive provider and must apply for a certificate to authorize their services. As a condition of certification, Vonage is required file a schedule of its rates.

A few comments about this development: First, the PSC took action in response to a complaint lodged by a regulated competitor. When a firm cannot do something in the marketplace to improve its position, the political arena is a very enticing way to hurt the other guy. Second, the Commission took pains to forebear from extensive economic regulation and “to defer any regulatory requirements for a reasonable period to permit Vonage to apply for a CPCN and file rate schedules.” During this 45-day period Vonage can apply for waivers from their regulatory obligation. This begs the question: why regulate Vonage today if waivers are possible tomorrow? (Empire building, perhaps.)

My third reaction is actually a prediction. In the rhetorical debate between the “Must Regulate Now” and “Don’t Regulate the Internet” crowds, memory of the relatively light regulatory touch applied by the NY PSC will quickly fade and the decision will become a rhetorical feather to the cap of the pro-regulation folks.

Finally, the Chairman’s reference (page two) to the terrorism attacks on September 11, 2001 is tone deaf. The same day that former Mayor Guiliani testified on national television about New York’s state of preparedness and emergency responders, the Chairman cited network reliability as a reason to expand the reach of his agency. Perhaps the comment had nothing to do with Guiliani. Perhaps it had nothing to do with Tuesday’s release of a staff report from the 9/11 Commission that alleged evidence of communications foul-ups in the city’s immediate response to the attacks. Regardless, the circumstances create the impression of bureaucratic opportunism. This is unfortunate for everyone.

In a less emotionally charged atmosphere it is easy to see the difference between sustaining reliable networks and how emergency responders use a network and organize their activities. But in light of this week’s events, the network reliability comments were either ill timed and unfortunate or they were an attempt to score political points while building a regulatory empire. I assume it was the former.

News.com had the story on the Vonage vote and Pulver has a post as well.

- posted by Kent @ 5/21/2004 12:38:25 PM

Incentives Matter
Michael Coffey has an instructive essay in yesterday’s New York Times. (Free registration required.) The straightforward introduction of his topic belies the importance of the fundamental lesson: Motivation is a key ingredient of grand human achievements. He begins,

When Randy Johnson struck out Eddie Perez for the 27th and final out on Tuesday night in Atlanta, he became just the 15th pitcher in the modern era to pitch a perfect game. With the thousands upon thousands of games played since the era dawned in 1901, the perfecto is one of baseball's rarest, and certainly most celebrated, feats.

Of course, more time spent on life lessons that come from baseball would be good for most of us. Coffey makes it easy. He illustrates the oldest lesson of economics in a brief analysis of free agency and modern baseball: Incentives matter. Consider this trenchant graph:

What does money have to do with perfection? With free agency, players are aware that their best efforts will be fairly rewarded. They work harder — and they have the financial incentive to do so. They also know that extraordinary accomplishments are wildly celebrated. Cooperstown calls for a piece of the gear used in the game. If this does not inspire the kind of mental focus a player needs to go the distance, I don't know what would.

Read the whole thing.

- posted by Kent @ 5/21/2004 12:14:00 PM

Databases and Monopolies (Government Monopolies, That Is)
Stephen Moore, President of the Club for Growth (a political organization dedicated to government fiscal responsibility and deregulation) has a column in today's Washington Times on "Who Needs the NYSE?" His basic point, echoing Richard Baker, the Chair of the Subcommittee on Capital Markets of the House Financial Services Committee, is that the New York Stock Exchange "derives its power not from the marketplace, but from government charter."

A focus of Moore's critique is the information problem: "Perhaps the most harmful monopoly power bestowed on the NYSE is its status as an information cartel for the stock market. Brokerage firms are forced by regulation to send information . . . of great value . . . to the exchange . . . . Those same firms are then forced to buy the aggregated data stream back whem providing a stock quote . . . . This grants the NYSE an information cartel and impairs the liquidity of the stock market."

