Tales of the Sausage Factory

The Comedy of Comcast v. FCC Part I — What Did The Court Actually Do?

It’s been rather busy the last few weeks. Between my unfairly holding Sprint responsible for its own screw ups, shamelessly cheering on the documentation of our national broadband drought by Our Great Google Overlords, and generally crushing all who dare oppose me, it’s been hard to find time to blog about stuff. So naturally, while I was away for the last day of Passover, the DC Circuit issued its long awaited decision in the Comcast/BitTorrent case, Comcast v. FCC.

Needless to say, the opinion was greeted with the total hysteria that has become the hallmark of the network neutrality debate — with terms like “Nuclear Option,” “World War III,” and “spanking.” Opponents of FCC jurisdiction rejoiced, supporters of network neutrality lamented, and a few shrewd observers noted that the actual outcomes could prove far worse for Comcast and the incumbents than if Comcast had lost (as I noted after oral argument last January).

My co-counsel, Marvin Ammori, has written up his retrospective here. Understandably, he’s rather bummed. Despite this whole thing being my idea in the first place, however, I’m actually rather pleased and amused with how this whole thing is turning out. Sure, I would much rather have won. But as the history of the last 2+ years of this unfolds, the tale of how Comcast managed to bluff, badger, and bungle itself into a position where it has not only guaranteed harsher condition on its merger with NBC-Universal, but revived the possibility of classifying broadband access as a Title II telecom service for the first time in 10 years, is the stuff of high farce. And while I wish I could claim credit for this outcome, the real “heroes” here are Brian Roberts (head of Comcast) followed closely by AT&T, NCTA and the Republican party.

To try to keep this manageable, I’ll divide this into two posts. Below, I will try to set forth what the court actually said and the immediate legal implications, without worrying too much about the overall policy. While I can hardly claim to be an impartial observer, I’ll do my best to identify my editorial comments as such and note where reasonable minds can differ. In Part II, I shall shamelessly indulge myself with my own eyewitness to history and why I think the Comedy of Comcast v. FCC deserves its special place in the realm of farce — although we have by no means reached a certain conclusion.

More below . . .

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Tales of the Sausage Factory

Will The DC Circuit Pull The Plug On Program Access?

Next week, the D.C. Circuit will hear oral argument on the FCC’s 2007 decision to extended the program access rules another five years. What surprises me is how few people seem to have considered the possibility that the D.C. Circuit will reverse this decision and vacate the rule, as they did last month with the 30% cable horizontal ownership limit.

Part of that is the way people tend to make analysis based on conventional wisdom. “Everyone knows” that without the program access rules, competitive providers would be toast because the largest cable incumbents can control programming, just as “everyone knows” that we don’t need a 30% cable ownership limit because the MVPD market is so wildly competitive that the largest cable incumbents can not possibly influence cable programming. As Comcast and Cablevision pointed out to the DC Circuit, however, the conventional wisdom in this regard is not entirely consistent. If, as the court found last month as a matter of law, the MVPD market is wildly competitive and consumers switch willy-nilly from one to the other rendering it impossible for a cable provider to block a rival programming network from emerging, how on Earth can cable programmers below the 30% limit exercise foreclosure?

There are, of course, sound answers to that in both law and economics, although the biggest single deciding factor is likely to be the absence from the panel of Douglas Ginsburg, a man who believes membership in the Federalist Society substitutes for an actual understanding of economics and has published an academic article yearning for the “good old days” when the courts made economic regulation unconstitutional and concluding that courts should not defer to agency efforts to create “synthetic competition.” (An offense in the eyes of the Gods of the Marketplace.) I believe the panel is Sentelle, Griffith and Kavanaugh, which is not exactly good news for the program access rules but isn’t death on wheels like Ginsburg (or Williams or Edwards). Sentelle and Griffith, who were both on the imaginary competition outweighs real competition decision back in June overturning the FCC’s decision not to grant Verizon a forbearance petition, and Kavanaugh, who was on the cable ownership panel and therefore presumably agrees that switching costs aren’t real and cable operators are in such fear of youtube clips they would never make programming decisions based on affiliation. On the flip side, Kavanaugh actually wrote the somewhat more deferential special access opinion from July. Unfortunately for those who rely on program access, none of the judges who affirmed the Inside Wiring Order are on this panel.

