Tales of the Sausage Factory

So What's Up With That FCC Investigating Apple and AT&T Blocking Google Voice — Oh Wait, They Aren't . . .

So while I was gone, Apple and/or AT&T turned down Google’s effort to get a Google Voice Application certified for the iPhone, so the FCC launched an investigation into the matter.

Except they didn’t. Not exactly. Which is extremely important on the delicate question of FCC authority. Actually, the FCC invited three companies involved in a very high-level spat on an issue pending before the FCC in two proceedings to provide them with useful information on how the market actually works.

I know, I know, this is all boring legal stuff that folks who care just about outcomes hate with a passion — or think is just cheap legal handwaving. But these things matter, both as a matter of law and and as a matter of policy. The fact is that the FCC is very carefully not exercising authority over anyone. The companies don’t even need to respond. However, if they fail to respond, they invite the FCC (and the rest of us) to assume the worst. Because allowing industry folks to foreclose needed agency action by simply refusing to provide necessary information is a crappy outcome we’ve lived with for the last 8 years (longer, really). Far smarter to invite industry folks to respond to questions, but decide that at some point you need to move with the information you have. Heck, if the FCC pulls that trick only once, I bet we’ll see lots more folks with relevant information willing to come forward.

So while I expect lots of folks to yammer about FCC authority on August 21 when the answers are due, they’ll be barking up the wrong tree. Won’t stop ’em, of course. But for those who would like a sense of what is actually going on from a legal/regulatory authority angle —

More below . . . . .

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Tales of the Sausage Factory

Why Lary Lessig's FCC Reboot Will Crash.

On of my favorite die-hard Libertarian writers these days is David Friedman. Part of that is because we have known each other 20 years or so (albeit in a somewhat different context), and it is in part because if he can teach law and economics without either a law degree or economics degree, I can do law and economic policy without a degree in economics (I do have a law degree). But the real reason is because Friedman actually makes the argument for Libertarianism in his new book Future Imperfect that I think is the strongest argument and that no one in policy land ever has the guts to make. Friedman argues that while you may get utterly wretched results from a deregulated market and no regulatory authority, you have a better chance of getting a good result than if you centralize the decisionmaking in a government agency.

I happen to think David is wrong about which process will make worse decisions, but I think his approach is basically correct. As regular readers know, most free market enthusiasts I encounter in policy land insist that deregulation is the pathway to salvation and that while regulation will always prove disastrous in the end, the true path of deregulation will only bring joy and happiness. Simply let the market be, and the Competition Fairy will bring wonderful low prices and innovative new services to market. Try to regulate, and the Blessed Competition Fairy will turn her face against you and smite you with higher prices, worse service and a plague of villainous bureaucrats. So finding a Libertarian willing to admit that we may actually end up with crappy outcomes in a deregulated world — even if he thinks deregulation improves the odds for a better outcome — is rather refreshing.

I agree with David that we live in a messy world where we will have a lot of problems and crappy outcomes no matter what we try. But for a lot of reasons I have gone on at length about elsewhere, I think we will end up with at least a chance for better outcomes if we have regulatory structures in place that provide needed oversight and protection against the inevitable exercise of disproprtionate power and information asymtery that promotes real bad outcomes (like, say, a total meltdown of the financial markets). Sure, things can go very badly wrong with a regulatory regime. The problems of agency capture by incumbents and the cost of regulation are real. But using real economics to look at how markets behave tells me I’m screwed for sure if I embrace the Libertarian approach, whereas trying to come up with a well constructed regulatory scheme gives me a fighting chance of actually getting good results from time to time.

I indulge in this lengthy preamble to set up my primary argument for Larry Lessig’s piece in Newsweek to abolish the existing FCC an replace it with an innovation environmental protection agency (iEPA). Larry believes the iEPA, free of the 1930s ideology of regulated monopoly that shaped the FCC’s underlying statutes and designed to encourage innovation, would end up producing superior policies that would do things like encourage new uses of spectrum against the wishes of exclusive licensees, protect us from abuse of market power by enforcing network neutrality rules in a fashion similar to the Comcast/BitTorrent complaint, without stifling everything in tariffs and restrictions that incumbents can manipulate as they have throughout the FCC’s 70 year history.

Maybe. But I think it more likely things would turn out like they did with ICANN. Despite moving management of the DNS out of government into a non-profit supposedly managed by engineers and limited to “voluntary coordination” and “bottom up processes,” ICANN has proven as prone to abuse and capture by incumbents as any federal agency — possibly more so because it lacks judicial oversight or mandatory procedural safeguards (it has adopted some, but they are ultimately voluntary). As I observed in my last post, ICANN didn’t end up like it did because it was designed by bad people. It happened because we live in a messy world and expecting that good intentions and trustworthy actors with the best interest of the “Internet community” at heart could magically overcome the realities of stakeholder incentives and econonmic and political realities is as much a fantasy as the Gods of the Marketplace and the Competition Fairy.