Protection of property rights and investment in databases is important to the long-term health of the economy and to simple Lockean justice. But the NYSE situation illustrates the problems when the government creates and continues ossified monopolies unrelated to real value added, monopolies that will be defended to the max with political contributions and other forms of influence.

The correct approach is to define the property rights correctly and assign them to the people doing the work -- and this in itself presents exquisitely difficult issues -- and then let the parties deal by private contract. The firms that produce the data, and their customers, should be able to bargain with the aggregators to share the value created.

This "less government action is more" approach is particularly important in a time of great uncertainty over the role of information in the economy and the society and over how information will produce value in the future. Part of the genius of F. A. Hayek was his emphasis on Competition as a Discovery Procedure, a process of learning and feedback rather than the static equilibrium of the academic blackboard.

- posted by James DeLong @ 5/21/2004 10:42:41 AM

Promethean Fire
The Competitive Enterprise Institute, a free-market-oriented analytic and activist organization here in D.C., held its 20th anniversary dinner last night. It awarded its PROMETHEUS award to Norman Borlaug, agronomist, creator of the Green Revolution, winner of the Nobel Peace Prize, and holder of over 30 honorary doctorates.

Borlaug is one of the towering figures of the 20th Century (throw in the 21st as well). As writer Gregg Easterbrook said in The Atlantic: "Perhaps more than anyone else, Borlaug is responsible for the fact that throughout the postwar era, except in sub-Saharan Africa, global food production has expanded faster than the human population, averting the mass starvations that were widely predicted . . . . The form of agriculture that Borlaug preaches may have prevented a billion deaths."

Borlaug is also exemplar par excellence of the great truth propounded by the late Julian Simon: The Ultimate Resource(2) in the world is the human mind, the ability of intelligence and creativity to wrest incalculable value from inert soil and water, silicon and copper, coal and oil, iron ore and bauxite.

He is a great choice for an award named for the god who gave humankind the gift of fire.

- posted by James DeLong @ 5/20/2004 08:49:49 AM

The IRLE and Inspiration
Aron Ralston joined us this week at an unexpected guest at the Institute for Regulatory Law and Economics. Aron is the hiker who amputated his own arm with a pocketknife to survive after being pinned by a boulder.

Now, we have had a wonderful week at the Aspen Meadows discussing regulatory law and economics. Nevertheless, the most indelible and humbling part of the week for me was meeting Aron, a genuinely modest man who showed passing interest in the economics of consumer protection.

Not much to say except that meeting him was a wholly unexpected inspiration. Makes doing supposedly courageous things in the face of political resistance seem trivial, which is as it should be. An indelibly motiviating experience just to meet him.

- posted by Ray @ 5/20/2004 01:24:29 AM

Yet More Pop Ups
In a riff on the pop-up controversy noted yesterday, GEICO has just filed a trademark infringement suit against Google, says c|net. In selling ads, Google uses "GEICO" as a keyword. Enter it as a Google search, and there at the top of the list in the left column of the results is www.geico.com. On the right, though, under "Sponsored Links," are other insurance offerings.

GEICO's claim is a bit thin because the possibility of consumer confusion seems small. But there is a real issue here. GEICO is saying that it has invested heavily to create in consumers' minds a synonymity between "GEICO" and "car insurance" so that a customer who wants the latter will routinely type in the former. Google is selling to other insurers the capacity to free ride on GEICO's investment, and is thus appropriating to itself some of the value.

The consumer harm would be that Google's siphoning off of value might in the long run force GEICO to underinvest in its brand name, perhaps by decreasing the quality of its product. On the other hand, of course, Google can argue that if GEICO's brand is superior then the comparison shopping will actually help it, so all Google is doing is discouraging investment in brand awareness that is based on hype rather than reality, and that this is actually a public service.

If it ever goes to trial, it will be an entertaining case. Economists will get rich.

