Obsidian Wings

Clyburn at FCC - Obama's Harriet Miers?

by publius

In case you haven’t seen, Obama plans to nominate Mignon Clyburn for FCC Commissioner (she would be third Democratic seat – there are 5 total).  Name sound familiar?  It should – she’s Jim Clyburn’s daughter.  He’s the House Majority Whip from South Carolina.

Sound fishy yet?  It should.  In fact, it’s a baffling, frustrating nomination.

I obviously don’t know anything about her yet (which is part of the problem), but early indications are not good.  In fact, the nomination seems to signal that the administration isn’t all that concerned about getting telecom right and fighting for openness.

Here’s what we do know.  Clyburn serves on the South Carolina public service commission (which is considered very pro-Bell).  She is virtually unknown by knowledgeable telecom people.  And, she seems to have focused more on energy issues than telecom, if early accounts are to be believed.  Plus, Verizon and the cable trade association are very happy.  All in all, not good.

But maybe she’ll be great – who knows?  The point, though, is that this is a very risky gamble.  She’s an unknown.  Her father voted against net neutrality and in favor of telecom immunity (suggesting home-state political ties with Bells).  There’s simply too much at stake – and the opportunities are too ripe – to gamble with the third Democratic seat in this way.

What’s especially frustrating though is that nepotism seemed to play a much larger role here than policy concerns.  Even if she turns out to be great, we have no way of knowing that now. 

It also shows apathy on Obama's part.  That was the whole problem with Michael Brown at FEMA, and Harriet Miers on the Court.  Their nominations signaled that the administration didn’t really care about those issues, and was therefore content to hand them over to cronies.

I expected more from Obama.  More on this to come as I learn more.  And by all means, if we have any South Carolina readers who know anything, please pass it along.

The Regulatory Origins of the Internet

by publius

Patrick Ruffini argues that Obama's alleged regulatory overreaching could (or at least should) move Silicon Valley back into the Republican camp.  I'm not really diving into that, but I wanted to quibble with this statement:

The irony here is that many of the entreprenuers who succeeded in the most unregulated environment possible -- the Internet -- are at once hyper-capitalist and socially-liberal Obama voters. (Good luck creating Twitter or Facebook in any industry as tightly regulated as the auto or banking sectors in the Age of Obama.)

This really can't be repeated enough -- the Internet was regulated.  Regulation is what made it work.  Indeed, the Internet's phenomenal success stemmed directly from the underlying common carrier regulation that made it possible.

There was no immaculate conception.  The Internet came about because of sustained federal funding for research and development.  Originally, the data services that ultimately evolved into what we now call "the Internet" depended entirely on access to the underlying phone networks. 

And so when these data services got going, the federal government faced a choice.  A crossroads, if you will.  The government could ensure that Internet/data services had nondiscriminatory access to the underlying phone networks on which they "rode."  Or, it could have allowed the phone companies (i.e., AT&T) to dictate the terms of access.  (This is basically how most wireless service in America works -- it's the "walled garden" approach.  And don't you loves it?).

Wisely, in the Computer Inquiries proceedings, the FCC opted for open, nondiscriminatory access.  The Twitters of yesteryear didn't need permission from AT&T to start their business.  The nondiscriminatory access that made the Internet successful didn't happen because AT&T was full of benevolent, far-seeing souls.  It was because of government regulation.  (On an aside, that's why the fight over net neutrality is actually a battle to maintain a ridiculously successful status quo).

Given that the Internet is probably the single greatest advance of mankind since the printing press, you could plausibly argue that the Internet is regulation's crown jewel.

Broadband Grants -- A Worry

by publius

On Tuesday, the Commerce Department held an introductory public meeting about the new broadband grants.  The different agencies with responsibility were on hand asking for public comments – the FCC, NTIA, and RUS (Rural Utilities Service).  So here’s mine – don’t let the broadband grants become a wasteful subsidy for national wireless carriers.

Here’s my fear – and it stems from the administration of the Universal Service Fund (USF).  The USF is a subsidy to construct and maintain networks in “high cost” areas such as rural regions where population density wouldn’t otherwise justify construction.  It shows up as a byline on your monthly phone bill (just look - it's in there).  In short, it makes irrational network construction rational.  Rural people get phone lines, which both provides a public service to them, and creates network effects by adding more people to the network.

Sounds good in theory, right?  That’s not always how it works in practice, though, because the concept of “high cost areas” can be abused.  One source of abuse is wireless carriers who use USF subsidies to build and upgrade their networks along interstate highways that pass through more rural areas. 

The way it works is that someone like Verizon Wireless will request $[X] amount of money to serve “high cost” areas.  They will then turn around and use that money to construct towers along major interstates (called "freeways" in Texas... strange) that happen to run through rural areas.  These companies don’t have to actually add service in rural towns – they basically just get federal money to subsidize their national networks.*  Better networks are good and all, but that's not what the USF is for.