I’m also frankly not so convinced that the FCC we have is such an awful thing. Sure, I can think of a lot I would change if I ran the zoo — both in terms of underlying statutes and how the FCC operates. And I get Larry’s point about how the “DNA” of an agency effects what it can and can’t do. But I also think the FCC has become the thing everyone loves to hate in telecom land, with that delightful air of sophistication when everyone important agrees that it is so obvious that things are wrong that no one could seriously defend the FCC and the only real question is how to fix it and whether it is politically possible to fix. But we in policy wonk land tend to focus on a handful of hard issues where anyone of us, given the power of philosopher king, could naturally make a better job of it. We ignore that most of the business of the FCC is pretty prosaic — such as certifying devices under Part 15, processing requests for license modifications, investigating slamming complaints — and that the rank and file employees at the FCC do their jobs with the same reasonable assortment of hard workers, slackers, geniuses, morons and just plain folks as found in any other corporate headquarters. And while few folks these days think much about such archaic things as tariffs and ensuring that rates for basic voice service are just and reasonable, a lot of us would notice if even the minimal levels of regulation left suddenly vanished. Transforming the FCC’s policy functions to be about “promoting innovation” rather than regulating government monopolies might seem real attractive to us in wonkland, but the actual functions of the FCC need to happen somewhere — and I am fairly certain that outsourcing them or eliminating them are not magic tickets to the Land Flowing With Milk and Competition promised by the Holy Prophets from the University of Chicago.

Finally, I grant Lessig’s point that underlying statutes — the regulatory DNA — matter. It made all the world of difference when we changed the Atomic Energy Commission with its role of promoting nuclear power to the Nuclear Regulatory Commission with the job of making sure nuclear power plants were safe. But even in its fundamental statutes, I think the FCC does better than most people credit. For one thing, I think the fact that the FCC is an independent agency with members of both parties making decisions is a criticaly important safety mechanism for the agency that controls how we receive news and communicate with one another. Given how the Bush Administration has used the IRS and the DoJ to intimidate political opponents, the Office of Management and Budget to veto regulations it doesn’t like, and the Government Services Administration to award patronage and further political ends with a blatancy not seen since we abolished the “spoils” system, the fact that the Commissioners are immune to direct political influence by the President is not nearly so trivial a matter as cynics like to presume. I also think the FCC has alot of good, progressive stuff in its DNA that — all too often — gets lost in implementation. Look at Section 1 of the Act, which talks about developing a state of the art communications system by wire and wireless accessible to all people of the United States regardless of race or gender, or Section 257 reaffirming the purpose of the policy of the United States “favoring diversity of media voices, vigorous economic competition, technological advancement, and promotion of the public interest, convenience, and necessity.” Or Section 201 and 202, declaring all unreasonable discrimination or unreasonable practices in deployment of communications services illegal.

Yes, the FCC was born in an era when it seemed communications was about regulating government monopolies. But it was also born in a a progressive era when Congress understood that government had a role in protecting everyday citizens from the abuse possible in an unregulated market, and that government had a role in ensuring that everyone benefited from advances in communications technology and had access to vital services. Those aren’t bad building blocks for creating a telecommunications regulator that will encourage innovation and prevent a few huge companies from exercising market power.

So, contrarian that I am, I think that for our messy complicated world, the FCC muddles through pretty well, all things considered. It gets more right than wrong in its underlying DNA, and many of its problems come from nature, not nurture. We cannot hope to cure the underlying problem that people often make bad decisions when confronted with complex problems, because it derives from the overall messiness of the world. Rather than try to create an iEPA that will have its own problems, why not make the FCC we have work right. Yes, the old philosophy that Congress should delegate to an expert agency that would somehow resist human weakness and make decisions based only on merit — or even that all reasonable people could agree on the “right” expert answer — now seems hopelessly naive. But the notion that we should junk the whole flawed apparatus because “the market always knows better than some elitists in Washington” has proven equally naive.

Rather than try again to create some perfect system that will always produce the right answer, I say stick to the more realistic goal of making the current FCC work better. With the political winds shifting back in line with the FCC’s more progressive DNA, let’s seize the day and make what we have work for us. It’s fun to blame the FCC for all that’s wrong in the world, and imagine that we can set up some kind of philosopher king who will make only good regulations that neither “favor incumbents” nor “impose undue regulatory costs.” But I think that is about as likely as the Competition Fairy.

Stay tuned . . . . .

Posted in Life In The Sausage Factory, Tales of the Sausage Factory | Also tagged , | 7 Comments (Comments closed)

Econoklastic

Lies, Damned Lies, and Understatements

The cable industry is running scared in the face of FCC Chairman Kevin Martin demanding a vote certifying that the cable industry has met the 70/70 test.  This test gives the FCC greater regulatory authority once cable is available to seventy percent of American households and seventy percent of those households subscribe to cable.  This is clear from the way the cable industry has pulled out all stops to avoid the finding, even persuading Warren Communications News to discredit its own Television and Cable Factbook, claiming that there are technical reasons for regarding it as unreliable.

