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The Metaphysics of (Cable) Modems
For the sake of a rational and less regulatory forward-looking communications policy let's hope the Supreme Court grants certiorari in the Brand X case and once again reverses the Ninth Circuit--and not only because you can't reverse the nettlesome 9th often enough.

Let's be pretty clear here. As Ray points out immediately below, the 1996 Act's "information service" and "telecommunication" categories don't make much sense in today's IP world. You can read the two statutory definitions till your eyes glaze over, and it will not be clear whether "cable modem" service, or for that matter, the telcos' DSL service, fits in one category or the other. As I've said before, it takes a metaphysician to figure out how the outmoded statutory definitions, based as they are on techno-functional concepts that have no relevance to today's marketplace, should be interpreted.

Thus, the Solicitor General's very strong reliance on the Supreme Court's 1984 Chevron decision [Lexis subscription required]. There the Court held, quite appropriately, that where Congress enacts ambiguous laws, the courts must defer to reasonable interpretations of the statutory provision by the agencies charged with implementing the laws. The court declared: "Judges are not experts in the field, and are not part of either political branch of the Government...While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices--resolving the competing interests which Congress either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with administration of the statute in light of everyday realities."

In other words, the Court is saying that when Congress's delegation of authority in the Telecom Act is ambiguous, in our system of governance it is better for the metaphysicians at the FCC to be making policy than the ones wearing robes. So, in this case, I hope the Supreme Court grants cert and defers to the FCC's interpretation that cable modem service is an "information" service.

Now a PS--For those interested in constitutional and administrative law, note that Chevron was a case involving an EPA interpretation of a Clean Air Act provision. Hence, the Court's reference to an agency accountable to the Chief Executive, and deference to "the incumbent administration's views of wise policy to inform its judgments." The FCC is not considered to be part of the Executive Branch accountable to the president in the same way the EPA Administrator is, but rather it is a so-called "independent agency". Query: Should this make any difference for purposes of Chevron deference? Reactions welcome for further discussion--but in the meantime see my August 23 National Law Journal piece, "Consolidate FCC Power," advocating that a "slimmed- down organization should be moved into the executive branch, where the president will be political accountable for FCC policy-making activities."

- posted by Randolph May @ 8/31/2004 10:47:32 AM

Appeals to Stop Internet Regulation
The 'unregulated' Internet has been in jeopardy ever since the Ninth Circuit issued its Brand X Internet Services v. FCC decision last spring. There, the court ruled that cable modem service is a "telecommunications service," thus paving the way for cable broadband to be regulated according to the common carriage regime that grips the telecommunications world. By contrast, if cable modem is deemed an "information service," it remains in a relatively unregulated space.

This will be an immensely important case from a policy standpoint, an existential moment, as it were, about the future of the Internet's legal status. It also points up the creakiness of the old categories that govern communications--much like VoIP also does. "Information service" and "telecommunications service" simply don't signify any more.

Like VoIP, the achilles heel of cable modem being deemed an information service is the compelling demands of law enforcement and specifically the application of CALEA. It would be a catastrophe for the security concerns to override the value of an unregulated Internet. And it would be a catasrophe for Brand X to stand. With a great and memorable case caption like Brand X, we can hope that the Supreme Court will put the cable modem, and by extension Internet, back into the unregulated category of an information service.

- posted by Ray @ 8/30/2004 04:21:55 PM

VeriSign v. ICANN
ICANN's interference with VeriSign's introduction of new domain name system (DNS) services has been a source of tension for years. It came to a head in February when VeriSign filed a seven-count lawsuit against ICANN, alleging that ICANN’s regulatory interferences breach multiple provisions of ICANN’s Registry Agreement with VeriSign, interferes with VeriSign's business relations and violates Section 1 of the Sherman Act.

On Thursday, Judge Matz dismissed the antitrust claim, and directed that the case be transferred to state court where the remaining claims can be tried. He held that VeriSign's detailed allegations that competitors had captured ICANN's decision-making process were insufficient to establish an antitrust conspiracy, since VeriSign failed to allege facts establishing that competitors "controlled" or "dominated" ICANN's board.

I recently wrote a paper arguing that ICANN's regulatory excesses stifle innovation in domain name services, and that reliance on competition, rather than regulation by ICANN, would best serve consumers. Matz takes a rather narrow view of the corporate decision-making process, especially in light of the specific evidence of competitors' key role in many of ICANN's decisions, and even a statement by former ICANN president Stuart Lynn that ICANN's process was "too exposed to capture by special interests." (Judge Matz dismissed this by observing that Lynn had not actually "admitted" that the Board had been captured). But an antitrust claim is admittedly a blunt instrument for curbing ICANN's abuses. Press reports indicate that VeriSign will not appeal this decision (which would add further to the delay in introducing new services), but rather will pursue its state law claims.