It’s easy to see how the same thing could happen with the broadband grants.  Big carriers like AT&T and Verizon Wireless (who are very well-connected in DC) could apply for grants with the promise to construct broadband in “underserved” or “unserved” regions.  In reality though, they might just turn around and upgrade their interstate highway service in rural areas to 3G (i.e., make their wireless broadband networks faster).   That would add jobs, but it would do nothing to help people in truly underserved areas get better broadband access.

So that’s something to keep an eye on as the grant process moves forward.

*(Disclaimer – In a past life, my firm represented rural phone companies who fought against these subsidies.  If it helps, they get too much USF money too).

A Victory That Needs Protecting

by publius

Good news on the net neutrality front.  The House stimulus bill released this week contains $6 billion for broadband deployment.  Even better, the current bill imposes pro-neutrality conditions – essentially, any provider who receives money must operate “open” networks.  To put it mildly, this is a sea change from four years ago.  And it’s very exciting.

Predictably, the big boys are trying to strip these provisions from the bill.  The Hill reports:

Open Internet access rules added to the stimulus package threaten the tentative partnership between technology and telecom companies, which have coalesced behind the bill’s $6 billion funding for broadband access.

It’s important to fight to protect these requirements.  Indeed, this is an area where vocal support from the netroots and other activists could make a big difference – and provide some important political cover for Democratic negotiators.

A common view of telecom issues is that it’s one giant battle between rival giant companies (see, e.g., the 1996 Act).  If public interest issues like net neutrality suddenly gain some traction, the argument goes, it’s only because they happened to implicate large content companies who could shoulder the lobbying burden.

That description is historically accurate, but I think (hope) times are changin’.  For one, the netroots itself is coming into its own as intra-Democratic “interest group.”  In addition, the telecom public interest community is much better organized – and more media savvy – than it used to be.  The success, for instance, of Free Press wrestling Comcast to the ground within the halls of a Republican FCC shows that corporations aren’t the only people at the table right now.

It’s important, then, for Democratic legislators to see – and hear from – these new voices.  They need to understand that adding these neutrality protections will be rewarded, and that removing them will have real political costs.

For instance, imagine if you are a Democratic legislator and you face the following two choices.  First, I could anger big telecom and cable companies and get no corresponding benefit.  Or, I could vote with them and no one would care.  If those are the two options, it’s not a difficult choice.  You should, as a rational actor, vote with the telecom companies every time.  Indeed, that’s the type of general public apathy that lobbyists require to get their agenda through.

If, however, there were a broader and louder movement pushing to keep the open access provisions in the bill, then the calculus changes.  It’s not a free kick anymore.  In this scenario, if the legislators vote with the telecom and cable companies, they’re going to hear about it.  If nothing else, hammering the drums gives legislators some cover.  Well, Mr. MoneySackforHead, I privately support you, but I can’t have all these cheetos-stained, pajamas-wearing bloggers hounding me.  You know how it is.

Internet policy is at an important crossroads – there’s a lot in the balance right now.  That’s why the election was so critical.  Neutrality has been the historical norm – and it's been a tremendous success.  Access providers, however, are fighting to change that (for privately rational reasons), a decision that would drastically change the nature of the Internet for future generations and impose tremendous costs (externalities) on the public at large. 

For that reason, it’s important to establish and reinforce neutrality as the “norm” as these battles proceed.  The more victories the “open” Internet can win, the harder it will become to treat openness as some wild-eyed socialist intervention in the market.  Thus, the fight to keep these conditions in this bill has much larger implications for future legislative and regulatory battles.

So go make some noise.  You can even send a letter right here.

Why Spectrum Policy Matters

by publius

There's a school of thought in the telecom world that the fight over wireless spectrum is overblown. At the end of the day, they argue, wires will always be better than wireless. The policy implication is that, rather than trying to build crappy muni-WiFi on the cheap, we should be digging holes and putting super-fast fiber lines in the ground.

The million dollar question then about wireless broadband is whether it can ever evolve into a full-blown substitute to wireline broadband. Right now, it's a complement. You don't "cut the cord" when you get an iPhone. You have a cable/DSL line in addition to your nifty new smartphone that you think is cool, but is actually absurdly slow. That's why people are concerned about spectrum consolidation -- Verizon and AT&T arguably have less interest in making wireless broadband a substitute. They'd be just as happy to sit on the spectrum if the market would allow them to.

Interestingly enough, Sprint has a new product that (while probably destined to fail) shows at least the vague contours of a what a true substitute service would look like. Basically, it's a USB modem that connects to either to a WiMax or a 3G network. The catch is that it's only available in Baltimore, for a decent chunk of change.

