Updated on February 24th, 2011
In his most recent post at Wetmachine (responding to a post by Adam Thierer at Techliberation), Harold Feld again discusses the role of market analysis in regulation. Harold notes the real world is complicated. No dispute there. He then asserts that, because the world is complicated, regulation may be necessary even in the absence of market failure. Harold believes the most relevant question is: “what are the most likely outcomes and do we care.” He says this “more complex approach is more likely to yield better results in the real world where we actually live” than the market analysis approach.
This classic technocratic approach (or perhaps merely bureaucratic approach) to regulation is based on the belief that government has a role in fine-tuning even competitive markets to produce “better” outcomes. For example, Harold lauds the FCC’s most recent Mobile Wireless Competition Report (“Report”), which supports Harold’s view of competition and regulation. In the Report, the FCC refused to make any finding regarding the state of competition in the mobile market (see my analysis here, here, and here). Instead, the FCC stated that the appropriate role for the Report was to provide “data that can form the basis for inquiries into whether policy levers could produce superior outcomes.” (Report at paragraph 3.) In other words, the FCC believes that, by technocratic fine-tuning, the government can produce “better” results than competitive markets.
The problem with this approach is that “the law generally does a bad job of fine-tuning.” Rather than produce “superior outcomes,” attempts to fine-tune the market through regulation often make things worse through the law of unintended consequences. Markets aren’t perfect – the world is indeed complicated. But markets are self-correcting. Regulators are not. As I’ve said before, “outdated regulations never die.” Exhibits A and B for regulatory inertia are the Universal Service Fund and Intercarrier Compensation regimes, which everyone agrees have been “broken” for years, but nevertheless remain as perverse examples of government attempts at “superior outcomes.”
I’m not arguing that markets produce “perfect” outcomes. But they generally do produce better outcomes than technocratic tinkering. That’s why the FCC needs to overcome its existential crisis and get back to market-based analysis.
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mobile wireless wireless competition
Updated on February 16th, 2011
Today’s House Commerce Committee hearing highlighted the current existential crisis at the FCC. Market analysis has been the primary driver of FCC decision-making. Although there has often been sharp disagreement among the Commissioners, that disagreement has typically centered on the reliability of the market analysis supporting regulatory action. In the open Internet order, the FCC didn’t rely on market analysis to reach its decision (or at least, not one that any reasonable economist would view as reliable). At today’s hearing, some said that market analysis isn’t necessary to regulate.
If market analysis isn’t necessary, then what is the empirical basis for imposing regulation? What provides a limiting principal for framing the debate? When asked for evidence of a problem with the Internet justifying regulation, Commissioners relied on the opinions of commenters who expressed concern in the proceeding. But nobody said whether these commenters offered any empirical evidence for their opinions (i.e., any market analysis) or whether these commenters constituted a statistically relevant sample.
This is the crux of the FCC’s existential crisis: the reliance on subjective perception to impose regulation. Reliance on anecdote is the antithesis of a data-driven approach. This is in part why nobody knows what a “net neutrality” violation looks like. “As Eliza Krigman said in a recent PoliticoPro article (no link available), “Internet service providers and consumer watchdogs disagree on what constitutes a net neutrality violation.” Without some empirical framework for analysis, it’s anybody’s guess.
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broadband net neutrality wireless competition
Updated on February 11th, 2011
President Obama’s recent executive order on regulation requires, among other things, that agencies develop a process for reviewing their existing regulations to determine whether they should be modified, streamlined, expanded, or repealed. Although the President’s order doesn’t directly apply to the FCC, which is an independent agency, Section 11 of the Communications Act already requires the FCC to determine biennially whether its regulations should be repealed or modified. Despite these requirements, enacted with good intentions, the reality is that outdated regulations never die.
There are numerous examples of outdated wireless regulations that are still in the books collecting dust. For example, Section 22.901 of the FCC’s rules provides that, until February 18, 2008, “Part 22” cellular systems were required to maintain the capability to provide compatible analog service. The relevant date for the transition from analog to digital technology passed nearly three years ago, but the rule remains.
Another example is Rule 22.947, which governed the initial buildout of the first cellular systems. Those systems have long been built and the rule has outlived its usefulness, but the rule remains.
