Scott Wallsten

[Commentary] The Federal Communications Commission is expected to release its draft Network Neutrality Order on Wednesday, November 22—just before Thanksgiving. This timing has created an uproar among some opponents of the Order, who claim that the timing is merely part of what is admittedly an unfortunately common strategy among governments to release unpopular news when it thinks the public is least likely to see it. In this case, however, the claim has several problems.

[Commentary] Federal Communications Commission Chairman Ajit Pai contends his proposed reforms to the Lifeline program will “more effectively and efficiently help close the digital divide by directing Lifeline funds to the areas where they are most needed.” Opponents, however, believe the proposed changes “will gut the program and continue to widen the digital divide.” The likely outcome, if the proposal is enacted as currently written, will be somewhere in between. Some of these proposed reforms are important, positive steps that will improve the Lifeline program’s efficiency.

The near-instantaneous response by supporters and opponents of Federal Communications Commission Chairman Pai’s proposal to roll back the Open Internet Order highlights two points. First, despite the hyperventilating and hand-wringing, this proposal surprised nobody. Everybody who follows the issue knew the moment Donald Trump won the presidential election that this day would come. Second, the arguments on both sides have all been made. Many times.

The FCC as an agency has a commitment problem. The fault does not rest with Chairman Pai, past-Chairman Wheeler, or any other commissioner. The difficulty of making credible long-term regulatory commitments exists across agencies and around the globe, has been studied extensively, and has no easy solution. New administrations will always have different sets of beliefs and agendas. One mechanism intended to help overcome the commitment problem is the presence of independent, expert agencies. In principle, an agency’s independence from short-term political pressures allows it to make decisions in a more technocratic nature. The more controversial the issue, however, the more difficult it will be for the agency to maintain its independence. Net neutrality seems to have become so controversial and so politicized that it is practically impossible for any Commission to credibly claim that its approach will survive beyond its own tenure.

The net neutrality issue has been with us for over a century in different guises and is unlikely to be resolved fully, possibly ever. But consumers and industry need the FCC to be able to commit to at least a general approach for regulating the Internet. The way to do it is by creating more analytical hurdles for the FCC to overcome in order to make changes and for Congress to set some principles for the FCC to follow.

[Commentary] The Holy Grail in cellular wireless broadband is a perfect substitute for fixed, wireline broadband. It’s already a substitute for some uses, meaning competition analysis should take into account this imperfect competition for policymaking purposes. But the technologies are not yet substitutes for most households. Verizon’s recent (re-)introduction of its unlimited data plan, however, suggests that day may be in sight. While history never provides a perfect analogy, let’s take a step back in time to the days of in-country roaming and long-distance wireless charges. (Like cavemen, we were in the 1990s!)
[Scott Wallsten is President and Senior Fellow at the Technology Policy Institute.]

[Commentary] A cost-effective subsidy program should provide funds first where they will yield the largest bang for the buck and last where they yield the smallest. In this case, the government would define the network services it believes everyone should have (hopefully based on a careful analysis of both supply and demand information) and geographic areas it wants covered, and ask companies to say the size of the subsidy they would need to build out in those areas. A group of 71 economists signed a letter in 2009 encouraging this type of approach. It would then be possible to make an objective choice about which projects receive subsidies and which do not.

We should take this opportunity to rethink universal service and implement new ways of promoting coverage where it does not exist so that it benefits consumers, not just rural Internet service providers.

[Scott Wallsten is president and senior fellow at the Technology Policy Institute]

The rash of fantastical, untrue stories circulating on social media during the 2016 presidential campaign yielded the phrase “fake news” along with attempts to tackle the problem. One possible outcome of this phenomenon is people becoming more skeptical of news in general. On the one hand skepticism is healthy by making people less gullible. On the other hand, certain people exploit the problem by crying “fake news” as a response to any story or argument with which they disagree, potentially decreasing trust in reputable sources.

I find that the higher the share of people in a state who voted for Donald Trump, the more likely they were to search for the phrase “fake news” in Google before the election and the less likely they were to search for it after the election (and vice-versa for the share of Hillary Clinton voters in a state). The results are consistent with Trump voters being more concerned about “fake news” prior to the election and Clinton voters being more concerned about it after the election. One interpretation of these results is that people are more suspicious of news when it is not consistent with their point of view.

[Commentary] New Federal Communications Commission Chairman Ajit Pai has taken it on the chin recently, which should be expected considering that many of his views run contrary to the previous chairman's. But much of the criticism is overwrought.

