Progress on Point

Volume 17, Issue 11 June 2010

What Should the Next Communications Act Look Like?*
Adam Thierer, Moderator Link Hoewing Walter McCormick Peter Pitsch Barbara Esbin Ray Gifford Michael Calabrese

Table of Contents
I. Introductions ...................................................................................................................... 1 II. Link Hoewing ..................................................................................................................... 4 III. Walter McCormick ............................................................................................................ 6 IV. Peter Pitsch ...................................................................................................................... 9 V. Barbara Esbin .................................................................................................................. 12 VI. Ray Gifford ..................................................................................................................... 14 VII. Michael Calabrese ......................................................................................................... 16 VIII. Discussion Among Panelists .......................................................................................... 18 IX. Questions & Answers...................................................................................................... 23 X. Speaker Biographies ........................................................................................................ 29

I. Introductions
Adam Thierer, President, The Progress & Freedom Foundation: Well, good morning, everyone, and welcome to this morning’s Progress & Freedom Foundation event on “What Should the Next Communications Act Look Like?” My name is Adam Thierer. I’m the president

*

This is an edited transcript of a PFF Congressional Seminar that took place on May 7, 2010 in Washington, DC. The edited transcript has not been reviewed by the program participants. Speaker biographies are available at the end of this transcript. The views expressed in this report are their own. Audio and video from this event are available at: www.pff.org/events/The_Next_Communications_Act/index.html

1444 EYE STREET, NW  SUITE 500  WASHINGTON, D.C. 20005 202-289-8928  mail@pff.org  @ProgressFreedom  www.pff.org

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of Progress & Freedom Foundation, and I want to welcome you all here, and I appreciate you coming out this morning. So, this event came about, about a month ago I was sitting around with staff, and we were thinking about events for the coming month, and I had this sort of Carnac the Magnificent moment, where I put a copy of the Communications Act to my head and I said, “I feel, around March 6th or 7th, something important is going to happen.” And lo and behold, look what Julius threw on us yesterday, huh? So, my predictive powers never cease to amaze me. No. Seriously, it was all serendipity, of course, but it couldn’t be more timely. And we appreciate the chairman for giving us that fodder to talk about today, among other things. So, actually, this event came about after I heard Tom Tauke of Verizon deliver a terrific speech about a month and a half ago, asking that question about do we need another Communications Act reform, and if so, what it should look like. And he actually said in the speech, I quote, that “the Communications Act is a statute that is irrelevant to the ecosystem that has developed today.” And he made what I thought was a persuasive case about the Act and it needing a second look. And of course, this is an easy sell to me because this is something that we at the Progress & Freedom Foundation have spent a lot of time thinking about through the years. 15 years ago this month—in fact, this week 15 years ago—we released the first major publication of the Progress & Freedom Foundation, called The Telecom Revolution: An American Opportunity. Not the prettiest binding. Bare-bones budget in those days. But we actually did an event, just right next door, launching this. And someone to my right here was a co-author on that project with me and was there with me that day, so it’s rather appropriate. Peter Pitsch: And it’s been 15 years. I can’t believe it. Thierer: [laughs] Unfortunately, still, nobody’s read it. [laughter] [Audience Member]: Change the cover. [laughter] Thierer: Then, 10 years after that project, in 2005, Ray Gifford here, along with Randy May, Tom Lenard and several other of my colleagues at the Progress & Freedom Foundation, started an exciting project called the Digital Age Communications Act Project, where we did a deep dive into communications law reform and had an incredible group get together—over 50 academics, economists, lawyers, and so on—to think about reform. And we came out with a series of white papers, or red papers as they were, and looked at all aspects of Communications Act reform. And I won’t steal any more of Ray’s thunder by talking about it because I’m sure he will today. So, this is something we’ve put a lot of thought into at PFF, and given the actions of the FCC yesterday, we think this discussion is more relevant than ever.

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So, let me turn it over now to our all-star panel to discuss these issues, and whether or not we do indeed need another Communications Act and, if so, what it should look like. And, as a courtesy to our speakers, before I begin, please do mute your cell phones or mobile devices. Now, Tom Tauke couldn’t be here with us this morning as he was supposed to be, because he’s visiting the FCC. I can’t imagine about what. But we really appreciate having our old friend, Link Hoewing, here today to fill in for him. Link is assistant vice president of Internet and technology issues for Verizon, and he’s responsible for identifying and assessing emerging issues, developing corporate positions on Internet and technology policy issues and more. Link’s been a good friend for a long time. In fact, the very first person who ever came to brief me, 20 years ago, when I came to town, was Link Hoewing. It was a lament about Judge Greene and MFJ, I believe, at the time. Link Hoewing: It’s been a while. Thierer: Yeah, it’s been a while. [laughs] At least we’re not there anymore. [laughs] We’re also joined by Walter McCormick, who’s the president and CEO of the United States Telecom Association and has more than 25 years of experience in the telecommunications and transportation fields. Many moons ago, Walter served as general counsel of the US Department of Transportation and as a general counsel of the Senate Commerce Committee. And I’m glad to have Walter here today because he has a really unique and wonderful historical perspective on how this debate we’re having today relates back to many other debates we’ve had in network industries many times before. Peter Pitsch is associate general counsel at Intel and executive director of communications policy for Intel. He manages their global spectrum and telecom policy team, and long ago he served as chief of the Office of Plans and Policy at the FCC, and then chief of staff to the chairman of the FCC. And missing from his bio is that brief think tank stint he did, which is always ignored in your bio, but it was a great time for us because we got some great work out of Peter at PFF. And, as well, he did a wonderful book, called The Innovation Age, which also didn’t get enough readers. Pitsch: Again, it was the cover. Thierer: Again, a bad cover. Lime-green cover on that thing. Barbara Esbin is here with us this morning. She’s the senior fellow and director of PFF’s Center for Communications and Competition Policy. Unfortunately, I am sad to report that this will be Barbara’s last major event with us, because she’s departing PFF soon to go back to the greener pastures of the law firm profession. Certainly, a more remunerative job than the think-tank work! We’re going to miss her greatly, but before she leaves us, she’s agreed to come here today and talk a little bit about some of the work she’s been doing, which is really, in my mind,

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cutting-edge and unique above all else. She’s done some incredible work looking at the jurisdictional and statutory authority issues surrounding Title II, net neutrality, so on and so forth. Before she came to PFF, Barbara served over 14 years at the FCC, in various capacities, at the Enforcement Bureau and the Media Bureau. My old boss, Ray Gifford, is here with us today. He’s a partner now at Wilkinson, Barker, and Knauer and an expert in public utilities law as it relates to telecommunications and energy matters. Previously, Ray served as chairman of the Colorado Public Utilities Commission. And when he was president of PFF, he was the one who made the foolish decision to bring me in, so you can all blame him for the radical nut that runs the place now. And finally, my old friend, Michael Calabrese, is here. He’s the vice president of the New America Foundation, where he directs its Wireless Future Program and helps to guide the foundation’s work related to retirement security and the Next Social Contract initiative. So welcome, Michael. So, we’re going to get things started. We’ll go down to Link and come on down the panel. And I’ve asked the presenters to just provide a few minutes of opening comments, to kick us off, about their general perspectives on this question we have on the table for discussion today. And then we’ll go back and have a round of moderated discussion, moderated by me, and then we’ll have audience questions. So, Link, kick us off.

II. Link Hoewing
Link Hoewing, Vice President, Internet and Technology Policy, Verizon: Well, since Tom Tauke spoke at NDN a few weeks ago1 and kind of said everything there is to say, I’m just going to leave it at that. [laughs] It is a challenging topic, but I think there are some things that we can talk about in terms of a policy framework going forward. First, let me say that in looking at what the statements were yesterday from the FCC, on the policy framework they proposed, one of the things that was talked about was that they believe there’s a consensus that they’re trying to amplify by this policy, and they termed it a “third way.” I think Tom spoke to the right third way at the NDN speech, where he talked about the need to have a statutory framework that works for the Internet ecosystem we have today. So, ultimately, what Tom was saying was that the statute that we’re working under today, you have to torture it to try to do anything to make it work with the Internet ecosystem we have now. When you look at the old technologies that were essentially single-purpose—they were analog in most cases—it just doesn’t work for the Internet. And in fact, if you look at the Congress’s policy statement in 1996, section 230(b), it says that the Internet ought to be, essentially, unfettered by state and federal regulations. So they recognized that; they just didn’t
1