- posted by James DeLong @ 5/19/2004 12:59:01 PM

KQA Speaks Out
Last week, FCC Commissioner Kathleen Q. Abernathy spoke to the AEI-Brookings Joint Center for Regulatory Studies on consumer protection efforts. Yesterday, she addressed a Manhattan Institute confab on property rights.

Both speeches are interesting and were no doubt well received by the audience. In the first instance, she put forward a critique of the California model of a Consumer Bill of Rights that comes before the CaPUC next week. (Scroll to page 16.) The presentation Monday highlighted major differences between the regulation of property rights in the wireline and wireless marketplace.

It is rare enough to witness a regulator who can explain the link between markets and property rights. Abernathy goes one step further and shows that when brought together, property rights in markets produce consumer benefits.

- posted by Kent @ 5/19/2004 11:40:30 AM

Telling It Like It Is
T. J. Rodgers, CEO of Cypress Semiconductor and Silicon Valley truth-teller, was interviewed by Declan McCullagh in c|net yesterday. He commented on outsourcing, the business climate of California, the stock options controversy, and other matters currently bedeviling the tech world.
- posted by James DeLong @ 5/19/2004 11:18:32 AM

Pop-Ups Pop Up Again
A couple of weeks ago, PFF's other blog, www.IPcentral.info, commented on the Gator case in California, pointing out that the leisurely pace of litigation was denying companies an answer to an important question -- the legality of pop-up ads for rivals that appear when a potential customer logs on to a firm's website.

Now, L. L. Bean, which has been fighting to have the California suit dismissed for lack of jurisdiction, is pushing the issue in the more convenient forum of Maine. Yesterday, it filed suit there, but not against the provider of the software that produces the pop-ups. It directly sued the companies that commission the ads -- Nordstrom, Penny, Atkins, and Gevalia. Note that these are not all rivals of Bean. Atkins is diet, and Gevalia is coffee. So the case must be based on some trespass theories as well as trademark.

- posted by James DeLong @ 5/18/2004 10:12:42 AM

The Creative Enterprise
Prof. Tyler Cowen at Marginal Revolution discusses his latest book acquisition: Patently Absurd: The Most Ridiculous Devices Ever Invented. Tyler is not so sure about the absurd part though. Why not a combined fork/chopsticks utensil? Or a nightlight on a toilet seat?
- posted by James DeLong @ 5/18/2004 09:23:59 AM

Open Source & Drug Development
TechCentralStation today publishes my article "Peddling Dope: Open Source Drug Development." Written in my usual restrained and judicious style, it takes issue with the proposition that the development of open source software is a model that can or should be applied to the pharmaceutical industry (or to music or movies, for that matter).

One quote: "Socializing an important area of invention and commerce -- for that is what this recommendation entails -- is a dangerous prescription. One would have thought the world would have learned from the utter economic failure and vast human tragedy of the nations that embraced socialism as a basic organizing principle, and would be wary when the same mechanism is advocated for any single sector. A character in George Bernard Shaw's Saint Joan asks: "Must then a Christ perish in torment in every age in order to redeem those who have no imagination?" The answer, apparently, is, "yes"; there is no end of need to relearn.

The open source software movement and community are interesting and important. They have made and are making important contributions to software, and are pioneering some methods of organization that can usefully be applied by market-based companies. But open source is not a new mode of production that can replace the market system; there must be an economic support system operating in the background, and at the end of the day market systems have substantial practical AND MORAL advantages over non-market systems.

For an extended discussion of the open source movement, see The Enigma of Open Source Software (PFF Progress on Point No. 11.8)(March 2004). For anyone feeling especially masochistic, the paper even has a 10-page appendix discussing some of the uncertainties created by the viral nature of the General Public License that is used by the Free Software Foundation.