I don't know if Sprint is long for this world, but the service shows how the future may look. Lots of people of course have mobile broadband cards now, but they suck. Sprint's limited WiMax offering rivals the speeds of many people's landlines. And if wireless speeds are reliably the same, there's no reason not to abandon wires completely (which current wireless card subscribers haven't done). Looking ahead, the move to full-blown 4G networks promises (promises being the key word) much faster speeds -- game-changing faster speeds. But we're not there yet -- and may not be for a long time.

The reason we're not there is that the only people really capable of building a national 4G network at the moment are Verizon and AT&T, due both to their capital assets and massive spectrum holdings. Unless a cable company buys and revamps Sprint, the future of American wireless broadband is Verizon and AT&T. Period. There's no real way to stop it at this point.

Accordingly, we need to craft spectrum policy with an eye to this reality. The goal of spectrum policy in the near-term should be to make sure AT&T and Verizon have the proper incentives to fully develop this invaluable, scarce national resource.

Indeed, this broader goal ties together lots of individual progressive spectrum policies. For instance, net neutrality ensures that AT&T and Verizon wireless provides a truly equivalent service to wireline broadband. Wireless Carterfone would promote these same goals. Better white spaces policy (where the FCC has taken some key, if limited, strides) can lead to "super WiFi" that would expand competitive choices in rural areas, and make muni-WiFi much easier (which in turn would put competitive pressure on the big boys). States and municipalities should also be free to subsidize their own networks, etc. etc.

There's a lot more detail to all of this obviously, but the big point is that spectrum policy is at a true crossroads. The choices we make now will determine whether wireless broadband lives up to its promise (and leads to enormous productivity gains and positive externalities), or whether it remains a complementary service confined to neat phones that do neat tricks, but fail to provide a truly substitute service.

Lessig Clarifies

by publius

Lessig clarifies, claiming the the WSJ got his comments wrong. Lessig's stance is a bit controversial -- but he claims it's a position he's long had (i.e., there's no "shifting").

Essentially, Lessig is ok with some forms of priced priority access levels. He just wants to prohibit any form of discrimination. For instance, in Lessig's world, transporting video packets might cost more than email packets, but that price has to be the same for all video providers. I'm also assuming that any deals cut with say Google would have to be available to anyone else too (there are some regulatory precedents for this type of system in telecom interconnection arrangements). In short, he seems to be advocating for a tariff-like system where rates for one are available to all similarly-situated customers.

Anyway, I'm not crazy about pricing these different levels (transmitting at different priorities is often required for things video), but if that world is going to exist, it must include these types of non-discriminatory provisions.

Google -- Cashing Out on Net Neutrality?

by publius

The WSJ has a good policy overview of net neutrality this morning. But the bigger news from the article is that Google (along with other big content providers) appears to be backing away from its support of net neutrality. It’s disappointing and consequential, but not very surprising. [But see the Update on Google's response to the article below the fold].

Honestly, what’s surprising is that Google, et al., ever supported neutrality requirements. After all, one of the primary justifications for neutrality is that it prevents incumbent entrenchment. In this respect, “pay-to-play” access protects big companies like Amazon and Google from future competition from less well-funded upstarts.

Let’s back up. Remember that what neutrality proponents are trying to prevent is “tiered access.” In this brave new tiered world, Internet access providers (AT&T, Comcast, etc.) want to not only charge you, but to charge companies like Google for “prioritized” access to you. Google would thus pay an additional premium to ensure that your computer gets Google faster than, say, Ask.com who might only be able to afford a lower tier.

In the long run, the fear is that it would fundamentally change the Internet by creating a separate and unequal “lane” for companies who couldn’t afford the higher tiers. Thus, new companies (particularly bandwidth-heavier video sites) would be relegated to an increasingly crowded, congested, and slow lane, while richer companies get the equivalent of a HOV lane free and clear.

Anyway, it makes perfect sense why Google and Amazon would support tiered access. Quite simply, they can afford it and new upstarts (the future thems, if you will) won’t be able to pay. In essence, the established companies would be paying a chunk of their profits to entrench their current success – which of course runs counter to how the Internet should be run (according to the old Google anyway).

But even if it’s predictable, it’s an unfortunate development from a legislative perspective. To win anything in DC, you generally need a well-funded lobbying effort. The only reason net neutrality ever got this far was in part because a lot of these big companies were pushing back, thus providing the Madisonian cross-vector. With that pressure gone, it’s going to be much harder for progressive advocates to get a voice with Congress and the FCC. All in all, bad news.

One last thought – what the hell is wrong with Larry Lessig? More on that below.

The Only Story That Matters

by publius

The new Google mobile iPhone app is out. I can now do voice-enabled Google searches. Please cue the big drums from 2001: A Space Odyssey. I predict we'll soon solve the dark matter mystery, and possibly reconcile the theories of gravity by Thursday.