http://ndn.org/blog/2010/03/verizons-tom-tauke-future-internet-policy

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know where it was going to go. And so I think that’s why Tom spoke as he did, is that we need to have a new policy framework, ultimately. In the short term, we have been working, trying to come up with a consensus framework, with Google, as you know, with a statement2 we made a few weeks ago in the [FCC’s Preserving the Open Internet] NPRM.3 And we laid out three or four things that we thought would help to create a new framework that could work. And it was built around several things. First, a standard for what you can do when a bad actor does do something in the Internet ecosystem that is damaging. And so, we came up with a standard that says any of the players on the Internet should not do anything that harms users or competition. And I think that’s a pretty important policy principle. Because what it says is that, take the Comcast case, in that case, they were using reset packets and it clearly did harm a lot of users. They were not able to use the Internet, some of them. So that principle basically says you can’t do that kind of thing, even if it’s network management to deal with congestion problems. That’s not appropriate. So I think it would have worked as a way to manage that process. So we first came up with a principle that we think is an important way to guide the system. Second we said that it should be a case by case approach, not ex ante regulation which we have used traditionally in communications policy. What we meant by that was that the FCC should ultimately rely as much as possible on efforts to try to deal with the problem in the industry, because that’s how the Internet has worked. It’s been a collaborative, competitive, innovative system that generally has worked out most problems. But where that doesn’t work, that people can petition the FCC and using that standard, that framework, harms to users or competition, judge whether in fact something is harmful or anticompetitive. So that was the second piece of it. The third piece of it was that there was a belief that we need to really try to get the industry to do more to ensure transparency and accountability. So we focused a lot on what that means. Transparency for example, it means to us at least, that with respect to things like your broadband connection you should have a good understanding of what the speeds are you’re going to likely get on a regular basis. Whether in fact you’re going to experience a lot of latency. And those should be something you can compare across different providers. And so we are actually working on trying to come up with those kinds of standards. We think that kind of transparency should apply to all the Internet ecosystems, so that if you have an application that’s not working well or is harming people’s broadband connection in some way, the industry should look at that, too. So that’s part of transparency as well, making

2 3

http://fjallfoss.fcc.gov/ecfs/document/view?id=7020436839 http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-09-93A1.pdf

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sure that all players let people know how their Internet access applications, content, [and] services will affect their devices or their service. And the final piece of that is that the industry should try to come up with a good, reputable group of technologists, Internet experts, engineers, who, on a regular basis, meet to talk through some of these issues so they don’t all become policy debates. So, for example, again the Comcast case, if there would have been an industry body, and I don’t just mean industry players, I mean also even advocates that have an engineering and technology background, they should be part of the process; so should folks in the academic world. But they should be able to meet regularly and look at some of these issues. So Comcast could have come in and said “Look, we’ve got a congestion problem. It’s severe, it’s caused, we think, by P2P. How do we deal with this? Have you guys got some ideas, because frankly, the ideas we are thinking about we are not sure are going to work that well.” That’s the kind of thing we’re thinking about and we’re actually trying to work on that idea, too. So in the short term, I think we did lay out a framework that we think could work. And if you look at what the Supreme Court, I went back and looked at the decision in 2005, the Brand X decision, and the DC circuit [decision4 in the Comcast v. FCC] and our own statement5 after the Comcast case was decided, we all said that there was a way, we believed, to use the Title I approach that the FCC uses now, but tie it statutorily to something that is a firm basis for the FCC to oversee Internet access going forward. And so I think that plus the framework we laid out in the VZ/Google joint statement6 is a way to, in the short term, deal with the problem. In the longer term, we do need a new statutory framework that Tom laid out at the NDN statement and I’ll be happy to talk about it later, because I don’t want to dominate the whole discussion, so. Thierer: Thank you, Link. Walter?

III. Walter McCormick
Walter McCormick, President & CEO, United States Telecom Association (USTelecom): Adam, thank you. It’s a real pleasure for me to be here. I had the very good fortune early in my career, having the opportunity to work with the Senate Commerce Committee from the late 1980s to the early 1990s and to focus on communications issues during that time. It’s interesting to look at sort of where the country was at that time, and what the aspirations were with regard to communications and how those aspirations played out, and then to take a look at where we are today and what the aspirations seem to be going forward.

4 5 6

http://pacer.cadc.uscourts.gov/common/opinions/201004/08-1291-1238302.pdf http://newscenter.verizon.com/press-releases/verizon/2010/appeals-court-decision-on.html http://googlepublicpolicy.blogspot.com/2009/10/finding-common-ground-on-open-internet.html

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In the 1970s, it was the Carter administration. It was a period of very high inflation and low productivity. And so under a Democratic president, a Democratic House, and a Democratic Senate, there was launched a series of deregulation initiatives. There was deregulation of the airline industry, deregulation of the trucking industry, deregulation of the railroad industry. And the administration began a look at communications policy because it had been 40 years since the passage of the 1934 act. The 1934 act was premised on the idea that we should have one telephone company. It was a natural monopoly, it should be like a public commons. And that anybody who wants to have access to the network ought to be able to have access to the network at rates that were fair and reasonable. They’d be regulated by the government to make sure that they were fair and reasonable. And what was beginning to occur was that entrepreneurs were chafing. Bill McGowan was a guy who bought capacity from AT&T, it was a WATS line to offer long distance service between St. Louis and Chicago. And after a while he said: “Why should I have to but his from AT&T? I’d like to invest on a facilities basis and I’d like to compete directly.” In addition, communications began to move into a realm that became increasingly blurred with computer functions. There was concern that this one company would want to also become the one company with regard to computer technology. So a Democratic administration and Democratic Congress undertook deregulation and they said: “Let’s think about a different approach.” There was, as you know, an antitrust suit brought against AT&T and eventually 20 years later we passed the 1996 act. And the 1996 act really had two principle goals. The first was “let’s see if we can have real competition in long distance.” At that time AT&T controlled 90% of the long distance industry. But we had Sprint and MCI developing. And similarly, what if local service isn’t a natural monopoly? What if we could have competition there? What if these long distance guys would compete? So let’s try and open up the telephone network to competition and see what we go. So where are we today? Well where we are today is that it’s not just an AT&T network today. We have long distance networks, Internet backbone networks we call them today. AT&T has one, Verizon has one, Quest has one, Level 3 has one. In fact, in the United States, there are six tier 1 backbone providers, long distance providers. There are also several non-tier 1 providers who have networks of national scope. In the local industry, the top 50 MSAs in this country have no fewer than six fiber-based providers. These are facilities based providers in addition to cable MSOs and wireless providers. The top 10 MSAs have nine providers. So, a lot of competition. Remember we were at a time in the 1970s where the automobile industry was dominated by the big three and that was considered to be a very competitive market. Today we have, in the long distance industry, six

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tier 1 providers in the top 50 MSAs, six fiber-based providers in addition to the inter-modal competition from wireless and cable. So what are the aspirations going forward? Well the aspirations going forward I think were pretty well laid out in the National Broadband Plan.7 It is deployment. It is adoption. Issues, important issues, of how to protect people and our nation’s infrastructure from cyber security threats and how to protect people’s privacy. But the Federal Communications Commission doesn’t have any clear authority in any of these areas over the Internet. As Link said, it’s not the Federal Internet Commission. It was the Federal Communications Commission. They were divided among broadcast and common carriage. The Internet is both. With the Internet you can communicate on a broadcast basis, sending information out to multiple people at the same time. You can communicate on a narrowcast basis. You can communicate two ways. The Internet is a convergence of all the prior forms of communications, and it’s unclear what authority the FCC has. And as we all know, regulatory agencies, independent agencies that come under the jurisdiction of the Commerce committees, only exercise delegated, quasi-legislative power that’s been specifically delegated by the Congress. So we too think that what the Commission’s going through is what we saw yesterday. The Chairman’s having to do contortions to try and figure out whether or not he has authority to enter into a field that just simply did not exist upon the passage of prior acts. We think that the action8 that was taken yesterday is without statutory authorization. We think that the approach that he’s taking, trying to get ever-narrower in defining his jurisdiction, to now only include transport, doesn’t have anything to do with what consumer really expect with regard to the Internet. This effort to try and simply define transport becomes almost impossible from the historic context, because the historic context of transport was that there was a little electrical signal going over a copper wire. Today, the minute you access the Internet by putting in an Internet address, a dot-com address, immediately it moves into a computer function. Immediately. It is an enhanced service, under the 1970s and early ‘80s Computer Inquiry9 kind of descriptions. So we think that it is time for a new generation to define new aspirations, and to set new goals, and to have those goals defined in terms of what the government can do, what the government should do, and what the government should not do.

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www.broadband.gov/download-plan www.broadband.gov/the-third-way-narrowly-tailored-broadband-framework-chairman-juliusgenachowski.html www.cybertelecom.org/ci

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Finally, I’ll just say that, as Adam has said, it appears that some people are kind of waxing nostalgic for the old days of a single-provider, public commons, kind of enterprise. I find it interesting, somewhat humorous, and really remarkable, because when I look at the statistics in the National Broadband Plan of what has been unleashed in a competitive environment, it is just truly incredible. As the Chairman has laid out, the growth in Internet access, from eight million Americans to 200 million, in the course of nine years; coverage of 95% of Americans with broadband of four megabits or more. Think about that. We passed national health care. Universal health care, when fully implemented, will cover 95% of Americans, and today we cover 95% of Americans with broadband, and an adoption that has hit 50% in nine years, as compared with 35 years for cable television. The competition policies that were really given birth during a Democratic administration in the 1970s to deal with stagnant productivity have led to an extraordinary telecommunications/Internet competitive marketplace today. So, I think it’s time to define new objectives and have Congress define the new approach. Thierer: Thank you, Walter. Peter Pitsch.