- posted by James DeLong @ 5/18/2004 08:51:41 AM

Lessig in Wired
Lawrence Lessig has a good column up in Wired, entitled "Protectionism Will Kill Recovery." Cast in the form of a speech by a major-party candidate to an audience of tech innovators, it concludes: "Those hurt by transition can be helped by the government. But cries for protection must not be answered by economic folly. Your silence in the face of that folly is understandable. But your silence will only guarantee that folly prevails. And the consequence of that folly - continued protectionism - will benefit no one. Not the rich, not the poor. Not America, not the world."

Along the way he discusses intellectual property, including: "Intellectual property is vital to growth. But the law must be fit to technologies, rather than 21st-century technologies being forced to fit 19th-century laws. Copyright and patent laws could be simplified; the rightful and efficient protections they promise could be made much easier to navigate. Their aim should be to encourage competition and innovation. It should never be to protect the old against the new."

Lessig and I disagree on many specific issues, but I certainly have no quarrel with the sentiments expressed in that paragraph.

- posted by James DeLong @ 5/17/2004 11:39:11 AM

Fishing Online
E-government has now achieved its highest purpose. I just acquired my fishing license on-line. My only embarrassment is how late in the year it is before I am getting one.
- posted by Ray @ 5/15/2004 02:11:48 AM

NARUC Praises AT&T Proposal -- What Else Is New?
Following on the heels of AT&T's proposal for binding arbitration , NARUC cooed its approval: NARUC Release.htm

Putting aside that there is heterogeneous opinion among the states, why is NARUC approving -- or disapproving -- of any of the negotiation tactics employed by carriers that are jurisdictional to NARUC's member commissions?

It is not just an outrageous display of bias -- I have seen no other releases praising or disapproving of various other offers from different companies during this period -- but at some point jeopardizes the neutrality of the commissions and undermines their legitimacy. NARUC has lost its way and become a partisan in the substantive debates. This is damaging in ways that go far beyond the particular issues.

At best, NARUC can be a resource for the states and a vehicle to promote common state interests. This role may be modest and unsexy, but indeed NARUC follows it on the electricity side. There, for instance, NARUC was sedulously neutral on the highly controversial FERC SMD proposal, which like the Triennial had profound consequences for state regulation. By contrast, NARUC has become religiously devoted to what is a highly controverted view of communications policy.

The state commissions need to act and reign this in.

- posted by Ray @ 5/15/2004 01:46:48 AM

Update: Consumer Bill of Rights
Don’t miss this L.A. Times story on the latest contortions in the tale of California’s proposed “Consumers’ Bill of Rights.” It appears that the Consumer Commissioner Carl Wood is unlikely to garner a three-vote majority later this month for sweeping new regulations on the wireless marketplace.

From the story: The 4-year-old effort to protect Californians against questionable practices by telephone companies took a jarring turn Thursday as two state regulators filed alternatives to a proposal for a telecom consumer bill of rights.

California Public Utilities Commission members Susan P. Kennedy and Geoffrey F. Brown filed alternatives that would cost the wireless industry less than the original proposal by Commissioner Carl W. Wood.

- posted by Kent @ 5/14/2004 02:22:35 PM

Contestability in Carolina?
The North Carolina Utility Commission has initiated its own version of a contestability study. RTI International, the same non-profit that is busy building democratic institutions in Iraq on contract for the U.S. State Department, has been retained to conduct a survey of telecommunications providers in North Carolina.

In an open letter from Chairman Sanford, the idea of contestable markets is raised. She writes,

The study will survey incumbent local exchange carriers, competitive local providers, and other organizations actually or potentially providing alternatives to traditional voice and data services, such as wireless and “voice over internet protocol” (VOIP) services.

On Thursday, a public meeting is scheduled to outline the methodologies of the six-month study. RTI’s proposal can be read here. This development is worth watching closely. In January, the Iowa Utilities Board published a similar survey of telecommunications services and last week opened a proceeding to deregulate several urban wireline markets.