As VeriSign's complaint and numerous critiques confirm, ICANN is out of control. It was created to promote competition in domain name services (DNS), given a very narrow regulatory mandate, and directed to meet basic standards of fair and open decision-making. It has adopted an increasingly expansive view of its regulatory mandate while providing virtually no procedural protections to affected parties. And its processes are clearly subject to capture. As a result, ICANN is delaying indefinitely the introduction of beneficial services.

Fortunately, Judge Matz's decision leaves VeriSign free to enforce ICANN's obligations under the Registry Agreement and related obligations in state court. ICANN's position clearly raises risks of regulatory abuse. But the Registry Agreement also contains provisions designed to prevent regulatory abuse by limiting ICANN's power and restricting the manner in which it can be exercised. ICANN should be strictly held to the letter and spirit of these protections.

- posted by Bill Adkinson @ 8/30/2004 04:19:06 PM

Predation: Some Comments
After The Wall Street Journal editorial today on predation (shameless self-promoting moment has now passed), I have received a couple of comments about how prevalent predatory pricing schemes are in telecommunications.

This is news to me. But let me reiterate the bottom-line of Adam Peters' and my paper: the recoupment phase of a predatory scheme is damn-near impossible to pull-off in communications markets and, indeed, impossible to pull-off with the pervasive mandatory unbundling that now exists. Furthermore, even if you are the most paranoid, Harvard-school antitrust devotee, the remoteness of the predatory threat is dwarfed by the harm that pervasive retail price regulation causes in the name of protecting against predation.

The schizophrenia of the regulatory mindset is simply astounding at times. First, legacy regulatory roles exist because without them prices will be too high; at the same time, they exist because, without regulation, prices will be too low. Which is it?

- posted by Ray @ 8/30/2004 04:04:51 PM

Reinvent the FCC
At the Aspen Summit, there was considerable discussion about reforming the FCC as an institution in the context of the dialogue about the need to reform communications policy in general. During his conversation with Ray on Monday, FCC Chairman Michael Powell said one of his principal legacies would be the institutional changes he initiated during his watch. He mentioned hiring a bunch of new engineers and starting an internal continuing education program in the form of "FCC University".

Perhaps the FCC needed some new engineers, and there is nothing at all wrong with programs designed to continue to educate and motivate FCC staff. But, frankly, now, with competition supplanting the need for regulation across almost all segments of the communications industry, what is needed is a much more radical reformation of the agency. The FCC, which still largely resembles the Progressive-era agency created in 1927, needs a real transformation. For my article in this week's National Law Journal concerning what should be done, click here.

- posted by Randolph May @ 8/27/2004 10:51:51 AM

Regulatory Freedom of Speech -- And Commerce
A U.S. District Court has preliminarily enjoined the Kansas Corporation Commission from enforcing its "winback" prohibitions against SBC on First Amendment grounds. [Opinion available on Westlaw with subscription.] The KCC passed rules forbidding the incumbent, SBC, from attempting to "win back" customers migrating to other carriers for 30 days. The court wrote:

Southwestern Bell has demonstrated a likelihood of success on the merits because the Commission has failed to present evidence that the thirty-day restriction will directly and materially advance the Commission's substantial interest in fostering a competitive climate in the local exchange carrier (LEC) market in Kansas or that the restriction is narrowly tailored given the fact that there are obvious, non-speech-infringing alternatives to advance the Commission's asserted interest. Further, Southwestern Bell is faced with the threat of irreparable harm if the injunction is not issued by virtue of the loss of its First Amendment rights as well as the fact that it probably would not have an effective remedy after a full trial on the merits.

Because the court relied on commercial speech grounds, it did not need to delve too deeply into the economic analysis of the effect of the winback rule. Interestingly, the KCC asserted "assuring a climate of competition" as the compelling state interest justifying the winback rules' prohibition on contact. The court found this reason legitimate, but not enough to overcome the First Amendment's Central Hudson commercial speech test.

What pervades the opinion, though, is the KCC's -- and even the court's -- presumption that you can manage competition by creating market rules so CLECs can survive in the market. To quote a famous wordsmith, it is surpassing strange that to create competition you have to forbid a party from competing, as the KCC rules required SBC to do.

The court's commercial speech rationale is a victory not just for free speech but for free commerce (they, of course, go together). Given the variety of legacy regulatory rules that touch on regulated companies' speech rights, I would guess this rationale might have some utility in escaping the old regulatory world.

- posted by Ray @ 8/26/2004 04:19:00 PM

The Aspen Summit Webcast
The Webcast of Day 1 of the Aspen Summit is now available. More to follow...
- posted by Ray @ 8/26/2004 02:05:59 AM

Jeff Pulver's Worries
Jeff Pulver says he is "worried" about the future of VoIP regulation after leaving the Aspen Summit.

I hope it wasn't anything I said. I trust it was not because I tend to see eye-to-eye with Jeff on this.