IV. Peter Pitsch
Peter Pitsch, Associate General Counsel and Executive Director of Communications Policy, Intel Corporation: Thank you, Adam. Walter, I can’t help but think that you just described a Telecom Revolution: An American Opportunity. Thierer: Buy the book now! [laughter] Pitsch: I’m going to complement the remarks of Link and Walter by giving a conceptual overview of FCC’s economic responsibilities, and then focus down on another important part of the area. Not the Internet, per se, but the spectrum policy, which I think should be a focus of any legislative attempts in this area. Now, most people who’ve analyzed the economic responsibilities of the FCC have divided things into three categories: the competition area, the subsidy area, and the spectrum area. And I want to briefly talk about the competition and subsidy area, because I think there has been enormous convergence over this period that Walter has talked about, with some residual disagreement areas, and I want to focus on those. Then I want, as I say, to spend most of my time talking about spectrum, which I think presents a unique opportunity in this environment, and one that isn’t getting enough attention, because there are many other hot topics. Now, as to competition, there has been a sea change. We forget this. Walter’s remarks were very useful in that regard. Today, the idea that we should have anything other than a facilities-based telecom market is foreign. We all very much agree on that.

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The only issue there is: are there any markets where there is significant market power that require regulatory intervention? It’s there where people disagree. There are some who say: “Only if there is a true bottleneck.” There are others who say: Anything approaching substantial market power.” I’m not going to resolve that. Actually, in the DACA10 report, they did an excellent job of dealing with the interconnection issue and came out with a somewhat surprising result there. That’s sort of a teaser for you. On the subsidy area, again, enormous convergence. We’ve gone from the world of hidden, indirect, broad-brush subsidies to one where most people believe that the subsidy system should be transparent, explicit, focused, non-distorted. They should be raised through funding mechanisms that don’t distort usage. We were in a world, back in the ‘70s and ‘80s, where the indirect subsidies dramatically suppressed demand for long distance. We moved away from that. Now most of those subsidies are funded through direct, fixed charges on end users. It would be even better if we went to general revenues. That’s probably not going to happen. But the fixed revenue is a much more efficient way to deal with that, and any legislation we have ought to deal with that. Similarly, there’s broad consensus that the subsidies should get paid out in a competitively neutral, technology neutral manner, and a non-distortive manner, shouldn’t displace private companies where they’re involved. The issue there that remains is how broad should those subsidies be? There’s, again, general consensus that you can have legitimate network externality justifications for government intervention. But one person’s network externality is another person’s misuse of government funds. Now, as to spectrum, again, broad convergence. We have gone from a world of command and control, where the government decided how a chunk of spectrum would be used, what the channel and technology would be, what the input requirements on interference would be, frequently fragmented licenses that didn’t have contiguous boundaries, to a world where the FCC makes broad allocations, very flexible service assignments, does not dictate technology, focuses on outputs, not inputs when it regulates interference, and has moved to auctions. It’s funny when I think about this because when I was at the FCC, we did the cellular licensing and frankly, we did everything wrong. We did everything wrong. There were only two licenses. We mandated an analog standard. They were noncontiguous licenses that took over 700 licenses to get a nationwide footprint. It’s hard to believe that, but true. The interference regulation was very intrusive. That was during the Reagan administration. OK. In a bipartisan way, the country has reached consensus on a very much more market-based approach to spectrum management where already by the Clinton administration, we moved to auctions. The PCS rules, if you look at them, large contiguous licenses, technology neutralities, service neutrality, much more competition in spectrum brought into play.
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www.pff.org/daca/

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And now, we have the National Broadband Plan. And that is what I’d like to focus on in the remainder of my remarks. They have come up with two key recommendations there, which should be a part of any legislative effort in this phase. The first is something they call incentive auctions. And the second is a broadening of the scope of the so-called Commercial Spectrum Exchange Act. We have auctions. We use them to make assignments among neutrally exclusive applicants, but a number of economists and this, by the way, is also addressed to the DACA Report. But economists inside the FCC, Evan Kwerel, many of you may know him, have long argued that one of the ways we need to repurpose spectrum is to instead of bogging down in these battles between one constituent group and another, we should structure auctions so that we can create win-win opportunities. And that is exactly what the FCC and the National Broadband Plan is proposed. And this, by the way, isn’t just about broadcasting. This could be used for mobile satellite and a number of other areas. The principle idea, here, is that because the new, more valuable uses are so much more valuable, there’s an opportunity to structure an auction so that some of the proceeds could be made available to incumbents who are willing to sell out at that price. And if we’re interested in getting into the details of this, in a question &answer session, I’ll be glad to do that. But the fundamental idea is there is bipartisan support for this. There’s some bipartisan opposition as well, but there is bipartisan support for this. This really would work. We could free up hundreds of megahertz of incredibly valuable spectrum by moving to this approach. And it would dramatically reduce the artificial scarcity that we have for spectrum. And there’s one objection. I like to think that there is actually no disagreement on this particular proposal, that this should happen. But sometimes the argument is made: “Well, the incumbents who would participate in this two-sided auction would capture a windfall gain.” The closing thought I want to leave you with is whenever you hear that argument, just remember that today consumers are suffering a windfall loss. They are suffering the loss of spectrum policies that lock in these uses. And remember that good economic evidence suggest that the larger societal value from the spectrum is 10 times what the auction revenues would be. So, the loss to society in fewer minutes, lower quality, higher prices, from locking in these old uses through this very rigid system is extremely high. And I would submit that any legislative effort in this area should focus on giving the FCC the authority to use incentive based auctions. Thierer: Thank you, Peter. Barbara.

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V. Barbara Esbin
Barbara Esbin, Senior Fellow, The Progress & Freedom Foundation: I want to thank you, Adam, for those kind words and I want to thank PFF for the rare opportunity I’ve had for the last two years to say what I really think, which you don’t always get to do in this town. So, as my closing performance, I will give some thoughts on the FCC’s announced “Third Way” plan that we all learned about yesterday. As you all know, the FCC chairman has announced that the agency intends to pursue a Third Way and attempt to create [a] narrowly tailored framework that would apply portions of Title II to those portions of broadband Internet service that the agency redefines as telecommunications service. The reasons for this action that were given are to preserve the open Internet and implement some features of the National Broadband Plan on a sounder legal basis without creating a regulatory straightjacket that would stifle investment and innovation by ISPs. All I can say is “good luck with that.” While the goals sound reasonable, the regulatory contortions the commission must go through to effectuate this plan are considerable. And there are no guarantees that at the end of the day, investment in broadband networks will continue at the same levels we’ve seen under the FCC’s soon-to-be-abandoned “light” regulatory touch. There really is no such thing as Title II Lite. The way this statute operates, once the service is classified as “common carrier” or “telecommunications,” all provisions pertaining to that status automatically attach. The general council’s proposal that the commission will simultaneously forbear from enforcing the vast majority of these provisions may be hard to accomplish. One thing Commissioner Michael Copps has expressed concern about is that the FCC must avoid another forbearance binge. The FCC has not yet addressed what I will call the flipside of declaring that broadband Internet access is actually two separate services, one being a telecommunications service. The flipside is that by operation of law, this imposes common carrier status on entities that are not operating under that status today. The courts have generally not permitted the FCC to impose common carrier status based solely on the agency’s notions of good policy. In fact, the FCC’s been struck down when it attempted to do so, concerning the provision of dark fiber in the mid-90s. To the extent the FCC has successfully imposed common carrier status in the past, it has done so only where it can demonstrate that a provider has substantial market power or that the service to be regulated was an essential input for competing providers. Forced common carrier status via redefinition would need to be supported by similar record evidence. But the FCC’s own broadband reports, the findings of the National Broadband Plan, and comments submitted in that docket by our nation’s antitrust authorities, that broadband