- posted by Kent @ 5/11/2004 06:04:36 PM

UNE-P is Everywhere
An Administrative Law Judge in Michigan has apparently ruled the impairment exists everywhere in the state, thus recommending that the Michigan Commission keep UNE-P available everywhere. There is a bit of "let's pretend" to the case, given that is took place under the auspices of an FCC delegation to the states that the DC Circuit has ruled illegitimate. The recommended decision nonetheless cements Michigan's ardent belief in UNE-P as representing "competition." I believe, as well, that Michigan has some of the lowest regulator-set wholesale prices in the nation. With this combination, Michigan will be able to claim victory with gobs of competition. But, maybe, those low wholesale prices will create a disincentive to invest. Gee, they'll have to correct that with some tax credits for investment. They did. It all begins to resemble a cat chasing its tail.

(And, yes, to the pop culturally-attuned, the headline is a nod to Mojo Nixon and Skid Roper.)

- posted by Ray @ 5/11/2004 10:35:53 AM

The Senate Commerce Committee is poised to confront this grave threat to the Republic on Wednesday.
- posted by Ray @ 5/11/2004 10:33:31 AM

31 CLECs Unite
And they have made a joint proposal to Qwest on UNE-P and UNE-L terms and conditions, requesting a response by the close of business today. The press release is here.
- posted by Adam @ 5/10/2004 05:50:17 PM

Whitman at NPC
Meg Whitman of EBay spoke yesterday at the National Press Club on the positive effects the Internet has for small business. She came out forcefully against a state cartel for Internet tax collection and addressed the access tax moratorium. If anyone has text of the speech, shoot me an email and we’ll link it here.
- posted by Kent @ 5/7/2004 09:18:56 AM

Fear and Loathing in California
Today’s Communications Daily [subscription required] reports that, in separate decisions, a California ALJ and PUC Commissioner Carl Wood have recommended UNE-P rate increases of $2.97 (21.3%) and $3.45 (24.8%), respectively. Any potential increase would be above and beyond interim rates of $13.93, which were established in May 2002, and subject to a true-up to that date. (For retail rate dereg junkies, the state has mandated a local residential retail rate of $10.69.)

Although these are only recommended decisions, this is a clear signal that UNE rates are trending significantly upwards nationally. Just look at Commissioner Wood’s web page, where he is anointed “The Consumers’ Commissioner.” Or look to Indiana, where a similar rate increase has already been approved; or Ohio, where a significant interim rate increase is currently in place (with the possibility of additional, permanent upward adjustments). Michigan, Illinois and New York are among other states who are also currently reconsidering their UNE rates.

Leaving the issue of mandated filings aside, the upward trend in UNE rates could have two immediate impacts on the “negotiate not litigate” process. First, CLECs may increasingly feel the pressure to seek certainty through commercial agreements, rather than relying on a now-unfriendly state ratemaking process. Second, it could have an impact on the baseline of offered terms during negotiations. Recall AT&T’s “roadmap to facilities-based competition” from last week. In its term sheet, AT&T proposed a $3 UNE-P rate increase for customers (with four lines or less) to be effective in 2007. This is an amount comparable to the recommended increase in the California decisions, which would be applied retroactively to 2002, no less.

Per usual, AT&T released a strongly worded statement berating the recommended decisions, noting they “will kill the future of facilities-based competition.” Odd, considering how just last week the company offered to agree to UNE-P rate increases in order to “foster a genuine migration from competition based on UNE-P to facilities-based competition.”

- posted by Adam @ 5/6/2004 07:51:17 PM

Alternatives to Copyright
The newest edition of IPCENTRAL REVIEW is now posted.

Featured is an article by Professor Stanley Liebowitz of the University of Texas on Alternative Copy Systems: The Problems with a Compulsory License. Riffs on the topic are provided by Professor Michael Abramowicz of the George Mason University Law School (Copyrighted Goods as Public Goods) and Katherine Lawrence of the University of Michigan (Why Be Creative? Motivation and Copyright Law in a Digital Era).