I believe his worries about VoIP regulation are certainly warranted, and the reasons for this did become apparent at the Summit. The concerns start with the current legal and regulatory taxonomy into which VoIP does not fit. The Commission is left with an unsatisfactory either/or proposition for VoIP classification -- what Randy May properly derides as the "metaphysics of VoIP."-- to classify it as either an "telecommunications service" or an "information service." The former classification means heavy regulation; the latter virtually none.

Two factors create pressure for VoIP to be shoehorned into the "telecommunications service" category. First, the FBI and national security apparatus emphatically assert the need to be able to wiretap VoIP under the Communications Assistance to Law Enforcement Act (CALEA). The leads them to advocate for VoIP (and cable modem service) be classified as "telecommunications." Second, the universal service ethos of the telecommunications world relies on a vast system of price distortions -- taxes, access charges and the like -- that cannot tolerate the regulatory escape from these distortions that VoIP threatens. Thus, the legacy regulatory world by its own internal logic has to try to drag VoIP into its grip.

So, Jeff should be worried. Long-term answers are to solve the outdated regulatory categorizations that do not adequately describe the reality of modern communications and rewrite CALEA for the Internet age. In the meantime, Jeff can at least rely on the good sense of Chairman Powell and Commissioner Abernathy, both of whom we heard from at Aspen and neither of whom wants to regulate VoIP.

- posted by Ray @ 8/25/2004 11:53:32 PM

Smells Like Public Choice Theory
Verizon and Qwest are challenging the FCC's interim UNE rules before the DC Circuit, and SBC and BellSouth are not. Perhaps this is one reason why.

- posted by Adam @ 8/24/2004 04:37:11 PM

Babbio to New York: Drop Dead
Well, at least until the state PSC adopts reasonable UNE rates.

VZ's President also stated that yesterday was a turning point in the history of the company, as a consumer in Keller, Texas went live with Verizon's FTTP (Babbio predicted that the FTTP product will be 30 Mbps downstream by next year).

- posted by Adam @ 8/24/2004 04:20:59 PM

Aspen Summit Day 1
Day 1 of the Aspen Summit is nearly complete with only the working dinners remaining, which is where the fireworks can really fly.

It seems a tad narcissistic, but only a tad, to blog about your own conference that you are hosting, so I will direct all to bloggers Declan McCullagh, Dan Gillmor, Jeff Pulver and Michael Powell, who all happen to be here. [The links are to the left and I am presently feeling too lazy to add the links to this post.]

As always, the Aspen Summit brings a humbling crowd together, by which I mean I feel immensely privileged to simply be in the room with many of these people. Bob Kahn, in particular, is a real treat -- as you realize that his mind is thinking 20 years past the rest of us. John Thompson, Stratton Sclavos and Hew Pate were also quite engaging. And Chairman Powell was, as always, his masterful self. (How's that for sucking-up to your speakers?) Looking forward to tomorrow and more neutral appraisals about how we are doing.

- posted by Ray @ 8/23/2004 07:47:12 PM

Define Irony
From Commissioner Copps' dissenting statement on the FCC's interim UNE Order released today, which locks in existing wholesale obligations for six months:

"It didn't have to be this way."

Yes, taken completely out of context. But hear hear nevertheless.

- posted by Adam @ 8/20/2004 08:35:30 PM

MCI Comes Around on Retail Deregulation
Efforts at retail deregulation--the albatross that impedes real competitive behavior in the wireline world--have been fitful, at best, because they must happen on a state by state basis. Massachusetts has been out front on business rate deregulation and Wyoming accomplished rate rebalancing back in the mid-90s. Florida had a good bill passed through the legislature that's implementation stalled in front of the PSC.

One reason for the lack of progress has been the steadfast opposition of new entrants to any retail deregulation of the incumbents. My suspicion has always been that it was because the new competitors enjoyed the price umbrella the incumbent gave them in business markets, where above-cost retail rates allowed them to earn supracompetitive profits. The market may be changing enough for competitors now that they are changing their view toward retail regulation.

In an encouraging move, Jeff Smith of the Rocky Mountain News reports this morning that MCI will support large parts of Qwest's retail deregulatory filing in Colorado:

Jim Lewis, MCI's senior vice president of policy and planning, said he agrees Qwest shouldn't have to notify regulators, and thus competitors, where it next plans to offer DSL high-speed Internet service. He also agreed that the proliferation of cellular phones has ushered in a new competitive era.

"I think the time has come to allow substantial deregulation at the retail level," Lewis said. "It strikes me that now is the time to clear out what I characterize as the regulatory underbrush. It probably ends up being counterproductive to consumers."

Hear, hear. [Or is it "here, here?" Nope, it's hear, hear.]

All this unregulatory talk sounds vaguely familiar...