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Internet service markets are not marked by monopoly and are for the most part, workably competitive, all point in the opposite direction. So, even assuming that the FCC could demonstrate a significant market failure warranting common carrier treatment for the transmission component of broadband Internet, that finding will complicate, if not preclude its ability to engage in that dreaded forbearance binge. The forbearance authority that Congress gave the FCC in the ‘96 Act has three tests: 1. Whether enforcement of a regulation is no longer necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with a telecommunications carrier service are quote: “Just and reasonable and are not unjustly or unreasonably discriminatory.” 2. It asks whether enforcement is necessary to protect consumers and whether forbearance is in the public interest. 3. Finally, the commission can consider whether forbearance will promote competition in the market. Once broadband Internet service is reclassified as containing a separate telecommunications service, all of the provisions of Title II automatically attach. The FCC then has to justify each act of forbearance under this three-pronged test. The question is if the FCC has to find that the markets cannot protect consumers and competition in order to regulate the transmission component of this service under Title II, how can it at the same time find that the markets will protect consumers and competition for forbearance purposes? There are no guarantees that it can either make this showing or that a court would accept this justification. This is especially true in light of the Comcast decision. The Court accepted the FCC’s acknowledgement that it has no direct regulatory authority over Internet service providers and found that the agency’s justification of such regulation under its ancillary jurisdiction did not, as they say, hold water. The FCC is probably correct to abandon its attempt to adopt its proposed network neutrality rules under the very same theories. But I think the courts will be highly skeptical of its attempt to achieve the very similar results through the expedient of redefining the services into something that it has unquestioned authority to regulate. The FCC’s proposal is therefore quite the high wire act. We’re declaring markets to be insufficiently competitive so that it can regulate, but sufficiently competitive so that it can refrain from regulating. The danger would be in losing that fine balance. More importantly, the information service classification was not a purely discretionary action on the part of the FCC. None of the statutory service classifications quite fit broadband Internet access service in 2002 and none quite fit it today. In order to make broadband Internet access fit within the telecommunications service definition, the FCC must undo its previous determinations that broadband Internet is a functionally integrated information and transmission offering. To do so, the FCC must tease out the transmission component, treat that

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component as if it is being offered separately to the public, declare that now there are two separate services being offered to the public, and declare that one of them is a statutory telecommunications service. It has to act as if this is factually true, even though there is no change in the manner in which these services are provided to the public. I know this for a fact. We’ve had cable modem service in our house since the late ‘90s. We subscribe to a single service, we receive a single bill. The service has a lot of capabilities. I don’t use them all, but the FCC and the Supreme Court have already determined it really doesn’t matter. It matters what is being offered. And what is being offered is an integrated capability to do many things via transmission. We experience this as a single service. This is the commonsense understanding the Supreme Court majority applied in the matter when it upheld the FCC’s cable modem decision in Brand X. The statute speaks in terms of what is offered to consumers and what they think they are being offered. It is not written in terms of what the FCC would like providers to offer. For these reasons, the FCC’s Third Way is fraught with significant legal risk. I believe the answer is not to pursue this option at the administrative agency level. The answer is to have Congress rewrite the act for the 21st century. Thierer: There you go Ray, now to you.

VI. Ray Gifford
Ray Gifford, Partner, Wilkinson Barker Knauer, LLP: I actually think my role here is to be the provincial naive on the panel. Which is to say, in about 2004, I was having lunch with my friend and still law partner Kyle Dixon. It was over at the FCC. And he was talking about what he wanted to do next, and I was talking to him about the joy and intellectual freedom of being in the think tank. I downplayed the money aspect. [Laughs] This was post-triennial review era. This was Brand X tumult. And we got to talking like geeks do, and having a conversation that I think was had by Peter in the ‘90s, by Link and Tom in the last few weeks, which is the Communications Act is completely unsuited to the reality both as consumers, carriers, and regulators. I think probably the General Counsel of the FCC after his statement yesterday would agree that it is inadequate. And so as we sat there, I said, “Well, Kyle what we should do is rewrite the Communications Act.” And why I’m playing the role of provincial naive is I thought at the time, what was going to happen is we were going to get a lot of smart people in the room. And we actually did get a great swath of academics, technologists, lawyers, economists into five working groups. And they worked on a general statutory framework, universal service framework, federal/state spectrum, and institutional reform. And we really, I think, got an A-list group of scholars to meet, come up with these five reports that were consensus reports. And I was reading them last night and they hold up remarkably well.

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And I what I thought at the time was going to happen is we would issue these reports and everybody would see how self-evidently sensible and incisive what we were saying was, and some Senator or Congressman would pick this up and say “Well, let’s pass this.” That didn’t happen, and I only from time to time plunged into despair. But the Digital Age Communications Act, I think why it still remains relevant is because it was written, first of all, as a consensus document. I was counting while we are up here, five of the members of the working group are now in the Obama administration somewhere, at the FCC, the FTC or even in the White House. What we were trying to write then was an enabling statute that would create an institutional framework going forward. And we looked very methodically at different models that had existed. We looked at the European Union model, we looked at the railroad Staggers Act11 model. For how do you handle the unique and complicated issues surrounding networks? That’s where you get I think, Peter, to how we handled the interconnection issue, which was we ended up with a soft interconnection mandate, probably only over Adam Thierer’s objection. You need the libertarian in the room to keep everyone honest, as well. But what DACA still has, I think, for communications policy reform is the idea that we can analytically separate the competition policy aspects and concentrate on those and hopefully handle them rigorously and honestly. It understands that networks have some unique qualities that create challenges that don’t exist elsewhere in the economy, surrounding interconnection, for instance. It recognizes a social policy aspect to these communications networks in the universal service realm. We don’t say in those reports, let’s just dump it. The economist’s answer to universal service is very quick and satisfying, but completely impractical. We also, I think, look and I think since then, the only thing that I would want to change and add to is on the institutional reform issue. And I think Link touched upon this, which is that it’s a commonplace that institutions matter and the cultures surrounding institutions matter. And the FCC, you can criticize it from any number of directions, but what’s the most remarkable thing to me, as an outside observer, is the essential lawlessness of the place. And I don’t mean that in a ... It’s a criticism to be sure, but it’s not meant to be that laden with judgment. It doesn’t follow procedures and protocols that normal, regular institutions would if industry and consumers were going to rely on it. It follows a much more political rhythm. And what you see coming out of the FCC are, so often, political documents. Which is why they have a record in front of the courts that the Detroit Lions have. [laughter] Thierer: Or the Colorado Rockies, for that matter. Gifford: Hey, we’ve got the best pitcher in baseball.
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http://en.wikipedia.org/wiki/Staggers_Rail_Act

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[laughter] Gifford: So, what DACA does though, I think, is it does provide a framework to give some rigor and some adaptability to the agency. And I think when we look at the institutional issues and notions like self-governance that Verizon and Google discussed, the co-regulatory notions that are being tried in the UK, Australia, New Zealand, there’s a lot of regulatory innovation that can go on. And it should be consensus regulatory innovation. And so what I think DACA is worth exhuming for is to take a look at what, at least five years ago and holds up pretty well, a broad consensus of communication scholars thought was a sensible position and a sensible place for reform. Thierer: Thank you, Ray. Link Hoewing: Adam for the record, I’d like to clarify that even though Ray used me in referencing his comments about the FCC, I never use the word lawless. He did. [laughter] Thierer: Michael, bring us home.

VII. Michael Calabrese
Michael Calabrese, Vice President, New America Foundation: OK. I will also try to stick to your assignment and just imagine what Congress should be considering in terms of a new Communications Act for the 21st century … which was interesting to see the statement this week by Chairmen Rockefeller and Waxman said that they were prepared to step up and do that. Although they said “if necessary.” I’m not sure if they relished the prospect. But I think it’s really needed because we are in year of convergence and cross-platform competition and yet we’re still regulating within silos which are designed around analog services that were completely distinct in terms of whether they were broadcast over the air or point-to-point over wires. And we’ve had a number of patches, such as Title VI for cable or Section 332 to add a regime for cellular into the radio Title, but it’s really not at all the way to go. This third way approach, outlined by Chairman Genachowski, I think, begins to point in the correct direction, but it obviously is going to need to be generalized much further. So, in the spirit of Tom Tauke’s, Five Principles which I expected to hear a little bit more of from him. I actually have six principles that I’ll share in terms of what this new communications act should be premised on. So the first is regulatory parity. Technological convergence needs to be matched by regulatory convergence. So, as I suggested, a new act that I think should erase these regulatory silos to the greatest extent possible and rely on simple rules of the road that are platform agnostic.