These are just a few examples of FCC regulations that have outlived their usefulness. Rule 20.6 sunset in 2003, the resale obligations in Rule 20.12 sunset in 2002, and so on.
At a minimum, outdated regulations make compliance more complex. At their worst, i.e., when regulations are still effective but no longer necessary, outdated regulations increase costs and adversely affect competition with no discernable benefit to the public interest. It’s not glamorous work and it won’t make headlines, but the FCC would better serve the public interest if it periodically reviewed its rules and eliminated those that have long outlived their usefulness.
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mobile telecommunications wireless
Updated on February 10th, 2011
President Obama revealed the details of his National Wireless Initiative today. The plan he outlined is refreshingly bold and comprehensive and addresses many needs.
- Nearly everyone agrees that more spectrum is needed for mobile wireless. The President’s plan proposes to free up 500 MHz of spectrum through incentive auctions and more efficient government use.
- Nearly everyone agrees we need to do more to provide broadband to unserved consumers, and that wireless is the most cost-effective way to do it. The President’s plan proposes to invest $5 billion and reform the Universal Service Fund to provide at least 98% of Americans with access to 4G wireless service.
- Nearly everyone agrees we need to deploy a nationwide wireless broadband network for public safety. The President’s plan proposes that $10.7 billion be dedicated to building that network and reallocation of the D Block to public safety use.
- Nearly everyone agrees we need to continue to innovate in wireless technologies. The President’s plan proposes to devote $3 billion to a Wireless Innovation (“WIN”) fund supporting research and development of emerging wireless technologies and applications.
- Nearly everyone agrees we need to reduce the deficit. The President’s plan proposes to reduce the deficit using $9.6 billion in auction proceeds.
Perhaps everyone won’t agree with every detail of the President’s plan. But everyone should agree that this bold, comprehensive plan is a real leap forward.
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mobile public safety spectrum wireless
Updated on February 3rd, 2011
“Go on take the money and run.” Steve Miller Band.
The National Association of Broadcasters (“NAB”) last Friday sent to the Chairmen and ranking members of the Senate and House Commerce Committees a letter attacking Time Warner for warehousing spectrum in the AWS-1 band. The letter implies that, because Time Warner is warehousing spectrum, broadcasters shouldn’t be subject to an incentive auction. Those who live in glass houses (in this case its more like cellophane) shouldn’t throw stones: The broadcasters have been warehousing their spectrum since Congress passed “must carry” laws.
Without the implied government subsidy of must carry laws, broadcasters would have been out of business years ago and television spectrum would have already transitioned to more valuable uses. As a result of the success of cable television, it had become clear by 1992 that broadcasters lacked a viable business plan. Because fewer and fewer people were watching broadcast television over the air, broadcasters were having a more difficult time selling advertisements. To prop up the dying broadcast industry, Congress decided to force cable providers to carry broadcast channels on their cable systems. Forced cable carriage ensures that broadcasters reach enough “eyeballs” to satisfy advertisers, which is how broadcasters make money. Because only about 10% of the population actually watches television transmitted over-the-air, broadcasters couldn’t sell enough advertisements to survive without “must carry” subsidies – which means that broadcasters are now using their spectrum solely to reap the benefits of “must carry” laws rather than serve consumers.
In other words, an industry that uses spectrum so it can use cable networks – indeed, an industry that owes its continued existence to cable – is now lobbing stones at Time Warner for warehousing spectrum. That’s counterintuitive. Of course, broadcasters have been enjoying the use of free spectrum and “must carry” rights so long they’ve probably forgotten that their spectrum doesn’t serve an actual market. I bet they’d remember if Congress eliminated their “must carry” rights. There would then be no need for incentive auctions because there would be no broadcasters to “compensate,” and the billions that would otherwise be funneled to the broadcasters through such auctions could be used for a more worthy subsidy, like providing broadband to unserved areas.
NAB would better serve broadcasters by advising them to support incentive auctions. Starting a debate about the efficient use of spectrum can only spell trouble. Broadcasters use large swaths of extremely valuable spectrum to serve 10% of the population using decades-old technology (development of the ATSC standard began in 1987) and rely on government subsidies to survive. In contrast, wireless providers are spending billions upon billions to deploy the latest technologies to hundreds of millions of consumers who are clamoring for more and more bandwidth. Broadcasters should take the money and run.
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auction spectrum