- posted by Ray @ 8/20/2004 10:32:14 AM

AT&T has struck a deal to refer its new CallVantage VoIP customers to the representatives of five cable operators, where they can then elect to sign up for broadband service. While it is a swipe at the Bells on one level, the deal is more interesting within the context of the "net neutrality" debate. No doubt, most of these cable companies will be competing with CallVantage through their own VoIP offerings, but the choice of promoting an alternative vertical structure here is also a good example of the ICE principle, or "internalizing complementary efficiencies," at work. The ICE principle holds that even a platform monopolist will have incentives to voluntarily offer access when it is efficient to do so. We are not dealing with a platform monopolist here, but this agreement (while anecdotal) serves to illustrate that there is no need for a prophylactic net neutrality mandate in the current broadband market. (Professors Weiser and Farrell have more to say on vertical integration, the ICE principle and its exceptions.)

- posted by Adam @ 8/19/2004 11:45:43 AM

A Mile High - Or How Not to Celebrate in Aspen
The Tenth Anniversary of the Aspen Summit is a cause for celebration. But one must guard against becoming enraptured by his or her surroundings. For those attending the event, this bear reminds us why.

- posted by Adam @ 8/19/2004 11:10:44 AM

The Death of Dial-Up
According to a Nielsen/NetRatings study released yesterday, more people now access the Internet from home by broadband than they do by dial-up. The study appears to answer the question of whether performance or content will drive the broadband migration: speed kills.

- posted by Adam @ 8/19/2004 11:00:42 AM

ICF: The Good, The Bad and The Ugly
Regulatory geeks (that would be us) have been poring this week over the Intercarrier Compensation Forum (ICF) proposal to reform telephone access charges and universal service payments. The ICF has been at work for nearly a year now, and has suffered some notable defections, namely the rurals and the BOCs save SBC. Nonetheless, the ICF is a serious attempt to get at one of telecom's most intractable problems, the perversion of the price system to serve supposed universal service goals. My 72-hours of less-than-intense-study yields these reactions:

The Good: The good is that this is a serious proposal intended to confront head-on the crisis and distortion that the current USF and access charge system causes within communications markets. Making access charges uniform across jurisdictions and stepping them down from current levels is a signal accomplishment. Although I hate subscriber line charges (SLC) for the phony rates that they really are, reducing access charges and transferring the charges to the monthly recurring bill through this legerdemain is also to be applauded.

The Bad: The bad begins with the hyper-regulatory feel of the whole scheme. It is as if Rube Goldberg invented the system and then was asked to make an equally extravagant mechanism to do away with it. Regulatory lawyers created the scheme and they are now tasked with dismantling it, which is about as far from a market solution as you can think of. Further, the ICF proposal expands universal service funding in regards to both inputs and outputs. On the input side, VoIP and other broadband connections (cable modem and enterprise) are herded into the "USF taxable" category, which may be inevitable but is deeply unfortunate. It also doesn't begin to address the structural problems with rural telephony, which are immense and immensely costly. In the end, I understand many of the concessions to reality -- the SLC charge increase, the slowly stepped-down access reductions -- but I would prefer the replacement be pointing toward bilateral agreements and market mechanisms rather than regulatory fiat.

The Ugly: Any solution to the intercarrier compensation problem is bound to be ugly given the reliance interests, political imperatives and technological threats in the current system. To resort to some fuzzy words, this calls for exercise of prudence and artistry more than application to pure principle. The rural carriers in particular are too dependent on access for it simply to go away (in Colorado, many rural carriers realize 50-80% of their revenue from access and USF). The BOCs, meanwhile, have an entitlement through the mists of time and distant rate cases to these access recovery mechanisms. The IXC's, in turn, want desperately to reduce their costs as they seek to keep their head above water in a market that is being swamped by wireless and VoIP. Thus, there are the incentives for some sort of deal to be made, though it probably cannot be one to make most economists happy. So long as it begins to set the price system right and doesn't further exacerbate the "taxation by regulation" that is most of telecom rate-setting, there is quite a bit that could be swallowed in an intercarrier comp reform proposal.

My personal preference, dating from the reciprocal compensation dispute days, is for the regulators (and it must be the regulators who ultimately have the say so to fix this) to look to analogous markets to see the types of compensation arrangements they produce. In particular, the Internet backbone "tiering and peering" model of compensation was produced in a market environment with negotiated agreements between backbone carriers. One can reasonably guess that a market-driven intercarrier compensation scheme would look similar. That said, it is hard to predict what an efficient model would look like. Therefore, regulators need to be careful about replacing one distortionary price scheme (access charges) with another distortionary scheme (mandatory bill-and-keep). There is no elegant plan to fix this. If I think of one, I'll let you know.

- posted by Ray @ 8/19/2004 01:00:39 AM

Good Enough for Government
Over at IPCentral, my friend Jim Delong has already written about the conundrums presented in California Performance Review with respect to open source software. What he didn’t mention is the Governator’s interest in VoIP. Yep, the CPR recommends moving the state’s telephone systems over to VoIP to save an estimated $20 to $75 million a year. I hope the folks in Sacramento are paying attention to the CaPUC’s activity over in San Francisco…as soon as the regulators get their hands on VoIP services you can count on those savings to evaporate.

