May 2013

[Commentary] Last week, the Federal Communications Commission (FCC) Wireless Bureau issued what should have been a fairly routine and highly technical Public Notice about possible alternative band plans for the 600 MHz Auction aka the Incentive Auction. This could also be called “that incredibly crazy, complicated deal Congress came up with last year where broadcasters sell back spectrum licenses to the FCC so the FCC can sell them to wireless companies.”

Since public comment makes it clear that the various proposals present a lot of challenges it shouldn’t surprise anyone that the Wireless Bureau asked for further comment after holding a band plan workshop a few weeks ago. But Commissioner Pai issued a separate statement blasting the Wireless Bureau. In particular, Pai berated the Bureau for departing from what he called the “consensus framework” for one particular band plan – the band plan favored by AT&T, Verizon, the National Association of Broadcasters (NAB) and the largest equipment manufacturers. Pai ignored objections to the AT&/VZ/NAB plan from consumer groups (including Public Knowledge), competitors such as Sprint, or tech companies such as Microsoft. Over and over in his statement, Commissioner Pai cited to the comments of AT&T, Verizon and NAB as proof of a “broad consensus” as if none of these objections existed. As if to emphasize just who counts for Pai’s “consensus” and who doesn’t, AT&T, Verizon, and the NAB posted identical blog posts reiterating the core of Pai’s criticism.

[Commentary] America's 100 million cable and satellite subscribers are forced to pay ever-higher bills for a growing number of channels they do not watch. The American people are being ripped off.

Meanwhile, services such as iTunes and Netflix have led a revolution in how consumers purchase and experience music and video entertainment. They have upended entire industries to allow consumers to buy digital content where they want, when they want. Amid all this change, two entrenched interests — the cable television and video programming industries — have teamed up to use federal regulations to stack the deck against consumers.

I have introduced the Television Consumer Freedom Act, which aims to provide consumers with the option to buy only those channels they want to watch. The bill includes no mandates. Rather, it sends a powerful message to cable and satellite companies, such as Cox and DirecTV, and television programmers, such as Disney-ABC and NBC-Universal: If you want to continue to enjoy government-afforded regulatory benefits, offer TV-watching Americans an a la carte approach to programming rather than the take-it-or-leave-it ultimatum we have today. Another provision in the bill seeks to end the practice of sports team owners punishing fans by blacking out home games that don't sell out. It provides that games taking place in publicly financed stadiums can't be blacked out. The reaction to my proposal could be a case study of the trouble that common-sense ideas too often face in Washington.

[Commentary] Academic and government research has shown time and again that the much larger subsidies to rural areas are largely ineffective while telecommunications subsidies targeted at the poor have increased (land-line) telephone adoption among low-income people. The problem is that Lifeline subsidies are not funded by our relatively progressive income tax system, but by taxes all phone users, including the poor, pay to use their phones.

In other words, the funding source of Obamaphone is highly regressive because the tax that funds it is the same regardless of the payer’s income. Thus, any poor person who does not receive subsidies either because he doesn’t know about them or because he doesn’t qualify is worse off when subsidies increase because the taxes on his phone service must also increase. A second issue is whether subsidizing wireless phones increases wireless adoption by the poor. This turns out to be a very hard question to answer, and one that helps illuminate why economics is the dismal science. But whether the wireless Lifeline program increases wireless telephone adoption in a cost-effective manner is an empirical question and cannot be answered by ideology. Our history with targeted telecommunications subsidies tells us that it can be effective. Strong and growing demand for wireless services by all segments of society tells us that it will have to target carefully in order to make a difference.

[Wallsten is vice president for Research and senior fellow at the Technology Policy Institute. Mayo is professor of Economics, Business and Public Policy in Georgetown University’s McDonough School of Business.]

Apple and the Department of Justice are set to spar in a closely watched price-fixing trial set for early June but, increasingly, attention in the case is turning to a third party — Amazon.

In pre-trial filings, Apple is trying to expose redacted evidence that the company claims will “embarrass” Amazon and show that the retailer engaged in the same activities for which Apple is now on trial. The claims are set out, in part, in a letter last week from Apple’s law firm that urges US District Judge Denise Cote to reveal information about its pricing as well as “internal discussions about the inferiority” of its Kindle e-reader compared to the iPad. Apple also says the redacted information will help expose the “fiction” that Amazon was “forced” to adopt a new pricing system as a result of a 2010 arrangement between Apple and five big publishers. This arrangement — known as “agency pricing” — resulted in publishers requiring retailers to sell e-books on a commission basis, in which publishers could set the price. This led the Department of Justice, state governments and class action lawyers to sue Apple and the publishers; the latter settled the cases and agreed to pay out millions but Apple is holding its ground. Apple argues that the Department of Justice is wrong to portray Amazon as a victim, along with consumers, of a conspiracy to raise prices. Instead, the company claims that Amazon was contemplating agency pricing too and was pleasantly surprised when the publishers took it up on their own.