Of course, there is something to be said for actual law and analysis of the underlying FCC Order, even in the D.C. Circuit. So below, I shall provide a brief outline of the program access rules, how we end up in court, the likely arguments, and what happens if the D.C. Cir. overturns the rules (which even I give a low probability to, but do not discount — especially given the panel) — including why that might actually be the best thing to happen to cable regulation in the long run.

More below . . .

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Tales of the Sausage Factory

Comcast Channel Shifts — Looking for info.

I’m getting email about Comcast migrating MSNBC and CNN out of its expanded tier to a higher priced tier while keeping Fox News on expanded tier in a number of markets. If this is actually going on, I’m mightily curious.

Such shifts do not happen casually. They are generally the product of fairly intense negotiations among cable operators and programmers. They also require advance notice to viewers. This makes me extremely reluctant to impute a political motive here. If NBC and Time Warner (the owners of MSNBC and CNN respectively) were being screwed against their will over a political agenda, I would have expected to hear it in DC. What mainstream coverage there is of this suggests it is part of Comcast’s general digital upgrade. So we should expect to see all remaining channels migrated off to the higher priced tier eventually. While that will constitute a significant rate increase, it will put everyone back on equal footing. Besides, as the DC Circuit instructed us all last month, cable operators have no market power and cannot influence the programming market, whatever your personal experience to the contrary may be.

So if anyone has more info on this and would like to either comment below or talk to me, I’d love to hear about it.

I suppose I should add that unless Comcast failed to give proper notice to subscribers before changing their channel line up, their is nothing the FCC can do about it, so don’t bother complaining.

Stay tuned . . .

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Tales of the Sausage Factory

The Consistency of Kevin Martin and the Faith Based FCC

So many people are mad at Kevin Martin these days, but for so many different things. He is either a “tool of industry” or “interfering with the market,” depending on whom you ask. And no one seems more confused about this than the ranking member of the House Commerce Committee, Joe Barton (R-Tx).
Mr. Barton understands all bout de-regulating. That’s what good Republicans do, after all. But he cannot understand why Mr. Martin is making such trouble for the “highly competitive” cable industry. As reported in this article:

“It’s been said that consistency is the hobgoblin of little minds,” said Rep. Joe Barton, R-Texas, the committee’s senior Republican. “If that’s the case, we could use a few hobgoblins at the FCC.”

Barton complained that Martin plans to ease the cross-ownership ban while doing little on other media ownership restrictions and is attempting to limit the number of subscribers one cable system can reach.

“It baffles me how the same FCC can appropriately eliminate regulations for some segments of industry because of increased competition, and at the very same time refuse to deregulate or even impose more regulation on segments of industry that are creating that very competition,” he said.

Democrats, of course, accept that Mr. Martin as a Republican should be a tool of industry. To the extent they wonder about any apparent inconsistencies, they attribute it to Martin being a shill for the telcos. This, of course, does not explain why Martin denied Verizon’s request for deregulation in six major cities or why Martin told Verizon to bugger off on modifying C Block. But if he isn’t an industry tool, why did he ram through the sale of Tribune and waive FCC regs so that Tribune could appeal in the DC Circuit and try to get the entire newspaper/broadcast cross-ownership ban repealed?

While armchair psychology and analysis based on shreds of available information is always a perilous past-time, I will argue below that Kevin Martin is actually extremely consistent in his decisions and his management style. I say this neither as a criticism or as praise. But pivotal to understanding the actions of the FCC and therefore to exercising my stock in trade of effective advocacy is trying to make some guess on what actually drives the current FCC Chairman in making decisions. Feld’s Second Law of Public Policy states: “Public policy is made by human beings.” (OK, I know Clausewitz said it first about war, but the principle still holds.) So understanding the human beings making policy is a critical step in influencing policy — even if we understand them poorly.