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For example, the ‘96 Act did not anticipate that telephone companies and cable companies would be using their wires to compete head-to-head in offering Internet access. And yet, cable modems and DSL shortly became close substitutes and yet they were not regulated alike. Likewise, Clearwire’s 4G mobile Internet access and soon Verizon’s LTE will be head-to-head competitors and substitutes for those others—for the wired offerings of DSL. And yet today, these offerings are not regulated alike. If Carterfone12 and other basic consumer protections are going to apply to one mode, they should apply to all. So, regulatory parity. Second, I think along the lines that we heard from Chairman Genachowski yesterday, there should be a re-affirmation that we will not regulate the Internet. And yet, at the same time, reaffirm common carrier obligations. The next communications act needs to make a clear distinction between the Internet and its on and off ramps. Congress should reaffirm it will not regulate the Internet and yet apply equally certain basic common carrier consumer protections to all facility based providers of last-mile Internet access. The rationale for nondiscrimination in transport is not primarily about preventing abuse of monopoly power or rate regulation. The purpose is to ensure a nondiscriminatory conduit service for essential infrastructure, to reduce transaction cost, to protect consumers, and to ensure the positive network externalities of interconnection. Internet access is increasingly an input into everything else in the economy. And so ensuring the free flow of information is not only essential to our democracy, but to economic productivity and equal opportunity. It’s also essential to avoid vertical integration that leverages control of pipes to gain advantages in adjacent markets. It should be a light touch and forbear completely from regulation in other traditional telephone regulations. For example, carriers should not be precluded from using tiered or premium quality of service pricing with respect to end users and it could do this today. This would harmonize wired and wireless services, consistent with the way Title III currently classifies commercial mobile services as common carriers. And yet simultaneously forbears from all but the most basic consumer protection and inner connection regulations. Barbara said this was not likely to happen in terms of what was said yesterday, but it’s exactly what the commission has done, with respect to commercial mobile service under Section 332. And it seems to be fairly a good framework. A third principle or pillar would be the one, actually I took this from Tom Tauke, is to empower consumers. Which I see primarily in terms of protecting the consumer’s choice to use any

12

http://en.wikipedia.org/wiki/Carterfone

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device, any application, access any content, or any web service. Along with that is, of course, transparency, privacy, and access to individuals with disabilities. And it was interesting that the FCC general counsel, yesterday, in his statement, basically these were essentially the only provisions of Title II that they said they anticipated bringing to bear … were these essential consumer protections. A fourth principle would be to ensure adequate competition—and this is more of a monitoring function. The FCC should have the authority and flexibility to maintain a proactive competition policy. Fifth is universal service, which has been mentioned, I think, by others. The congress should recommit the nation to ensuring the universal access and affordability of an evolving level of advanced communications services. I agree with all of what Peter said earlier about that, and what Tom Tauke said in his earlier speech. Which is that any subsidies, in addition to being transparent, should be non-distorting, probably by being given directly to consumers, and should certainly be platform and technology neutral. Then a final principle that I think should be explicitly included is, concerning spectrum policy. Whether or not it’s a separate title any longer, that probably doesn’t need to be the case. But the new law should declare that the allocation and assignment of spectrum, should in all cases maximize flexibility, and should also strive for a productive balance between exclusively licensed, shared bands and unlicensed access. Congress should also anticipate the cognitive radio13 technologies, and the sheer demand for spectrum access from pervasive connectivity, and an Internet increasingly of things in addition to people will make exclusive licensing by band and frequency increasingly obsolete. Which doesn’t mean you don’t have the equivalent of licensing rights, but it may well be the bandwidth, more than it is to a specific frequency. So the next communications act should be certainly open to that evolution. It should reassert not only that licenses are temporary, but that any residual, unused capacity remains available for allocation in the public interest, when it’s not being used. Specifically the law should require that both NTIA and the FCC, make unused spectrum capacity accessible on a temporary, opportunistic basis to the greatest extent feasible, given the available technologies. Because we have an abundance of spectrum, but just no permission from the government to actually make use of it. So I will stop there; a lot to chew on. Thierer: Thank you Michael.

VIII. Discussion Among Panelists
Hoewing: Adam can I respond to one point that Michael made?
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http://en.wikipedia.org/wiki/Cognitive_radio

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Thierer: Sure. Hoewing: A lot of what he said about what Tom’s speech, is a good characterization of a lot of his comments. I do think, on the regulatory, parity issue though, if you listen to what Michael said, all of his comments go back to network providers again, in terms of how they ought to be treated and a new policy framework. If you look at what we said in the Verizon/Google joint statement, and what Tom said in his speech, he talked about an Internet ecosystem. We believe that even though it’s highly unlikely to happen very often, that there can be damaging activities by any player in the Internet ecosystem, depending on what kind of market power they have. So let me give you an example, and I’m not saying this has happened but this is an example of something that could happen. If you have an operating system on your computer, and most people do today, it has to interface with all this software on your computer generally speaking, and they use things called APIs. They’re basically hooks that allow these things to work together. Your browser only works, because it works with the operating system, or the computers CPU, and with the BIOS and everything else in the computer that runs it. So if the operating system company, for whatever reason, maybe it has its own competing browser for example, gives the wrong APIs to the browser maker, the browser won’t work. Now is the consumer always going to know that? The answer is probably not. Now I believe that the way the Internet works today, there’s so much vigilance and so many folks that would catch things like that, that it would get caught. But the point is it can happen. So whatever we do in this policy framework, we’re not just talking about applying it to network providers. I think it has to be, when we say parity, I think the “harms to users” competition standard we talked about should apply to all the players in the Internet ecosystem. The other thing that he mentioned was common carrier regulation. Again if you look at the FCCs announcement yesterday, they did talk, and Barbara explained this quite well on the forbearance issue, how that’s not as easy as it sounds like it is to do. But one of the points is, that the things they said would include, like take section 201. If you read that section, it talks a lot about prices, practices, classifications. Now I don’t know how the FCC is going to implement that but that clearly looks like there’s talk there about price regulation. They may not even intend to do that but I think it’s because, as we said this, you have to torture the statute to try to make it fit the Internet. So that’s why we are talking a lot about trying to come up with a new statute. Gifford: Isn’t one of the threshold questions: “Do you need a specialized communications regulator?” Because what you just talked about as anti-competitive conduct in the browser market… sounds suspiciously like something that the Department of Justice handled in the 1990’s. Depends on what your point of view is on whether it handled it well or not. I know that a lot of folks have said, and I think I’ve written, I think Adam’s probably written pieces that say let the Federal Trade Commission regulate this stuff which horrifies my friend Jim DeLong who used to work at the Federal Trade Commission …

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Thierer: Better them than the FCC. Gifford: And in DACA what we came up with was a Federal Trade Commission Act framework for communications. Spectrum may be a little different because it has some specialized qualities but do we really need the national spectrum coordinating office and registry and then to hand all of the other roles like competition policy to agencies that have historically done it in a more true and straightforward fashion, albeit imperfectly? Thierer: Barbara, you had something you wanted to say? Esbin: I just wanted to clarify one point and Michael raised it and the General Counsel’s paper yesterday addressed it as well, the wireless model. At some point when I was at the Commission and I was there over two different periods of time, but the wireless model was held up as the ideal light regulatory framework and that is because Congress permitted the FCC to deregulate the rates of commercial mobile radio service providers and that is the key difference today. There is no act of Congress permitting the FCC to implement its third way. Now the wireless model might be a great basis for the next act in terms of how much regulation do you need in a competitive marketplace, but it’s hard to use that analogy today because of the lack of legislative authority. Calabrese: Can I just answer Barbara? Thierer: Sure, go ahead. Calabrese: The Commission contends that there’s nothing in the Act that precludes it from forbearing on all of those same Title II, those traditional, you know, rate regulations and so on, provisions in Title II, you know with respect to Internet access. I mean is there anything that’s stopping it from forbearing or you just don’t believe that they’ll forbear forever? Esbin: I just, I think there is a factual problem when it comes to forbearance. The core of forbearance really is whether market conditions will protect consumers and competition. I don’t understand the basis on which they believe they can impose common carrier status if not market failure. If there’s a market failure, then how can the market protect consumers? I think their motives are pure and they will attempt to forbear to the maximum extent possible, I’m just not certain they can pull it off. Calabrese: See what I think explains it is the same distinction that would probably cause some disagreement between Link and I and that’s this question of whether you can separate the transport service from the information service. Because I think what they’re saying and what I was trying to say earlier is that the on and off ramps to the Internet can be regulated separately and should be under the sort of basic common carrier non-discrimination requirements whereas there may be enough competition to justify forbearing with respect to the information service and everything else. Hoewing: On that point, Barbara talked about the fact that she buys a service that is a uniform service. It includes transport and the information service piece of it. And the commission, under

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Chairman Kennard, first addressed the regulatory status of Internet access service in its report it was asked to give to Congress in 1998. The commission began by examining the relevant terms: telecommunications service, information service. And it concluded—and this is 1998— that the two terms are mutually exclusive, in that an integrated information service cannot simultaneously be said to contain a telecommunications service, even though it has telecommunications components. Then, after conducting a thorough examination of the features and functionalities that are part and parcel of Internet access, the commission concluded that it’s an integrated information service and does not contain a telecommunications service. So you can’t break that out now and say it’s now something, also, magical that we can break out, because the commission precedent isn’t that way. Calabrese: So at that time, back in the Kennard days, and even for some years after, they had that mentality because the Internet access service was being provided by separate companies, by all the dial-up, by AOL, EarthLink, CompuServe, what have you, that were riding on the transport. They were riding on top. To them, that was the ISP. The ISP was not the phone company. The ISP was a separate company that was riding on top of the wires. Whereas, by the time it got to Brand X, as you read in the dissent, Justice Scalia and the two other dissenters found it just completely implausible that there was not a telecom service integrated alongside whatever other advanced or additional services... Thierer: Let’s hear from Barbara real quick, and then we’re going to go to Q&A. Esbin: At the time period Michael’s describing, I was in what was then called the Cable Services Bureau. I went there shortly after passage of the ‘96 Act. The first large topic I was asked to research was whether the cable modem service was a cable service, a telecommunications service, or an information service. This was 1996. Everyone was fully aware that there was a new kind of broadband Internet access service that provided all-in-one. It was ISP. There was a transport element. The readings in the Stevens Report,14 the universal service report to Congress in 1998, were developed against this backdrop, as well as the backdrop of dial-up access, where there were two services. You used your phone line. You subscribed to the phone company. You had an Internet access provider ([a] separate fee). Those consumers bought two services. Cable modem subscribers, as I’ve already said, have bought one service from the time the thing was rolled out. So that report was written in full knowledge that there were many ways to provide Internet access.