- posted by Kent @ 8/18/2004 05:51:14 PM

May to Reform ABA
Congratulations are due to our collegue Randy May, who has just been elected Chair of the American Bar Association Administrative Law and Regulatory Practice Section. This is normally where I'd make fun of the ABA. Instead, I'll make fun of his title. Randy, I was always a Chairman; the chair is what I sit in. Maybe you can reform those politically correct titles that the ABA has.

Seriously, congratulations to Randy. Any improvements in administrative or regulatory law in the coming year can be attributed to his leadership.

- posted by Ray @ 8/18/2004 02:56:23 PM

Welcome the technology liberation front. I'd capitalize their name, but they seem to have an aversion to capitalization, marking them as the ee cummings of tech blogs.

The name sounds a bit too rabble rousing and revolutionary for my tastes, something I would expect from sans-culottes provocateurs Thierer, Harper or Arrison. But I would not expect such anarchy-promoting rhetoric from the staid and Burkean Gattuso, Cox or Brough, who usually display more respect for tradition and authority. Now, if the name is an homage to the People's Front of Judea, avowed enemies of the Judean People's Front, I am all onboard.

- posted by Ray @ 8/18/2004 08:53:46 AM

Gene Has the Right Idea
Most campaign finance stories bore me to tears. Yet for every rule, there are exceptions. Today the New York Times has a story [free registration required] on former Texas PUC Chairman Klein and her aspirations to join the U.S. House of Representatives. One should never pass up the opportunity to say, “I agree with Gene.” From the article:

Gene Kimmelman, a former Democratic Senate aide who is now a senior director at Consumers Union, put the matter more succinctly: “Clearly, the companies are investing in the future. This is an interesting story about how Washington works.”

The response to the obvious rentseeking – campaign contributions as an investment in anticipated regulatory favor – is to remove the pervasive regulation of the communications industry where this type of behavior is deeply ingrained. As communications markets move toward a regime based on property rights and contracts – to mirror most of the American economy – naked rentseeking would be tempered. The anticipated return on campaign contributions, which are intended to seek favor, would fall. As a result, I relish the forthcoming support of the Consumer Union for widespread deregulation so that we can join arm in arm, with one voice, to solve these public choice problems.

- posted by Kent @ 8/17/2004 03:02:06 PM

Regulators can't set rates
Harold Furchtgott-Roth's axiom that "regulators can't set rates" is proven again by this morning's report by Anna-Marie Kovacs report on state wholesale pricing proceedings. Specifically, a number of states are grativating toward setting the price of vertical services on the loop at zero. This appears to be a two-fer, both embracing the marginal cost pricing fallacy and the joint and common costs fallacy.

There is only one wrong price, under any pricing methodology, for vertical services: zero. Now, any positive price that the regulators' set would be to some degree arbitrary and there is no rigorous way to divine the "right" price. Nevertheless, it is certain that the price must be positive. Only the bizarro-world of rate regulation could get the one wrong answer out of the infinite number of acceptable answers. See also, zero line-sharing rates, ranted about here, pages 112-118.

- posted by Ray @ 8/16/2004 04:25:17 PM

Talk About Regulatory Lag--Part III
Well, personning the Regulatory Lag Watch at the FCC could be a full-time job, so I'll probably cease and desist for now. Others can pick up the cudgel. Now that someone has lit a fire directly beneath the Tariff Division, there is plenty of material to work with.

Did you see the latest? The FCC just issued a Public Notice asking interested persons to "refresh the record" upon which it based its 1997 Price Cap Review Order. Reconsideration petitions were filed shortly thereafter. The Public Notice says: "[B]ecause the petitions for reconsideration were filed several years ago, the passage of time and intervening developments may have rendered the records developed by those petitions stale."

No kidding! Substitute "seven" for "several" in the above statement, and you get the idea concerning just how stale the record may be.

Is this 2004 or what?

- posted by Randolph May @ 8/16/2004 01:08:27 PM

Interoperability Issues
One rote claim about the digital age holds that interoperability issues are pervasive and acute. They are.

But they are not new. In my new capacity as assistant coach to an 8 year old football team (my son's, and yes with my physique and background, I coach the line), I have learned that after decades of differences, the youth helmet manufacturers are about to agree on an (ever-elusive) chinstrap standard. It seems Rydell, Adams and Schutt--the big three of youth helmet makers--have agreed on the snap placement points for chinstraps so that chinstraps will now be interoperable between brands.

I know nothing of the respective market shares of the helmet makers, or the competitive status of the market. And I am reasonably sure this is not done in response to regulation or threatened regulation. Nonetheless, it is probably a data point for some future didact. I can see the paper now: "Interoperability of Helmet Chinstraps and Its Implications for Network Industries." Tenure stuff.