Besides, it’s fun.

Guesses below . . .

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Tales of the Sausage Factory

The 700 MHz Dramedy Continues

Ya know, I had real hopes that, barring a Petition for Reconsideration or two, I was pretty much done with the 700 MHz auction. Sure, Verizon filed a lawsuit with the DC Circuit, but at least we could sit back and stop worrying about the FCC stuff. And besides, the lawsuit didn’t really have much of a chance anyway. So, after a grueling 6 months or so, I thought I could finally relax and turn to something new, like kicking the bejeezus out of the cable monopoly.

Hah.

As recent reports indicate, Verizon has apparently pressed the FCC to “clarify” the C Block conditions. I say “apparently” because Verizon has not actually filed a request for any sort of clarification, reconsideration, or declaratory ruling. Indeed, to my considerable annoyance, it took a modest reprimand from the Wireless Bureau and Martin’s staff for Verizon to actually put something in the record vaguely resembling a description of what Verizon’s most senior lobbyists actually discussed with the Chairman and his staff. Verizon, meanwhile, vigorously denies they ever asked for reconsideration (and, separately, that it finds the accusation that it violated the ex parte shocking and deeply offensive).

In any event, it appears the issue is whether or not Verizon (if it won the C Block licenses) could continue its practice of asking manufacturers to strip out or limit features or applications on devices that run on the C Block. Verizon argues that consumers love subsidized handsets and letting the cell phone operator make all the tough decisions (like what applications can run on the device), and it would therefore be cruel to deny the C Block licensee the right to offer such fantastic products and deals — as long as the C Block licensee will hook up any third party device that meets the technical standards.

To Martin’s credit, he reached out to the Public Interest Spectrum Coalition (PISC) and asked our opinion on whether the C Block licensee should be able to sell “crippled” devices as long as it will also connect any third party device to the network. Martin was apparently sufficiently impressed by my wisdom that he then tried to issue a clarification that Harold Feld is right and Verizon is wrong. The Democrats promptly moved to block, because they suspected a trap, since the idea that Martin would side with me over Verizon is apparently laughable (I have no doubt the Democrats mean that in a nice way and that it does not reflect on the quality of my wisdom). Of course, I have no idea what the proposed clarification actually said, since it is illegal to show me the actual predicisional text. But it is not illegal for Martin to say that he agreed with me or for the Dems to say that’s not how they read the proposed clarification. Remember, ambiguity is the essence of comedy.

In any event, as in any good dramedy, further hijinks naturally ensue from this potent combination of distrust and lack of information. Rumors of this “clarification” prompted Verizon’s arch-nemesis, supporter of wholesale access, and potential rival bidder Frontline to challenge Verizon’s efforts to get the rules changed. This triggered a response from Verizon that they hadn’t asked for a rules change, and that furthermore, on reconsideration, the FCC should issue a declaratory ruling that “Frontline is ugly and their VCs dress them funny.” Meanwhile, now with a full posse of PISC buddies, I went back to the FCC to explain that while I am always flattered to have the FCC declare my interpretation of its rules to be the law of the land (and encourage them to do this on a more regular basis), we at PISC think the Order is perfectly clear and that if anyone wants it clarified they should have to formally file a motion and ask.

One might logically ask why, if Verizon wants the Order changed or clarified, it doesn’t just file a motion and ask. That would be a problem for Verizon, however, because it cannot simultaneously file a Recon Petition under 47 USC 405 and a Petition for Review by a federal appellate court under 47 USC 402. There are ways to try to get around this, but this statutory conflict would explain why Verizon has danced around this issue and pretended it is merely a continuation of its previous arguments properly filed in this docket. Assuming, of course, that they actually want a clarification, which they claim they don’t.

So, if Verizon hasn’t put in an explicit request, why does Martin feel a need to act? Does Verizon really have a leg to stand on, or is this just an effort to refight the same battle? And what about the tech companies? Why don’t we want the FCC to proclaim that I am right on my interpretation of the Order? And will the Red Sox finally face the Cubs in a World Series “curse off?”