The idea that copyright needs to junked in favor of some scheme whereby taxes would be levied on hardware and possibly on connectivity and the proceeds divvied up among artists according to some formula is gaining currency in academia these days, and Professor Liebowitz brings his skeptical eye to bear on the issue.

- posted by James DeLong @ 5/6/2004 03:35:22 PM

Software Patents
Prof. Ronald Mann of the Univ. of Texas Law School has posted a working paper on The Myth of the Software Patent Thicket: An Empirical Investigation of the Relationship Between Intellectual Property and Innovation in Software Firms (Feb. 2004) on the Social Sciences Research Network.

He says: "The paper presents evidence about existing practices in the industry [that] suggests that technology in fact is readily available, rebutting the prominent claims of a patent 'thicket' that is supposedly stifling innovation in the industry. On the contrary, I argue, to the extent patents have an important effect in the industry, it is an effect that inures primarily to the benefit of the smaller firms trying to find a foothold from which they can compete."

This is a crucial general point -- protection of IP is vital to innovators and entrepreneurs. If IP cannot be propertized, then the competitive advantages conferred on large organizations with established marketing organizations, financing, brand recognition, and government contacts become insurmountable. I have always found it ironic that the academic copy leftists are in fact arguing for a world dominated by elephantine institutions -- but then many of them are part of this world, of which large universities are a powerful segment.

- posted by James DeLong @ 5/6/2004 09:52:49 AM

Commissioner Martin's Request
Telecommunications Reports [subscription required] reports that Commissioner Martin's office is asking for proposals exchanged between Talk America and ILECs:

In an e-mail sent yesterday to George Vinall, Talk America's executive vice president-business development, Mr. Gonzalez said Commissioner Martin "would like copies of all proposals exchanged between Talk America and the ILECs with respect to the provision of UNEs after the [mandate from the U.S. Court of Appeals vacating the FCC's UNE rules] is issued.

"In particular, Commissioner Martin would like copies of all responses by either party to the proposals made by the other and relating any documentation showing the willingness of either party to facilitate a transition from a UNE-P to a facilities-based UNE-L," Mr. Gonzalez wrote.

This reads like a discovery request that would be interposed during litigation. More likely, it is designed to change the dynamic such that no real negotiation goes on. If this were litigation, Federal Rule of Evidence 408 would preclude the admission of such documents before the fact-finder. Likewise, a common law mediation privilege might apply, as outlined here. In any event, both of these privileges are based on the sound assumption that parties will behave -- and negotiate -- differently if the court, or in this case regulator, is going to be looking at all of the proposals the parties' discuss. Indeed, the premise of these privileges is that parties will not negotiate and instead resort to posturing if all must be divulged.

The question is: What company will negotiate in good faith with the knowledge it may receive a similar requests? Of course, that may have been the point.

- posted by Ray @ 5/5/2004 05:28:43 PM

Head to Head
Analysts at Goldman, Sachs & Co. and Deutsche Bank estimate that DSL outsold cable broadband offerings last quarter. This is the first time telcos have bested their cable brethren in the broadband market and cable still holds a commanding lead in the marketplace.

As recent as April 20, Deutsche analysts predicted a slight edge for cable in the first quarter and for cable to “likely garner about one-half of the broadband market going forward.”

The L.A. Times carried the Reuters story and included this snippet:

Comcast Corp., the nation's largest broadband provider, with 5.7 million subscribers, told analysts last week it was still winning a majority of residential customers in its markets and that it saw no need for a lower-priced, lower-speed service.

Why does this matter? DSL services are typically marketed in tiers. There is a choice between at least two offerings – with corresponding price and service levels – that does not exist for cable broadband. Different technologies. Different products. Different regulatory requirements. Oh, and overlapping customer bases.