It’s worth quoting the remarks of the managing editor of Warren Communications News’ Television and Cable Factbook to Communications Daily (also owned by Warren) on the subject:

‘The figures from the Television and Cable Factbook aren’t well suited to determining whether the threshold has been met, said Managing Editor Michael Taliaferro.  Taliaferro said Factbook figures understate the number of homes passed by cable systems — and the number of subscribers — because not all operators  participate in its survey.  “More and operators are just not giving up” those numbers, he said.  “We could go with two dozen footnotes when we start to report this data.”  Cable operators participating in the Factbook survey said they passed 94.2 million homes and had 67.2 million subscribers.

‘The FCC official who asked him for the cumulative figure didn’t say how it would be used, Taliaferro said.  If he had known, he would have provided a list of caveats, he said.  “It would have been a very lengthy email,” he said.  Taliaferro said he did point out the shortcomings in a phone conversation with the FCC official but didn’t put it in writing because he wasn’t asked to.  “I had no idea what they were doing with it.”’

Taliaferro, who relies on cable industry data to put out the Factbook, clearly came under a lot of pressure from the industry to badmouth his own data, but even then he didn’t get the job done.  If the problem is understating number of households passed and number of subscribers because cable operators refuse to provide the data, as Taliaferro suggests, then Warren’s Television and Cable Factbook must understate the number of households passed and subscribers.  This means that the real numbers — the numbers we’d have if all the cable providers coughed up the data — have as a matter of mathematical certainty to be greater than 70% coverage and 70% subscription.  Taliaferro, attempting to please the cablecos, has in fact given evidence that the Warren figure of 71.4 percent of homes having gotten cable as of October 10, 2007 has to be an understatement of the reality.

The only way the Warren data could fail to support invoking the 70/70 rule would be if cable providers systematically over-reported the number of households covered and number of subscribers.  And they’d have to be crazy to do that, since they want to avoid regulation at all costs.  I know from personal experience that the cablecos lie to avoid regulation.  It was patent from data submitted by Comcast and Time Warner in connection with the Comcast-Time Warner-Adelphia transaction that Comcast tried to circumvent the 30% cable ownership cap by submitting year-old data for some affected DMAs while Time Warner submitted current data. (You can see where I called them out on this in my expert submission on MAP’s Petition to Deny.)

This is why Warren is so desperate to sow confusion about its own data.  The Nielsen and Kagan numbers (which are lower than the Warren numbers) are estimates.  The cablecos don’t share nearly as much proprietary data with Nielsen and Kagan as they do with Warren, which is regarded as a safe, cable-friendly trade press outlet.  When Warren shared the data with the FCC, the footnote they neglected to provide with it should have read: “Don’t use this data for regulatory purposes because it will make the people who gave it to us very cranky.”  Hence the attempt on Warren’s part to cover up the embarrassing bits like a stripper at a police raid — by misdirection.

It’s also significant that two Republican FCC Commissioners, Deborah Tate and Robert McDowell, have made a huge  deal out of this non-story by writing to Taliaferro that “We wanted to take this opportunity to ensure that at least these two Commissioners are indeed seeking the trustworthiness, truthfulness, and viability of the data in question.”  Either they don’t understand what the mathematical meaning of the understatement by cable operators is, or they’ve decided to play cableco sock-puppets.  I’m hoping for the former, but I’m betting on the latter, athough I’d like to give them the benefit of the doubt.

In addition to voting the 70/70 finding on a 3-2 with Chairman Martin and the two Democrats forming a majority for real regulation of the cable industry, Chairman Martin should put forward a regulation requiring that the cablecos provide detailed coverage and subscription data publicly to the FCC on an annual basis, certified by the CEOs of the cablecos under penalty of perjury.  If Tate and McDowell vote for a rule like that with real teeth to keep the cablecos honest and provide the necessary data to the American people, then they really are concerned with the accuracy of data.

If they don’t, we need to ask whose hand is up the puppets’ arses.

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Tales of the Sausage Factory

Legal Cell Phone Blocking? Cell Phone Blocking Paint and the FCC.

TMCnet reports that a company called NaturalNano has developed a paint that blocks radio waves. The paint contains nanotubes with copper cores that block radio waves of all frequencies. The article says they will market it as a cell phone blocker, but one blogger has already suggested that those anxious about leaking wifi access paint their homes with it.

But is it legal? My first reaction was “yes.” But now I’m not so sure.

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Posted in Spectrum, Tales of the Sausage Factory | Also tagged , , , | 5 Comments (Comments closed)
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