O.K., I have no clue on the last one. But as for the rest of these questions (and perhaps a bit more), see below….

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Tales of the Sausage Factory

Why You Need to Call Your Member of Congress to Save Internet Radio

As internet radio subscribers today may have discovered, a number of internet radio sites are participating in a “Day of Silence” to draw attention to the upcoming increase in internet royalty rates that will drive many of the smaller sites out of business (and probably drive up rates for others). On July 15, the rates paid by internet broadcasters will increase dramatically (retroactive to 2006), thanks to a decision last spring by the Copyright Royalty Board.

Supporters of internet radio are pushing members of Congress to support the Internet Radio Equality Act (H.R. 2060 and companion bill S. 1353 in the Senate). The Bill would fix the rates for internet broadcasts to match the rates paid by satellite radio providers (terrestrial radio providers pay no royalties, heck they are able to extort payola from the music industry). You can find much useful information and how to take action from this Free Press Action page.

UPDATE: Members of Congress Beg Industry Not To Force Them to Actually, Y’Know, Do Stuff.

And I want to stress that action to pass this bill is desperately needed. Why? Because conventional wisdom (CW) in DC is that this bill is unnecessary since everyone expects Soundexchange (which reps the music industry on royalty collections for online play) and the “internet radio industry” to cut a deal. As the CW goes, everyone has too much to lose if the rates really do go into effect — what with public radio stations and other smaller radio broadcasters stopping their streaming, popular streaming sites like Live365.com potentially going under and independent musicians losing their exposure and so forth — that the relevant parties must inevitably cut a deal. And, if all else fails, the DC Circuit may solve the problem by reversing the Copyright Board. So why pass a bill when the problem will take care of itself?

Unfortunately, experience tells me that it is precisely in situations like this, when everyone thinks a deal is inevitable, that there is the highest risk of things spiraling out of control and falling apart. Each party thinks that because “failure is not an option” it can hang tough and the other side must blink. Usually, this collapses into a last minute scramble to reach an 11th-hour agreement. But given the diversity of players and complexity of issues, I don’t think you can patch this up with a Marathon session that ends at 11:59 p.m. on July 14.

Consider, there is a huge disparity among the terrestrial radio broadcasters on what would be the acceptable dimensions of a deal. Industry giants like Clear Channel and Viacom will be willing to settle for a much higher rate than either small commercial operators or NPR. NPR, in turn, will settle at a much higher rate than the small non-commercial stations such as those represented by the National Federation of Community Broadcasters. The “internet broadcasters” have even more exagerated divisions by size and business model, with many of the smallest players absent from the negotiations. An industry with participants from Yahoo! to the archtypal individual in the basement is not going to come together on a “unified position.”

Worse, there are other elements of the structure besides the rate itself. Other issues include the reporting requirments and DRM management systems demanded by the music labels. While these are not addressed by the legislation (which only addresses rates), the negotiations among the industry participants will likely include extraneous issues in an effort to get a critical mass of industry players on board. Again, this favors the largest participants with the most diverse interests.

Finally, the largest players — particularly the big radio chains — have incentive to cut a deal that reduces the existing rate but still jacks up the price (either in terms of rates or interms of additional monitoring and reporting costs) for smaller players (both terrestrial broadcasters and internet broadcasters).

On the music side, there is considerable diversity of opinion among musicians about what to do here. On the one hand, independent musicians love internet radio as an outlet where they actually get play time and do not want to see the internet broadcasters strangled. On the other hand, it is very difficult for people to aggressively advocate to cut their own pay. A good analogy is where a union negotiates with management for pay and benefit cuts to stave off a business collapse. On the one hand, workers want to keep having jobs. OTOH, it is tough to swallow — particularly when the fat cats (here, the major labels and the large terrestrial radio chains) are still making out like bandits. There is a natural inclination of independent musicians to ask “why the Hell should people ask us to save internet radio at our expense when we already get shafted by the system? Aren’t we entitled to get a pay raise?”