Some aspects of his first few weeks were positive. Increasing transparency in the agency's rule-making processes is long overdue. New ideas on closing the digital divide should be considered, hopefully with an eye toward cost-effectiveness. On the more negative side of the ledger, however, the process by which the chairman took certain actions as well as retracting certain reports were not in keeping with promises to be more inclusive than his predecessor. Hopefully, in the future, Chairman Pai will better engage other commissioners. Doing so would help promote good telecom policy and ensure the success of his long-term agenda.

[Scott Wallsten is president and senior fellow at the Technology Policy Institute]

[Commentary] After Stage 4 of the incentive auction, broadcasters asked for $10 billion to clear 84 MHz of spectrum—down from $86 billion to clear 126 MHz in Stage 1. Assuming that wireless providers will bid enough to allow the auction to close, FierceWireless noted, “that would bring a disappointing end to an auction that once was predicted to generate $60 billion or more…” Disappointment, however, is all a matter of expectations, and expectations for this auction had become unrealistic by the time it began last year. In reality, spectrum bids in the forward auction have been approximately in line with prices and expectations prior to the 2015 AWS-3 auction, which yielded prices more than twice what analysts had expected.

The lower-than-recently-expected revenues bears little relationship to whether the auction should be called a success. But the long time-frame from proposal to auction creates costs by keeping that spectrum otherwise tied up. It is time for the Federal Communications Commission to consider overlay auctions and other property rights-based options for ensuring spectrum is deployed in ways that create the most benefits.

[Scott Wallsten is an economist with expertise in industrial organization and public policy. He is also a senior fellow at the Georgetown Center for Business and Public Policy.]

This paper lists policies and principles we believe will promote innovation and allow the U.S. to maintain its technological leadership.
Recognize that the Unique Nature of Innovation Requires Global Linkages and Sufficient Investment in Research and Development
1. Enable the free movement of workers, investment capital, and information across borders to help ensure that resources are used efficiently. This will spur technological progress because innovation is a global phenomenon.
2. Maintain U.S. technological leadership by providing sufficient resources for our research institutions, including universities, national laboratories, NIH, NSF, and corporations. Focus public R&D spending on areas the private sector is least likely to fund—fundamental or basic research is more likely to fall into this category than is research aimed at commercialization.
Make Evaluation Fundamental to Proposed Programs
3. Evaluate programs rigorously to determine whether they are achieving their intended objectives in a cost-effective manner. Integrate evaluation criteria and methods into program design. Do not penalize agencies for finding that a program doesn’t work.
Encourage Innovation and Investment in ICT
4. Move away from public utility type regulation of broadband. Use antitrust enforcement based on sound economic analysis to address competition issues in the communications sector.
5. Allow innovative business models, a defining feature of the Internet economy, including ones based on price and non-price differentiation without requiring regulatory approval.
6. Streamline processes for making spectrum available, including by moving it from government to non-government control. Allow flexible uses for all spectrum licenses and continue to make them easier to trade. Develop economics-based criteria for allocating spectrum between licensed and unlicensed.
7. Recognize that 100 percent broadband connectivity is aspirational, but not realistic. Funds intended to boost broadband deployment should be distributed in ways that will generate the largest bang-for-the-buck, such as reverse auctions.
8. Adopt coherent privacy rules based on cost-benefit analysis and apply them consistently across the economy.
Promote Cybersecurity
9. Ensure that incentives are properly aligned for the private sector and government to implement effective cybersecurity procedures.
Ensure that Intellectual Property Rights Increase Innovation and Social Welfare
10. Ensure that intellectual property rights policies promote innovation and creativity and base reforms on sound data and analysis.

[Commentary] President-elect Donald Trump wants $1 trillion to be spent on infrastructure projects, but he doesn’t want the government to be the one spending it. So he is proposing a scheme based on tax credits intended to stimulate private investment.

The projects will then repay the cost of the tax credits through “incremental tax revenues that result from project construction in a design that results in revenue neutrality,” as Peter Navarro explains. He goes on to claim “Two identifiable revenue streams for repayment are critical here: (1) the tax revenues from additional wage income, and (2) the tax revenues from additional contractor profits.” The problem with Navarro’s logic is that he ignores a fundamental part of economics: opportunity costs. First, he assumes the people who work on the project would have been unemployed or for other reasons paying no taxes if not for the Trump plan. To the extent they were already employed and are working on Trump-plan projects instead of something else, then their tax payments are not incremental. Second, he assumes that contractors would be less profitable without the plan. That could be true if they would not have had work or if the plan allows them to charge more than they would have otherwise.