If the prospects for the future are for head-to-head battles between DSL and cable broadband, then it is high time for similar regulatory burdens. Consumers should sort out the subtle differences, not regulators.

- posted by Kent @ 5/5/2004 04:39:16 PM

The Chairman on the chill wind that blows for cable...
Tech Daily [subscription required] reports on Chairman Powell's remarks at the NCTA convention:

These companies "do not know if some federal regulator is going to go in and declare you as something akin to telephone companies and all that that entails," including rules on open access to the broadband infrastructure, Powell said.

This is, in part, the regulatory uncertainty that the Brand X case brought about, but also there is a related point about regulatory potentiality. Because the legal signifiers, "telecommunications service" and "information service," no longer match up to the underlying technological reality, the categories take on a fluidity that makes the potential for regulation ever-present. It of course depends on the will of the regulator, but in Brand X the FCC's will was so weak -- it didn't even ask for a primary jurisdiction referral! -- that the Ninth Circuit filled the void.

The Chairman is of course right that this regulatory potentiality is a disincentive for capital devotion to broadband. I increasingly think that so long as these legal categories exist, it will be so.

- posted by Ray @ 5/5/2004 09:25:56 AM

Review of Free Culture
My review of Lawrence Lessig, Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity, appeared in the print edition of the National Review, May 3, 2004. It is available online here, with the kind permission of NR.
- posted by James DeLong @ 5/4/2004 11:30:01 AM

For Procrastinators
A little Internet browsing this morning produces enough interesting stuff for a whole day of procrastination.

The SEC's website has the Google stock registration statement, and Red Herring (registration required) has some interesting thoughts on it. The Google deal also raises fascinating issues about the changing nature of capital, which is now mostly intellectual as opposed to, say, a century ago when it was mostly physical. For some PFF thoughts on this, see here.

A World Bank report on Open Source Software: Perspectives for Development (Nov. 2003) is available. For the Cliff Notes version, click here.

TechCentralStation has an amusing article on EU regulation of tomatoes, making the larger and eternally-true point that bureaucratic regulation is the enemy of innovation. Some might regard this humble example as containing lessons for U.S. tech policy.

UPDATE: Add the report issued by the American Council for Capital Formation on Macroeconomic Effects of Telecommunications Deregulation (April 2004), prepared by Decision Economics, Inc.

- posted by James DeLong @ 5/4/2004 11:00:41 AM

NARUC Telecom E-mail Swipe
Brad Ramsay takes a swipe at me in his proto-blog, the NARUC telecom e-mail:

[Bradnote - I think I would use a less complementary [sic] term that "cynic" ....come-on Ray - prevent any private negotiation??? "keep their hands deeply involved".....this kind of rhetoric reeks of the fringe "conspiracy" theorists literature - I don't know a single state commissioner that has any interest at all in preventing private negotiations or that does not really really hope that intermodal competition will take root and eliminate the need for oversight (and along with it - half the real political.......conundrums the current regulatory paradigm presents. Brad]

Sure, Brad, your ex ante incentives to negotiate depend entirely on the conditions under which that agreement will operate. That could well prevent private negotiation, or at least make it very difficult, going so far as to make parties unwilling to negotiate in the first place.. It's not a conspiracy theory. It is a straightforward statement that ex post conditions will affect ex ante incentives -- pretty much a commonplace in the scholarship on contracts.

And what less complimentary term would you use?

- posted by Ray @ 5/3/2004 11:25:15 PM

Predatory Pricing Bleg
I am working on a paper about the possibility of a predatory strategy by an incumbent telephone company. I know that the spectre is raised promiscuously in state commission proceedings, but am interested to see if it happens except in the minds of post-Chicago school antitrust-devotees in need of tenure. Any help with this? John Windhausen, where are you when I need you?

E-mail your thoughts to me here.

- posted by Ray @ 5/3/2004 06:33:41 PM

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