So, in my opinion, I think getting a “comprehensive settlement” that eliminates the need for legislation is a lot harder than people think. And, even if there is a settlement, it is almost certain to tilt toward the interests of the largest industry players with some crumbs thrown to the little guys. Everyone will pose for the photo op looking exhausted and saying that it was a tough negotiation but something everyone can live with. Meanwhile, the cutting-edge tiny independents — who don’t even register on the DC policy meter but who most need protection of a set, fair rate to survive — will die a silent death offstage.

And, even if there is a settlement and it is livable, this decision will hang over internet radio providers like a damn Sword of Damocles, shaping the industry and forcing them to play by the rules set by the big music labels and the biggest radio operators because they live in fear of when the agreement expires and they have to go through all this again. A world where internet radio broadcasters have a right to music at a set rate is a very different world from one where they must go begging on bended knee to the copyright lords for the privilege of access to music that competes with other powerful interests.

So if you love vibrant and truly independent internet radio, and if you want to keep the door open so that the next generation of internet radio innovators can come into being, please, please, PLEASE call your Sentors and Representative and tell them to support the Internet Radio Equality Act. Tell Congress to resolve this issue for good, in a way that both makes sure performers get paid and still allows internet radio and community-based terrestrial radio broadcasters to defy both the major labels and the big broadcasting chains.

Stay tuned . . . .

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Tales of the Sausage Factory

Senators McCaskill & Klobuchar Understand The Biggest Problem in Telecom Policy: Changing How Policy Gets Made

If their performances at Tuesday’s Senate Hearing on Universal Service Fund Reform (USF) are any indication, I am definitely going to become a huge fan of Frosh Senators Claire McCaskill (D-MO) and Amy Klobauchar (D-MN). After listening to FCC Commissioner Deborah Tate (who chairs the Federal-State Joint Board on universal Service that oversees the Universal Service Fund) explain that USF reform has stalled because it has been impossible to get “consensus” from the industry “stakeholders,” Senator McCaskill said:

What you’re basically saying to us is the FCC is incapable of moving forward on reform unless all the people who are making money say it’s OK, and that’s hard for me to get my arms around.

Senator Klobuchar echoed similar incredulity and disbelief.

I hope these two maintain that sense of disbelief and outrage. Because the ideas espoused by Tate on the proper role of the FCC and Congress have become so embedded in telecom policy that even friends of the public interest take it as a given.

But hopefully, thanks to McCaskill, Klobuchar, and the other progressive “freshmen,” that may change.

More below . . .

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Tales of the Sausage Factory

Stevens Mark Up — Results

A tie on NN, which translates as a procedural loss (Stevens, as chair, got to break the tie and reject the NN amendment) but a political win. A surprise win on Low Power FM. A surprise minor win on media ownership. No changes on Section 1004, broadcast flag, munibroadband, or white spaces.

Despite the telcos advancing the ball forward, the 11-11 vote has made it very uncertain the bill the will advance to a full floor vote. You can bet the telcos will mount a full court press during the July 4 recess, so intensifying public input remains critical to killing the bill.

Details below.

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Tales of the Sausage Factory

Last week in CALEA

(And you thought I’d given up on anything but Net Neutrality, didn’t you?)

So last week proved a busy one for the Communications Assistance to Law Enforcement Act (CALEA). CALEA requires that anyone building a “communications network” build it in such a way that law enforcement agencies (acting pursuant to a proper warrant, of course), can monitor individual sbscribers/users. Last fall, the FCC extended CALEA to include broadband access providers and voice over IP (VOIP) providers. For various reasons, this pissed me off. Meanwhile, a group of folks including the Center for Democracy and Technology and EFF Petitioned the DC Circuit to declare that the FCC had overstepped its statutory bounds in extending CALEA in this way.

Last Wednesday, the FCC issued its Second Order on CALEA, basically affirming the First Order and giving some new details (or at least it will when the text of the Second Order is released). Friday, the FCC defended its First Order in court. Reflections of yr hmbl obdnt below.

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