One Clear Channel to Bind Them

by publius

Media consolidation is a tough issue for me. Lots of very smart people I respect think it’s a serious problem. And while I’m not crazy about it, I don’t think it’s an area demanding government action.

But in the spirit of learning more, I just finished Alec Foege’s “Right of the Dial,” a book on the rise and fall of Clear Channel. And while Foege is clearly no fan of either Clear Channel or consolidation, his book didn’t really change my mind.

I’m generally skeptical of attempts to limit media consolidation for at least two reasons. First, the “consolidated” media industry still has a lot of players, even in radio. But more importantly, new technologies are emerging that provide real alternatives to these media industry players.

Take radio for instance. The argument behind the controversial move to lift some of the ownership caps is that terrestrial radio faced a lot of new competitors. Listeners now had the option of iPods, podcasts, satellite radio, Internet radio, and eventually (one hopes) wireless broadband in their cars. If radio sucked, or started spouting propaganda, then people could go elsewhere (advertisers included).

Foege spends much of the book criticizing the effects of Clear Channel’s consolidation. But it’s worth noting that, in the end, Clear Channel fell prey to these very trends. Rather than monopolizing radio, Clear Channel’s revenues flat-lined and they ultimately gave up the ghost to a private equity group. In short, the combination of a wretched product and new technology caused the market to turn on them.

So I remain unconvinced that we need a major new initiative to address media consolidation, at least in most contexts (see below). That’s not to say we should lift all existing caps. But I don’t see a strong need to lower them either.

But that said, there are some strong arguments against this conclusion. Personally, I think the most persuasive arguments against consolidation are non-economic. Consolidation, for instance, poses a particularly strong threat to localism. Foege illustrates this threat by describing a local and highly dangerous chemical spill that went unreported on local radio for hours -- largely because the community had only Clear Channel networks. Needless to say, the incident wasn't exactly a PR coup for the company's deregulation efforts.

Emergencies aside, consolidation also harms localism by drastically reducing local news coverage – or at least by limiting local coverage to a very small number of voices. Foege notes, for instance, that Bill Clinton maintained some newspaper/TV cross-ownership bans because he claimed he would never have been president if the local anti-Clinton paper in Arkansas controlled the TV stations too.

Another point to remember in all this is that “media consolidation” is a vague concept that covers many diverse companies and situations. Government action makes more sense in some contexts than in others. For instance, ownerships limits within a local market seem more valuable than national caps. Also, consolidation across media (e.g., TV/newspaper/radio combinations) seems like a bigger problem than intra-industry consolidation (e.g., radio alone). There may well be strong economic arguments supporting this type of cross-media consolidation, but it still quite clearly harms localism and raises free speech concerns. And these latter kind of non-economic concerns simply can't be addressed by pointing to the efficiencies of vertical integration.

So I suppose I should amend what I said above. I’m not opposed to any and all efforts to limit consolidation. But it’s important to distinguish between different types. Allowing Clear Channel to buy up a ton of radio stations nationally is a completely different animal than allowing it to control an entire town’s media, or to monopolize concert venues, which are necessarily less subject to substitutes.

Video Star, Unkilled

by publius

Interesting tidbit from today's Communications Daily (via Lexis) on NBC's Olympics ratings -- and one that has implications for the current "white spaces" debate. In short, the Internets was good for TV:

Providing more than 56 million video streams via Internet during the Beijing Olympics boosted rather than diminished viewing of the games on traditional TV, said Perkins Miller, NBC senior vice president of digital media. "The biggest lesson we learned is that the notion of competition between digital and broadcast is a myth," he said in an interview. . . .

"There was no evidence of cannibalization of broadcast ... I hope that what this shows is the great demand for content to be delivered on multiple devices[.]"

There's a huge debate raging right now at the FCC about whether to open the so-called "white spaces" (unused portions of spectrum licensed to broadcasters) for new uses and technologies. In most areas (particularly rural areas), large amounts of "beachfront" spectrum reserved for broadcasters sits idle and is being completely wasted. If it were opened for public use (a la Wi-Fi), the idea is that new devices and technologies would pop up, vastly improving and expanding mobile broadband use. (To put it in perspective, the amount of "white space" spectrum potentially available is several times larger than the chunk of 700 MHz spectrum recently auctioned).

I'll be returning to this issue in the weeks ahead. But long story short, broadcasters have been resisting these efforts tooth and nail -- often in shamelessly dishonest ways. But hopefully the Olympics success is a lesson. More people using better mobile devices on better spectrum can expand -- rather than cannibalize -- the TV audience. And if, god forbid, broadcasters started using their spectrum in innovative ways such as mobile TV offerings, they might actually, you know, survive.

It's all very frustrating. It's not merely that an anachronistic business model propped up by powerful DC lobbies is blocking one of the most promising technological opportunities in decades. It's that they're doing so while shooting themselves in the foot at the same time.