American Enterprise Institute

[Commentary] RIP, America’s robust video market. Federal Communications Commission Chairman Tom Wheeler has a plan for you and he doesn’t intend to let you refuse it. The week of Sept 5 the FCC released a fact sheet on Chairman Wheeler’s new plan to rid the world’s most vibrant video marketplace of set-top boxes, those devices that almost all cable TV customers choose to lease each month. His plan? Force creation of an app and a standard app license that would take over the video marketplace. What could be more innovative than government-directed software and business contracts?

Apps may be the future of video entertainment, but that does not mean that government should be making this choice. Often, economic regulation pits regulators against customers in determining industry direction. Only one will win: Either the customers will determine the future by deciding which products and services are worth buying, or the regulator will drive the future by coercing the industry into ignoring market signals. Given the unprecedented value customers have enjoyed from US tech and video markets, let’s hope the Wheeler-app doesn’t happen.

[Mark Jamison is the director and Gunter Professor of the Public Utility Research Center at the University of Florida]

[Commentary] On Aug 30, the Body of European Regulators for Electronic Communication (BEREC) released their network neutrality guidelines. To recap, the European Union's net neutrality rules came into effect April 30; BEREC’s task has been to create the guidelines for implementing these rules. While BEREC’s chairman promised that their work would stay faithful to the law, the end result indicates something different. What’s in the new updated guidelines? Here are three key takeaways:

1. Content application providers have the same rights as as human users.
2. Traffic management remains murky and complex.
3. National regulatory authorities have many new obligations.

What happens next? Most likely, litigation.

[Roslyn Layton is a PhD Fellow at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] Much of the Federal Communications Commission municipal broadband order focused on the benefits of municipal broadband as a policy matter. The agency stressed the value of facilities-based competition and the effects of municipal entry on prices and service levels of incumbent private broadband providers. But legally, this was little more than smoke and mirrors. The key question before the court was not whether municipal broadband was good policy. Rather, the key question was who should decide whether municipal broadband is good policy and what restrictions, if any, should be placed upon municipal broadband providers. More specifically, the case represented a classic power struggle between the FCC and the states. Can a federal agency in Washington tell the sovereign states what they can and cannot do with regard to the cities they operate?

Unfortunately for the FCC, the contours of its authority to preempt state law were settled long ago. The broader lesson to be learned is that agencies should pay more than mere lip service to the legal restrictions on their authority. It is not enough to be right on policy; there are (and should be) limits on the ability of agencies to finesse the law to achieve narrow policy objectives. These legal restrictions often indicate broader, more fundamental principles at stake than the outcome of a particular policy dispute — in this case, state sovereignty. It seems an important lesson to remember as the telecommunications community struggles with the effects of reclassifying broadband as a public utility in order to secure a per se ban on paid prioritization.

[Lyons is an associate professor at Boston College Law School]

[Commentary] On July 21, yet another interest group weighed in on the network neutrality debate: academics. In a letter organized by Stanford’s Barbara van Schewick, the 126 signatories, described by van Schewick as “leading” academics, claimed that the European Union net neutrality law, unless amended through guidelines from the Body of European Regulators for Electronic Communication (BEREC), will frustrate academics’ “ability to research, collaborate, and educate.” Given the seriousness of this assertion, TechPolicyDaily.com investigated the substance behind the claims.

Of all the inconsistencies this letter represents, the most important is these academics’ failure to support policy with research and academic evidence. It appears that in a clicktivist world, it is enough for academics to lend their name and university affiliation to an effort without having to deliver any substance. Moreover, policymakers appear to believe that an academic stamp of approval — any name, as long as it is attached to an academic title — is sufficient representation for the entire community. Such practices are a disservice to universities, bona fide academics, and anyone who expects telecom regulators to make decisions based on substantive evidence.

[Roslyn Layton is a PhD Fellow at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark.]

[Commentary] Hillary Clinton’s technology and innovation agenda promises to “finish the job of connecting every household in America to high-speed broadband.” How? Largely by taking money from taxpayers and funneling it to people who promise to expand broadband.

In some universe, it might be possible to make the world a better place by taking money from businesses and consumers who were using it to produce wealth and value and putting that money into something that people are otherwise unwilling to pay for. But in the world in which we actually live, Clinton’s plan is likely to waste resources and make our economy worse for the experience.

Underlying the Clinton agenda is a belief that we have too little broadband and that we find ourselves in this situation because: (1) There are barriers to competition; (2) Customers don’t know what they are missing; and (3) We are not taking account of the positive economic spillovers of broadband.

[Jamison is the director and Gunter Professor of the Public Utility Research Center at the University of Florida]

[Commentary] The digital strategies of countries in the developed world are predicated on the aspiration that all citizens, no matter where they choose to live and work, should be connected at all times to a broadband Internet connection. The fundamental content of these policies has been unchanged since the Internet first became a commercial reality – the only substantive change has been to the definition of a broadband connection. Whereas once a broadband connection was defined as “anything faster than dial-up,” over time it has changed to reflect the current technological frontier and the needs of applications deemed necessary for citizens to fully participate in their respective societies.