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www.cybertelecom.org/voip/fccstevens.htm

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Thierer: So, before we get to questions and answers, I want to ask one question to the panel. In particular, I want to hear what Walter and Peter have to say about this, which is, when you talk about needing a new communications framework, we have to talk about the political reality of how we would get one. And both of you have extensive experience, in different capacities: Hill, FCC. Is there really an appetite for this? What are the ingredients that are necessary? The Telecom Act of ‘96 was a hard slog, and many of us remember the many predecessors that came before it, going back even through the Hollings bill and the Democratic Congress and beyond that. What does it take? Are we going to get it? Any appetite for it? Because I’ve got to say, I’m skeptical. I don’t necessarily see it. Walter? McCormick: I guess that I would say this. I think that if you ask people, “Should we update the law?” I think that people say “Yeah. I mean, why not?” It’s been 15 years, and it would make sense to update the law. But when you then go to the next layer, it is a political axiom that you need to have consensus on the problem before you can have consensus on the solution. And there’s not a lot of consensus on what is exactly “the problem” that Congress should address. When the National Broadband Plan lays out that we’ve gone from eight million Americans to 200 million Americans taking broadband in the last eight years, it’s pretty impressive. When it lays out that there’s been 500 billion in investment, that’s pretty impressive. When you take a look at consumer surveys, and consumer surveys show that satisfaction is at extraordinary levels with regard to their Internet access, and that consumers don’t perceive any problems, politicians sort of wonder, “Why am I spending my time on this, fixing what’s not broken?” So, I think that, to some extent, this very intense debate that we have is a debate that’s within a very small subset of the nation, and that the one area where there is an acknowledged problem, consensus on the problem, is that there’s five percent of Americans that don’t have access to broadband, fixed broadband. It’s going to cost $24 billion to serve them. And how long is it going to take? That’s the one area there’s a lot of consensus. But frankly, that’s the one that’s also being largely addressed. So, yeah, I agree that there will be some challenge in getting momentum going behind legislation. Thierer: Peter, any thought on that before I go to questions? Pitsch: Just briefly, I think Walter’s right. If there’s not a consensus that there’s a problem, we’re not going to see legislation. The problem can come from two directions. For example, if the FCC proceeds in this direction and it’s reversed in court, then there will be a consensus that there’s a problem. Some people want to go in one direction, and some people want to go in another direction, but I think that would be providing impetus for change.

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I also think another way this gets solved, frankly, is through more work in the direction of what Verizon and Google have already done. I think that things like that could obviate the need for more intrusive regulation, and would also reduce the pressure for legislation. The last thing I’ll say is I do think there is a problem in the spectrum space. The services we all have are wonderful, and the industry has done a great job. But anyone who’s been following the growth of data and the problems that are arising with the use of smart phones realizes that there is going to be a tremendous increase in demand. And if we don’t get spectrum, and do other things, but if we don’t get additional spectrum, there is going to be a big problem.

IX. Questions & Answers
Thierer: Let’s go to some audience questions. And when the mic comes to you, please identify yourself and state your affiliation clearly and ask a question. David Torgerson: I’m Dave Torgerson with USDA. I really disagree with what you said. I think there’s a lot... Thierer: Who? Pitsch: All of us. [laughs] Torgerson: The framing of the question. Because I talk to lots of consumers. I have my informal groups and so on. There’s complaint about every server. And the thing is, the competition down on the ground appears to be—I’ve got to take an annual leave to say all this stuff... Thierer: How about a question, too? Torgerson: The question is, I look at this as a consumer problem. Consumers are being under-served. And this stuff about the rural areas, I think the politics will take care of that. But I also look at it professionally, that we have a perception that our Internet service and telecom isn’t as good as what they have in Europe. And they have all sorts of excessive regulation on things, in a lot of areas. Why is that perception out there, and what’s wrong with it? Thierer: OK. So why can’t we be Greece? No. [laughter] Thierer: Anybody want to..? Torgerson: At least Germany. [laughter] McCormick: I’d like to just take a stab at that. To some extent, if you point to Korea, or these places where we say: “Well, oh they have the most wonderful Internet, it’s so fast.” It really does harken back to 1975, where people said “You know we have the most wonderful

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telephone system in the world. We have one provider. The most wonderful telephone system in the world.” But when people really began to look at it they said, “But why wouldn’t it be improved if other people could compete against that system?” And so today we have all of these providers that are constantly competing. So what I see is that we have a marketplace that is developing more rapidly than any of those other counties and when you look at the innovation that’s occurring, where is all the Internet innovation occurring? Routers and browsers, they were invented here. All social networking was invented here. The new devices that consumers like, like iPads and iPhones and Droids are being invented here. And the commercialization of the Internet with Amazon and with eBay and if you look at search engines where were they invented? They were invented here. The United States, because of our competition policy, is the hotbed of Internet innovation. And it’s probably the reason why Americans spend more time utilizing the Internet than citizens in any other country on this planet. So that would be my response. Thierer: Anybody else on that one? Audience Member: I have two choices I can either go to Verizon or Comcast, I don’t have any other choices. I live in an urbanized, I live in Prince George’s County. The zip code I am in was the first one to get both DSL and fiber optics. And I still have only two choices. Link Hoewing: OK, so I did a blog post on Verizon’s policy blog I’d invite you all to look at called “A Lack of Facts Can Disprove Your Case.”15 Basically it was a rebuttal to some comments that Sasha Meinrath made and that’s what he said. He said we had a dismal record of broadband in the United States. Now I’m in a consumer services company. And it’s a competitive industry, so we know that we don’t always get it right and we know we have to keep improving. So don’t let me try to say that we always get it right, and we can’t do more. We have to do more. That’s absolutely true. And we got more broadband speeds that we have to provide people. But in my blog post, I literally have 25 facts, everything from investment to deployment of fiber technology in this country which far exceed what’s going on in Europe, to going from 2G wireless, which is 144 kilobits per second, to now already 4G. Verizon is beginning to deploy that this year. We could be talking 10 meg speed on that service and maybe even higher. We’re not going to try to, we’re being conservative. But 10 megs on a wireless network in just a few years with billions of dollars in investment to make that happen.
15

http://policyblog.verizon.com/BlogPost/727/ALackofFactsCanDisproveYourCase.aspx

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If you look at this blog post, I think you’ll see that the record is actually quite good. I look at it like the Olympics. When you look at the statistics the reason you’ll always hear that we’re behind Europe is because they cite one stat, usually, the OECD number, 15th in the world, based on the number of connections per hundred people. If you use that metric, the United Sates in 1996 when we had 95% penetration of phone service would have been 16th in the world in phone service. It’s just a bad metric. And it’s not bad to have metrics and it’s not bad to measure them, but to me it’s more like the Olympics. Are we first in every metric you can look at? No. But on the Olympics as a whole, we were the leading nation in the world. And I think on the whole, we are a leading broadband nation. There are some areas, as Walter said, we’ve got some work to do. Certainly we need more speed, and I think wireless is going to be a competitive alternative over time. I don’t know if you saw the testimony two weeks ago in the House, but the satellite providers, Wild Blue said they were launching a new satellite that could get eight megs down and two megs up, I think, or something in that range. That’s a pretty good service. So it is continuing to evolve, but I think all of that is indications of a positive and successful story. Thierer: Let me try to get a couple more questions from the audience, we’ve got a chance. In the back, can you identify yourself and ask a question? Jonathan Moody: Thank you again to the panel. My name is Jonathan Moody at the American Legislative Exchange Council, an association of state legislators and private sector members. In your opinion, this is an issue that our state legislators care about and are working on, but can you give a little advice on what the states can be doing and priorities that they should be focusing on? Thierer: Good question, anyone? I don’t know. Ray you want to jump in there, as a former state guy? But anybody want to jump in on what the role of the states is here, because that’s always a tricky question in the field of network economics and regulatory reform. You know, should the states be preempted? Do they have a role here? Gifford: I think the states are largely now focused on universal service issues and coming from a big square state … There are a lot of very strange distortions both in federal universal service policy and those also are creating problems in state universal service policy. Because a number of states have their own funds that are facing similar challenges that the federal fund is, which is you’re basically taxing a diminishing base. And to raise the same amount of money, you need to crank that rate higher and higher. So the two big things that I think states are doing is mapping efforts. I’m not sure if that’s make work or if it’s going to yield any real benefits, but a lot of states have mapping efforts underway. On the universal service front, I think the fact is Lawrence White’s quotation that “competition is the enemy of subsidy,” is what’s creating the contradiction there. And I’m not sure there’s any neat way for the states, much less the federal government, to handle that because when