- posted by Ray @ 8/16/2004 12:30:15 AM

Talking About Regulatory Lag--Part II
In my post below on August 4, I pointed out that the FCC is just getting around to finishing up an investigation relating to the 1993-94 LEC access tariffs.

Now comes word the FCC has wrapped up an investigation into the Virgin Islands Telephone Company's ("Vitelco") 1997 access rates, holding Vitelco liable for refunds to AT&T.

Somebody must have lit a fire under the Commission's Tariff Division. This is scary. Before we know it, the FCC may be ordering refunds for alleged overearnings that it determines occurred in the same century as the date of the refund order.

As my Mom (still) likes to say: "I should live so long!"

- posted by Randolph May @ 8/14/2004 04:15:32 PM

Take Back Your Seats, Part III
The exchange between Ray and I below about the appointments process for FCC commissioners has gone in exactly the direction I had hoped. It illustrates the gap between the idealized Progressive-era model of "expert" agencies peopled by "men of big ability and big vision", as Senator Dill, the chief Senate sponsor of the Radio Act of 1927 put it, and the reality of practical politics. In my view, you can't take politics out of policymaking and assume that policy, communications or otherwise, will be made by a group of platonic guardians (the "experts") divorced from politics. And in a democracy, nor should you want to.

What is most important, of course, is accountability for political decisions. That's why I'd seriously consider moving a slimmed down FCC to the Executive Branch under a regime that would give the president more control over its actions. And at the same time make him more accountable for implementing communications policy. Remember that Congress can legislate communications policy with as much (or as little) specific direction as it wants, thus confining or not agency discretion. What we are talking about here is the executive function of implementing whatever authority Congress delegates when it either explicitly or implicitly leaves discretion to the agency.

Here's an earlier piece I wrote for Legal Times calling into question the idea (at least in today's environment) of the FCC as an exemplar of the apolitical "expert" agency model. Another one on "Reinventing the FCC" will be published shortly.

- posted by Randolph May @ 8/13/2004 01:13:56 PM

Michigan PSC Hot for FCC Seat
Communications Daily reports (subscription only) that all three members of the Michigan Public Service Commission signed a letter urging President Bush to “move swiftly forward” to appoint Commissioner Adelstein to a second term. Unconfirmed reports suggest that other state regulators are advocating in a similar manner.

I have no quarrel with Adelstein. In fact, I believe he often articulates important points at the Commission. The good people at the Michigan PSC obviously are willing to go one step further. The letter cites “an outstanding job” done by Adelstein representing rural interests.

Granted, prior to coming to the Commission, Adelstein worked for Senator Daschle, a king-pin for “rural interests” in the United States Senate. Earlier in his career he also worked for Donald W. Riegle, Jr., a Senator from Michigan, and he hails from South Dakota where he presumably learned firsthand about rural interests. When Michigan officials assert that he represents important rural interests, I take the claim at face value. My problem is not with his qualifications or record of service at the Commission. It is with the actions of the Michigan PSC.

Appointed state regulators are lobbying – in their official capacity, not as private citizens – to influence the composition of a federal agency with whom they must deal. This steps over the bounds. The PSC exists to administer state law. The lobbying also cheapens Adelstein and his position. He is being treated like a stretch of federal highway or the official name of a local post office. Their actions suggest that a FCC Commissioner is political plum used as a tool to assuage constituencies rather than as an independent, expert administrator of the nation’s communications law. Finally, the federal system of government relies on distinctions between national and state governments. Each has a role and significant power. True, communications law has blurred these differences for years but there is little doubt that there ought to be a distinction. Take for example the strenuous arguments by states for more control of retail rate regulation. Unfortunately, the Michigan PSC did not just go one step further that I would go, it went one step too far.

Update: Last week, members of the Nebraska PSC voted unanimously to give their support to Commissioner Adelstein's cause. A letter to the President is forthcoming.

- posted by Kent @ 8/12/2004 06:30:42 PM

IP Plunge
I took the leap. VoIP is no longer academic for me or for PFF. Working out of an office in Raleigh, and talking to people around the country every day, I finally joined the growing community of VoIP consumers. By the time I return from Aspen, my number will have been ported from a LEC to an IP-provider. For about $50 a month, the package includes caller-ID, unlimited calling in America, a fax line, two telephone numbers and extensive voicemail features. The telephone numbers begin, respectively, with 919 and 202 so that both Raleigh and Washington are “local.”

There will be some hiccups and I’m not sure that our main office in D.C. is ready for the plunge. (Although the satellite office in Denver is on the cusp since it is inhabited by a certified gadget-head.) I have concerns about the quality of speakerphone conversations. I had to get a new fax number. But the trade-off is tremendous. Ante VoIP, the price of two local lines, voicemail and three-way calling was more than double the cost of the new VoIP offering. And on top of it all, there are no long-distance charges with VoIP.

I’ll see you in Colorado…but when I call, your caller ID will read 919.