Despite grand digital policy aspirations, and substantial investments in programs to connect citizens facing financial and physical impediments to accessing broadband services, most countries see a certain portion of citizens steadfastly refusing to connect to broadband Internet services because they see no benefit in doing so. Furthermore, a significant number of citizens choose to buy slower connections, even though they face neither financial nor physical barriers to purchasing faster ones.

[Bronwyn Howell is a faculty member at the School of Management, Victoria University of Wellington, New Zealand]

[Commentary] One of the starting assumptions for the Open Internet order is that blocking, throttling, and paid prioritization are unilateral actions imposed by Internet service providers to maximize their own positions and will be necessarily harmful to consumer and application provider welfare. Consumer-directed blocking and throttling may be questionable in the US, but the practice is alive and well in New Zealand – one of the OECD countries where no specific position on traffic management has been enshrined in regulations.

The case for selective throttling is an easy one: Internet users are extremely heterogeneous consumers with extremely heterogeneous tastes for Internet content. In a world of heterogeneity, the best way to increase both consumer and total welfare is to allow the development of customized products and prices tailored to differing preferences. Just as consumers can create a better overall experience using selective throttling, so it is possible to imagine plenty of scenarios where content providers or network operators can do the same. Unfortunately, the network neutrality rules seem to take options like these off the table – even before they have been articulated or explored – and instead offer only a strict one-size-fits-all Internet experience. It behoves regulators and net neutrality advocates to remember that, just as with other examples of heterogeneity, perfectly equal treatment may create outcome inequalities that intelligently applied positive discrimination – understanding and catering to individual differences – can ameliorate.

[Bronwyn Howell is a faculty member at the School of Management, Victoria University of Wellington, New Zealand.]

[Commentary] The investment advisory press is having a field day with the recently announced Comcast-Netflix deal. The deal, as the companies hope to eventually present it to consumers, will permit Comcast customers to subscribe to Netflix much as they already do to such premium offerings as HBO, Showtime, and Starz. Simple. But some in the blogosphere want to portray this deal as not just business but as détente in a war.

Reduced to its most simple elements, this deal illuminates a common story in the Internet ecosystem — a story long told in the cable world — carriers (Comcast) and content providers (Netflix) are complementary industries and together provide a product that consumers find desirable. To be sure, the exact terms of the deal will depend on a wide mix of variables that influence each party’s bargaining power — relative market size, relative consumer demand, market substitutes and, yes, potential regulatory intervention and pressure. The deal is exciting not because it is good against evil, but because it promises a product consumers may enjoy. It’s the excitement of the free market system doing what it does best — innovating.

[Babette Boliek is an associate professor of law at Pepperdine University School of Law.]

[Commentary] What kind of leadership does the Federal Communications Commission need?

One kind is adaptive leadership — a concept pioneered by Harvard University’s Ronald Heifetz —that helps organizations recognize and address harsh realities. Sen John Thune (R-SD) is providing adaptive leadership by pointing to failings, identifying disconnects, and showing the dangers of a continued downward slide. The other kind of leadership is that which fulfills the authority vested in the chairman. The head of any organization is expected to provide direction (which is about clarifying the organization’s purpose and role), order (which is about aligning the organization to fulfill its purpose), and protection (which is about protecting the organization from the forces that could hinder its work).

FCC Chairman Wheeler has clearly failed in providing direction because he has abdicated the agency’s regulatory role to the White House and to Democratic congresspersons. His failure to provide proper order is evidenced by the agency’s diminishing transparency. And Chairman Wheeler has also failed in providing protection. For example, at a recent commission vote on Lifeline, a telecommunications price discount plan for low-income households, Chairman Wheeler delayed the vote so that congressional Democrats could pressure Commissioner Mignon Clyburn to vote along party lines rather than align with her Republican colleagues at the commission. Enabling Democratic politicians to interfere with his fellow commissioner is a betrayal of the chairman’s leadership duties.

[Jamison is the director and Gunter Professor of the Public Utility Research Center at the University of Florida and serves as its director of telecommunications studies.]

[Commentary] There is much to worry about in Hillary Clinton’s technology and innovation agenda as it provides a blueprint for diminishing US leadership in tech. Here are some of the features that may sound like they promote technology and innovation, but in reality drain value from customers and industry. The Clinton plan:

• Expands handouts to political allies: It will subsidize computer science teachers, provide grants to government schools for STEM education, subsidize more job training programs, fund business incubators, continue the Broadband Technology Opportunities Program (BTOP), and create a $25 billion Infrastructure Bank.
• Increases government role in broadband: The plan will expand subsidies from the federal government to cities, regions, and states to invest in dark fiber, broadband in recreation centers and transportation centers, and free public WiFi. Of course these programs will be wrought with political favoritism and waste.
• Makes empty promises of less regulation: The plan says that “localities may seek” (emphasis added) to streamline permitting processes, develop infrastructure maps and pursue “dig once” policies. It also says that Clinton would “challenge state and local governments to identify, review, and reform” barriers to new infrastructure competitors.
• Promises an open Internet, but delivers a closing one: The plan supports the Obama administration’s efforts to hand over Internet governance to an entity where governments may be the most powerful stakeholders. It also strongly endorses net neutrality, which continues to grow into the major barrier to customers getting the Internet services they want.

[Jamison is the director and Gunter Professor of the Public Utility Research Center at the University of Florida and serves as its director of telecommunications studies]