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you can escape the subsidy regime, people will do it. And what you have happening is a neverending game of “catch me if you can” to keep folks into the subsidy and access regime. And the appetite to reform that is very difficult given the political economy that states face. Thierer: Barbara you have a quick comment on that? Esbin: More in the way of an observation. The state jurisdiction question is interesting also in terms of the FCC’s announced third way. Once Internet access has been declared to have two separate components, a telecommunications service component and an information service component, it becomes for all intents and purposes common carrier telecommunications service and states have their own set of authority over intrastate telecommunications services. So the FCC, once it forbears, states cannot regulate that thing that has been subject to forbearance. But for the pieces of Title II that are not forborne from by the FCC, states that have authority over intrastate aspects of these things are free to regulate under their own law. Unless the FCC does a third act on the high wire, which is simultaneously preempt inconsistent state regulation. There’s a lot going up on that wire, that’s all I’ll say. Thierer: Michael? Calabrese: Along those lines of what Barbara said is that, Barbara was at a panel event along these lines earlier in the week and one irony is that if the Commission had, after Comcast, in a sense abandoned the field in the sense of not regulated the transport component under Title II then we were speculating on would we start to have, start to see 50 different net neutrality regulations around the country. And I don’t think that would have been a welcome development by the carriers, either. It’s not going to be a perfect world. Esbin: No, it’s not a perfect world but most states have state laws, even sometimes in their constitution, that give the state authority to regulate intrastate common carrier services or telecommunication services and there are very few authorizations, I believe, of that nature concerning information services. So again, there are these annoying jurisdictional problems that arise when you have a regulatory framework based on service-specific definitions. And that is the one thing I would say is critical to the next communications act. It should not look like the last one. Thierer: Do we have any more final questions? Oh, right here. Adam Bender: Hi. Adam Bender with Communications Daily. We’ve talked a lot about the process challenges to doing the “Third Way.” But if the FCC is able to implement it, what’s the practical effect that it would have on ISPs and other businesses? Including wireless. Thierer: Including wireless. Anybody on that one? McCormick: I think that to go this route to try and re-label one part of the Internet ecosystem as common carriage and to not address it in the context of the integration of the ecosystem is

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just simply market distorting. It doesn’t address the fundamental aspirations that the country has with regard to the Internet. The uncertainty that has been unleashed by the FCC launching this proceeding in the midst of challenging economic times, you’ve taken the one sector of the economy that is producing jobs, robust innovation and is a source of overwhelming consumer satisfaction, and you are subjecting it to a high degree of uncertainty. As every Wall Street analyst has said, this uncertainty now means that they can’t model what the industry, what the people in the business are going to be able to do and not do going forward. And it, I think, undermines any momentum whatsoever that the commission had with regard to the larger national broadband plan because now everyone is fixated on this debate. And it completely blew up any kind of momentum and consensus that the commission had developed with regard to what the real priorities of the nation are. Hoewing: The other point I’d make on that is in a letter16 that a lot of the industry players sent to the FCC a few days ago, they also pointed out that the uncertainty isn’t just in our industry. If you look at the Supreme Court case, it’s not even certain that whatever policies the FCC tried to impose in this space would just be limited to broadband providers. It could be other Internet players as well that get covered. So the source of uncertainty could spread wider than just our industry. Calabrese: Just note though that there’s uncertainty from different directions, and the trade-off that Chairman Genachowski emphasized yesterday is that if you did not do this you’d have the uncertainty of every individual order by the commission being challenged in court and battling it out under Title I. And so in some ways really a single decision that restores the status quo from before the Comcast ruling, in other words the understanding we all had just a couple months ago, seems to be a greater level of less uncertainty than we would otherwise have. Thierer: I’m going to have one final question for the panel in a second but I want to ask Ray one specific question which is, as you may recall, Ray, when we had the DACA project underway I argued it had one major failing. The one and really only failing of the project was we ignored the fact that the Communications Act was as much about media as it is about communications. And if we’re going to have a conversation about are we going to have another Communications Act, you have to ask the question: Is media policy going to be part of it and what should it be? And you have that whole different universe of public interest regulation that is at work there. What do we do? Do we break that out? Do we keep it bundled in? How do you balance that, because we didn’t do it in DACA. Gifford: No, we didn’t. I think one of the things we tried to do is at least create some analytical separation between what is competition policy, what is universal service policy, and what is social policy above and beyond that. And one of the frustrating things about communications
16

http://fjallfoss.fcc.gov/ecfs/document/view?id=7020442659

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law, such as it is, is all the stuff gets completely mixed up in an indecipherable stew, and so people (A) just talk past each other, and (B) it turns into the analytic mush that we’re used to. So at the very least I think what the aspiration of DACA was, and what any legal reform should aspire to do, is at least create some clarity within the analytical categories you’re trying to accomplish. So if we’ve got media policy that’s focused on competition policy issues as opposed to social policy issues, you’d at least want to create those categories so there’s some clarity there. I’m not sure there’s a neat way to do that because I’m not a media policy guy. But that’s what I think the underlying architecture of DACA was, was to say all right, if you have a competition policy issue, let’s treat it that way on a case by case basis in an adjudicatory manner and not as a “swallow the ocean, let’s think about stuff” DACA. Thierer: Right. So my final question to the panel, and we’ll start down at Michael and come on down to Link, is hopefully ‘yes’ or ‘no’ but you can elaborate a bit if you’d like, briefly. Will we see major Communications Act reform of any sort within the next three to five years in Congress? Michael? Calabrese: [laughs] Tough one. I would say probably not completed. [laughs] Thierer: Not complete, but started. Calabrese: Yeah, I think... Thierer: A start would be good. Calabrese: I think we’ll start it next Congress. Thierer: OK. Ray, any chance? Gifford: I think I agree with Michael—started. And in some sense this is a conversation that started five, six years ago. Thierer: You’re going to agree with that, too, Barbara? Esbin: My other answer is I don’t know, but that sounds right to me. Thierer: Peter? Pitsch: I’d say it depends what happens in the courts. Thierer: OK. Walter. McCormick: I’d say yes. I think the conversation has begun. And if you look at the ‘96 Act, it really began almost 20 years before that. I think that it’s very, very clear that the courts are not going to approve the FCC’s recent decision because the lack of jurisdiction is just so clear. So that’s going to lead to some momentum for an updating the laws.

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Thierer: Link? Hoewing: If you frame the question as Internet policy reform, in other words creating Internet policy for the country, I think there is a better chance than people might think that we’ll see some comprehensive reform. The reason is that it’s not just about some of these issues we’re talking about today but privacy, online security, all those issues that Tom mentioned in his speech also are part of the Internet policy framework that we need to look at. And I think all those things are under a lot of stress and there’s certainly a lot of belief that we need to do some things in those spaces. So if you look at it in that context, I think the answer is that we’ve got a better shot than people think. The other thing I’d point to by the way is in this NRPM process, and I don’t know that people recognize this, but I think there’s been a steady consensus developing over the last periods of comments in the NPRM that suggest that people do see more continuity in some of these areas than you might expect. For example, I don’t know if people know this but a majority of the filings, a vast majority of the filings did not support net neutrality regulation, for example, or said that that’s not really the key issue. It’s actual broadband adoption or some other issue that’s more concerned. What they pointed to in many cases - ITIC, the Information Technology Industry Council is a good example - was some of the things we talked about on the Google filing. So I think there were more people saying some of those ideas are actually worth looking at as a framework going forward. So there’s more consensus probably than people think. Thierer: OK, great. Well before we close I just want to remind everyone that PFF’s next event is on Thursday, May 20th, and that’s on the question of “Can Government Save the Press?” That will be in the Reagan Center. It deals with a major proceeding that the FCC is closing comments down on today on the future of media. So I hope you join us on again, Thursday, May 20th for that discussion. In the meantime, won’t you please all join me in thanking this wonderful panel for this discussion today.

X. Speaker Biographies
Link Hoewing is vice president - Internet and Technology Policy at Verizon, the country’s largest telecommunications provider. He is responsible for identifying and assessing emerging issues, developing corporate positions on Internet and technology industry issues, and working with high technology industry members, interactive technology associations, and research institutes and think tanks. Previous responsibilities include external affairs positions at Bell Atlantic and Telecom New Zealand, as well as eight years as a Congressional legislative aide. Hoewing has a bachelor’s degree from Carthage College and a masters in Public Administration from American University.