- posted by Kent @ 8/12/2004 02:22:49 PM

The Menace of State Attorneys General
The state attorneys general who filed suit against energy companies for their coal burning plants deserve all derision available for their shameless grandstanding and distortion of the legal process to score political points. Robert Samuelson cooly does that today in his column. [registration required].
- posted by Ray @ 8/11/2004 10:08:17 AM

Take Back Your Seats, Part II
I agree with what Randy said, but would take the point even further. Two unfortunate recent traditions have emerged and they have converged poisonously. The first tradition Randy describes; namely, the White House ceding de facto appointment authority for minority party commissioners to the leaders of the opposite party in the Senate. Clinton did this and we got Michael Powell and Harold Furchtgott-Roth. Bush did the same and Senator Daschle "appointed" commissioners Michael Copps and Jonathan Adelstein.

The second tradition holds that Hill staffers are appointed to these positions. FCC historians may know the whole list, but Furchtgott-Roth, Copps and Adelstein all fit this mold. These folks then come to the Commission from the intensely partisan world of the Hill, where voting against the other side is a near-duty and where law is made, not followed.

The result of these two trends is that you end up with an FCC that is more deeply divided along political lines and more apt to behave as if it is a legislative, instead of law-abiding, body. Indeed, I would hazard to say that there is more collegiality on appellate courts between appointees of different parties than on the FCC. The demagoguery and political stuntery around the media rules is case in point where even the very tactics of political campaigns were in use. You simply cannot cede appointing authority to your partisan rival and then draw your candidates from the partisan, political hotbed that is the Hill and expect a cohesive, collegial body.

Maybe with its broad grant of authority, the FCC is doomed to be a irredeemably political body. If so, then it is false even to its own premises of being a law-abiding expert agency. Moreover, you have to ask what special claim it should have to be regulating. After all, we usually rely on legislatures to legislate.

- posted by Ray @ 8/10/2004 04:55:47 PM

Mr. President! Take Back Your Seats
There has been a lot of letter-writing recently on the topic of whether President Bush should renominate Jonathan Adelstein for another term as FCC commisisoner. All the Democrats and many Republicans on the Senate Commerce Committee think so. That's fine.

Without addressing the merits of Adelstein's bid for renomination, I have to say I was struck by Senator Byron Dorgan's statement (as reported by Tech Daily-subscription required) that the White House has been "arrogant" in its failure to renominate Adelstein because "this is not a seat that belongs to the White House."

With all due respect to the Senator, who does he think the seat belongs to? Last time I looked, the Communications Act said the President nominates FCC commissioners and the Senate gives its advice and consent. Surely the Senator is not suggesting that the seat "belongs" to the Senate Democrats simply because the Communications Act requires a bipartisan membership. Or even that the seat belongs to the Senate. There was a time in the not too distant past, when the Senate exercised its advise and consent responsibility with respect to the appointment of regulatory commissioners more consistently with the intent of the law and the Constitution by showing more deference to the president's appointment perogatives as Chief Executive.

As a practical matter, perhaps that bygone era is long gone. But Congress has yet to get around to amending the Communications Act to give itself the de jure power to appoint FCC commissioners that Senator Dorgan wishes to exercise de facto. Suffice it to say, if it ever does so, such an arrogation of executive power would be unconstitutional.

So, Mr. President: "Take back your seats!"

- posted by Randolph May @ 8/9/2004 05:50:18 PM

Aspen Summit
The Aspen Summit is only two weeks away! Register now.

Join Michael Powell, Hew Pate, Craig Mundie, Larry Babbio, Bob Kahn, Zoe Baird, John Thompson, Shane Robison, Darcy Antonellis, Jim Crowe, Glenn Britt, Dan Gillmor, James Taranto, Walter Isaacson, David Post, Orson Swindle, Kathleen Abernathy, Ambassador David Gross, Emery Simon, Mark Stahlman, Dale Jorgenson, Robert Sachs, John Windhausen, Steve Largent, Walter McCormick, Mike Gallagher, the Professor and MaryAnne!

- posted by Ray @ 8/9/2004 01:46:09 PM

Pricing Pills and Software
The Wall Street Journal has an opinion piece by Frank Luby and Frank Bilstein giving software firms pricing advice from drug firms. Both industries face similar problems -- they have high fixed and low marginal costs and hence the pricing strategy is not self-evident. More than that, it's damned tough to figure out how to price in such a market.

The article emphasizes paying attention to the demand-side in setting prices -- what prices meet the customers' needs and expectations best? This means a host of ephemeral factors must be taken into account, in addition to things like perceived "fairness" of the price and a degree of cost certainty for the consumer. They also discuss how habits and expectations form. Large enterprise software consumers are apparently aware of the promiscuous discounting that goes on, and exploit it accordingly. But such practices make it dreadful to be software supplier, needless to say. Just ask the recording industry how unfortunate it is for consumers to begin believing a product is "free."

These pricing conundrums are everywhere in digital industries and the economists have no good answer. As Jim has noted, the economists' marginal cost pricing prescription is useless, if not dangerous here. The economists' more sophisticated suggestions for high fixed, low marginal cost industries -- Ramsay pricing -- either offend consumers' sense of fairness (ask a business airline traveler) or reek of "blackboard economics" that gives the right answer in theory but is useless in practice.

In the end, my feeble take is that pricing in such industries is really, super, mega-hard; that theory provides little guidance; and that regulators, academics and theorists can accomplish only mischief by trying to interfere here.

[Cross-posted on ipcentral.info]

- posted by Ray @ 8/9/2004 01:36:22 PM

Banking on Lawful Expectations
Kohlberg, Kravis Roberts & Co. and other investment banking and venture capital firms are imploring [read: lobbying hard] the FCC not to really reduce the scope of the FCC’s unbundling rules. They are understandably concerned about the investments they made in certain CLECs based on expectations (and hopes) that the uneconomic UNE regime would remain in place indefinitely.

According to a TR Daily story [subscription required], the investment firms have told Chairman Powell: “We committed this capital to, and have continued to invest in, competitive wireline telecommunications infrastructure in reliance on the FCC's steady and consistent interpretation of the telecom act over the past eight years, which you also have articulated." Problem is, the FCC’s steady and consistent interpretation of the Telecom Act’s unbundling regime for the past eight years was unlawful.

The DC Circuit put it very succinctly at the very end of its USTA II decision vacating the FCC’s unbundling rules that the investment bankers now implore the Commission largely to keep in place. In imposing a very short dealine before its mandate would be effective, the court emphasized: “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.”

I assume the bankers have heard the expression “Eight is enough!” And they should understand that it is now time for the FCC to get on the right side of the law, regardless of whatever legal or political advice they early on may have received concerning how different people may have thought the Telecom Act ought to be interpreted.

- posted by Randolph May @ 8/9/2004 12:50:29 PM

Talk About Regulatory Lag
Whew! Did you see the August 2 TR Daily story headlined: “FCC Orders Price Cap LECs to Refile ’93, ’94 Access Tariffs”? [Subscription required]. In what TR Daily politely called a “multiyear investigation”, the agency just determined that the price cap LECs failed to include an appropriate formula in their price cap indices in their 1993 and 1994 access tariff filings. So the agency ordered the LECs to recalculate the 1992 and 1993 earnings and to refile after making the necessary adjustment.

Then the agency will embark on the next phase of the tariff investigation to determine whether, despite the use of the wrong formula, the LECs nevertheless had enough “headroom” [Don’t ask!!!] so that, in any event, refunds are not required. (Okay, you asked. “Headroom” has to do with the extent to which the LECs’ rates were below the allowable rates under the price cap index.)

What were you doing during 1992 and 1993, daddy? You might be entitled to a refund. Or maybe not.

As my mother likes to say: “You should live so long!"

- posted by Randolph May @ 8/4/2004 05:46:09 PM

Hazlett on Unlicensed Spectrum
Tom Hazlett, the dean of economists advocating property rights in spectrum, argues that "[m]arkets are dying to discover just where particular technologies make the most sense for any given slice of bandwidth. All they require is freedom, property rights and bandwidth."

And he points out that unlicensed thrives on property-like ordering and FCC regulatory prescriptions on emissions and transmissions within the bands.

- posted by Ray @ 8/3/2004 03:34:02 PM

"Zap the Gap"
The phrase rolls off the tongue. Fortunately, it does not refer to stun-gun toting marauders in search of trendy, youth-oriented fashions in America’s shopping malls.

The North Dakota PSC has launched an initiative to encourage new investment in wireless infrastructure. The rhyme is in the name. The reason: to eliminate dead spots in wireless coverage as well as to improve service along transportation corridors and in the state’s cities. The method is quite striking. Rather than try to regulate, mandate, subsidize or otherwise coerce better service and new investment, the PSC will collect and make available valuable consumer information. Privacy zealots can rest easy; the type of information involved may be more typically understood as “market data” such as wireless penetration rates, traffic counts on major transportation arteries and population figures. With the power to confiscate and transfer wealth, a government program designed to share information in order to create wealth strikes me as a very good use of state resources. Market data for a rural state takes on many characteristics of a public good. Kudos to our friends up North for an innovative approach to an old problem.

- posted by Kent @ 8/2/2004 01:10:45 PM

Wi-Max: The Next Big Thing?
Roger Fillion, who once wrote a very charitable profile of me when he was at The Denver Post, has a fine summary today of the prospects for Wi-Max technology. The technology should be commercial within the next couple of years. [Question, Is this commercial as in two real years or in technology-hype years where VoIP was "two years away" for, oh, about six years?]

In any event, it shows promise as a rural broadband solution and, from the article, it appears Qwest is putting some hope on it giving them a "second-mover advantage." It also sounds as if it may have some backbone uses, if I understand the story right.

- posted by Ray @ 8/2/2004 12:58:54 PM

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