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Peter Pitsch is associate general counsel and executive director of communications policy for Intel Corporation. He manages Intel’s global spectrum and telecom policy team. Prior to joining Intel, Peter was the president of Pitsch Communications from 1989 to 1998, which represented telecommunications clients before the Federal Communication Commission (FCC) and Congress. From 1981 to 1989, Peter served at the FCC as chief of the Office of Plans and Policy and then chief of staff to the chairman of the FCC. From 1980 to 1981, Peter was a staff member of the Reagan Administration Transition Team which developed recommendations for reforming the Federal Trade Commission (FTC) with special focus on antitrust issues. He also worked as a senior attorney at Montgomery Ward, Inc. from 1979 to 1981 and served as an attorney at the FTC from 1976 to 1979. While at the FTC he was an attorney-advisor to Commissioner Calvin Collier. Pitsch received a B.A. in economics from the University of Chicago in 1973 and his J.D. from Georgetown University Law Center in 1976. He is a member of the District of Columbia Bar, the Virginia State Bar and the Federal Communications Bar Association. He authored the book, The Innovation Age, and has written and lectured extensively on telecom and regulatory issues. Walter B. McCormick Jr. is the President & CEO of the United States Telecom Association (USTelecom), the nation’s premier broadband trade association representing service providers and suppliers in the new telecommunications marketplace. A respected Washington veteran with more than 25 years experience in telecommunications, Mr. McCormick joined USTelecom in 2001 and has guided the organization’s evolution into one of the top trade associations in the nation’s capital. Prior to joining USTelecom, Mr. McCormick served as President & CEO of the American Trucking Associations. There he led a broad corporate restructuring that resulted in a reinvigorated membership, record dues revenues, and significant legislative victories. His background also includes service as General Counsel of the U.S. Department of Transportation; as General Counsel of the U.S. Senate Committee on Commerce, Science and Transportation; and as a partner with Bryan Cave LLP, an international law firm of more than 500 lawyers, where he headed the practice group on Regulatory Affairs, Public Policy and Legislation. During his tenure on the professional staff of the U.S. Senate, he was recognized by Roll Call magazine as one of the 50 most influential staffers on Capitol Hill. Mr. McCormick holds degrees in journalism and law from the University of Missouri. He has studied international economics and political science at Georgetown University, and has completed the program for senior managers in government at Harvard University’s John F. Kennedy School of Government. He is a member of the President’s National Security Telecommunications Advisory Committee, the Board of Trustees of Rockhurst University, the Federal Communications Bar Association, the District of Columbia Bar, and the Missouri Bar. Raymond L. Gifford counsels communications, electric and gas utilities and information technology companies on state and federal aspects of regulation, administrative law, and competition policy. He is an expert in public utilities law as it relates to telecommunications and energy matters. He litigates on behalf of clients in state and federal courts, and serves as an expert witness on utility regulation in federal and state courts, and at state utility commissions. In addition, Mr. Gifford’s law and policy work focuses on antitrust, competition policy and intellectual property law. Before returning to private law practice, Mr. Gifford served as President of The Progress & Freedom Foundation, a non-profit think-tank that studies the digital revolution as it relates to regulation of network industries. Before that, he was Chairman of the Colorado Public Utilities Commission serving as the chief regulator in the state of Colorado of the telecommunications,

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electricity, natural gas and transportation industries. Mr. Gifford began his regulatory career as First Assistant Attorney General for Regulatory Law in the Colorado Attorney General’s office. Immediately after graduating from law school, he clerked for the Honorable Richard P. Matsch of the United States District Court for the District of Colorado. Mr. Gifford has authored a number of articles on smart grid, broadband and communications law. Michael Calabrese is Vice President of the New America Foundation directs the Wireless Future Program and helps to guide the Foundation’s work related to retirement security and the Next Social Contract Initiative. Previously, Mr. Calabrese served as Director of Domestic Policy Programs at the Center for National Policy, as General Counsel of the Congressional Joint Economic Committee, and as pension and employee benefits counsel at the national AFLCIO. An attorney and graduate of both Stanford Business and Law Schools, Mr. Calabrese speaks and writes frequently on issues related to spectrum, wireless broadband, and Internet policy, as well as on Next Social Contract issues related to improving retirement security and health coverage. He has co-authored three books and published opinion articles in The New York Times, The Washington Post, The Atlantic Monthly and other leading outlets. Barbara Esbin is Senior Fellow and Director of the Center for Communications and Competition Policy at The Progress & Freedom Foundation. Esbin served for over fourteen years at the Federal Communications Commission, most recently as Special Counsel in the Market Disputes Resolution Division of the Enforcement Bureau. Before joining the Enforcement Bureau at the FCC, Esbin spent four years as Associate Bureau Chief at the Commission’s Media Bureau. There, she represented the Bureau on a number of inter-agency efforts and led the review of several major industry mergers and rulemakings addressing cable and broadband competition issues. Esbin has also served as Associate Bureau Chief of the Cable Services Bureau, Special Counsel for Competition and Senior Policy Advisor at the Wireless Telecommunications Bureau, and Attorney-Advisor and Assistant Tariff Division Chief of the Common Carrier Bureau. She has spent time in private practice, specializing in cable and broadband regulatory issues between her two FCC engagements, and electric utility regulation prior to joining the FCC. Esbin had two judicial clerkships in the North Carolina appellate system and is a graduate of the Duke University School of Law and Antioch College. Adam Thierer is President of The Progress & Freedom Foundation (PFF) and the Director of PFF’s Center for Digital Media Freedom (CDMF). As Director of the CDMF, Thierer analyzes public policy developments that impact the economic and social aspects of the media industry, including related First Amendment issues. Prior to joining PFF in 2005, Adam was Director of Telecommunications Studies at the Cato Institute and a Fellow in Economic Policy at The Heritage Foundation. His work on communications, high-technology, and media policy has been featured in The Wall Street Journal, The Washington Post, The New York Times, USA Today, Forbes, The Economist, Newsweek, and others. He also writes regularly for The Technology Liberation Front blog. Adam is the author or editor of seven books on media regulation and child safety issues, mass media regulation, Internet governance, intellectual property, regulation of network industries, and the role of federalism within high-technology markets. Adam has served as a member of Harvard Law School’s Internet Safety Technical Task Force, a “Blue Ribbon Working Group” on child safety organized by Common Sense Media, the iKeepSafe Coalition, and the National Cable & Telecommunications

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Association, and he is also an advisor to the American Legislative Exchange Council’s Telecom & IT Task Force. He also serves on the National Telecommunications and Information Administration’s Online Safety and Technology Working Group. In 2008, he received the Family Online Safety Institute’s “Award for Outstanding Achievement.” Adam earned his B.A. in journalism and political science at Indiana University, and received his M.A. in international business management and trade theory at the University of Maryland.

Related PFF Publications
The Constructive Alternative to Net Neutrality Regulation and Title II Reclassification Wars, Adam Thierer & Mike Wendy, Progress on Point 17.9, May 2010. The FCC’s Title II “Lite” (as a Lead Balloon!) & the Looming Broadband Tax, James Dunstan, Progress Snapshot 6.9, May 11, 2010. Ancillariness, the Definition Wars, and the Next Communications Act, Barbara Esbin, Progress on Point 17.8, May 6, 2010. FCC Comments of Barbara S. Esbin In the Matter of Preserving the Open Internet, Broadband Industry Practices, Barbara Esbin, Jan. 14, 2010. Net Neutrality, Slippery Slopes & High-Tech Mutually Assured Destruction, Berin Szoka & Adam Thierer, Progress Snapshot 5.11, October 2009. Net Neutrality: A Further Take on the Debate, Barbara Esbin, Progress on Point 16.26, December 9, 2009. FCC Reform: Scalpel or Steamroller? Barbara Esbin, Progress on Point 15.15, Sept. 2008. Comments of Barbara S. Esbin In the Matter of Preserving the Open Internet Broadband Industry Practices, Barbara Esbin, January 14, 2010. The First Amendment, the Internet & Net Neutrality: Be Careful What You Wish For, Robert Corn-Revere, Progress on Point 16. 28, December 17, 2009. A Skeptic’s Primer on Net Neutrality, Kyle Dixon, Raymond L. Gifford, Thomas M. Lenard, Randolph J. May & Adam Thierer, Progress on Point 13.14, June 2006. Report from the DACA Working Group on Regulatory Framework, March 2006. Report from the DACA Working Group on Universal Service, December 2005.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. Its mission is to educate policymakers, opinion leaders and the public about issues associated with technological change, based on a philosophy of limited government, free markets and civil liberties. Established in 1993, PFF is a private, non-profit, non-partisan research organization supported by tax-deductible donations from corporations, foundations and individuals. The views expressed here are those of the authors, and do not necessarily represent the views of PFF, its Board of Directors, officers or staff. The Progress & Freedom Foundation  1444 Eye Street, NW  Suite 500  Washington, DC 20005 202-289-8928  mail@pff.org  @ProgressFreedom  www.pff.org

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