Thomas Lenard

In these comments we explain why Title II classification is unnecessary and potentially harmful.  Specifically, we make the following points: 

[Commentary] Federal Communications Commission Chairman Ajit Pai is moving rapidly to resolve the net neutrality mess bequeathed to him by his predecessor, a complicated task under the best of circumstances. In addition to its more obvious benefits, however, this effort offers an early opportunity for the FCC to showcase the chairman’s plan to institutionalize the role of economics in agency decision-making.

The commission has never subjected any of the “net neutrality” options it has considered over the course of many years to a cost-benefit analysis. In its new notice of proposed rulemaking, the FCC proposes to correct that omission.

[Thomas M. Lenard is a senior fellow and president emeritus at the Technology Policy Institute]

[Commentary] The Federal Communications Commission needs some structural reform. In particular, it should create an Economics Bureau tasked with conducting economic analyses of proposed rules, mergers, and other important actions, much like the Bureau of Economics at the Federal Trade Commission.

This is not a radical proposal. In addition to the FTC’s Bureau of Economics (with 78 PhD-level economists), the Department of Justice has an Economic Analysis Group within the Antitrust Division and the Securities and Exchange Commission has a Division of Economic and Risk Analysis. The FCC has no such group, although it is largely concerned with competition and consumer protection and has a similar need for economic analysis to inform its decisions. By creating an Economics Bureau similar to the FTC’s, the commission can institutionalize the role of economics. The FCC leadership should ensure that its Economics Bureau is involved in all major issues, including significant enforcement actions, and can submit its analyses directly to the commissioners to be considered alongside the recommendations of the other operating bureaus. And the FCC should require that a preliminary cost-benefit analysis be completed and put out for public comment at the same time as the corresponding notice of proposed rulemaking. Executive branch agencies operate this way; there is no substantive reason independent agencies should behave differently.

[Lenard is senior fellow and president emeritus at the Technology Policy Institute]

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] The Federal Communications Commission under President-elect Donald Trump is likely to take a hard look at network neutrality and the reclassification of broadband as a Title II common carrier service. Repealing a regulation so recently blessed by the Court of Appeals may, however, be a lengthy and difficult process. The Internet Service Provider (ISP) privacy regulations pursuant to the Title II reclassification may be more readily overturned because no court has yet ruled on them. But that would still take some time.

In the interim, the new FCC should adopt a more rational enforcement policy. One early candidate should be the treatment of "pay-for-privacy" or "financial incentive" plans. These are broadband service plans that offer discounts to subscribers who permit their ISP to collect and use their data. The new FCC privacy regulations suggest an enforcement policy that will actively discourage these plans, notwithstanding FCC Chairman Tom Wheeler's claim that, "The bottom line is that it's your data. How it's used and shared should be your choice." Left unsaid was that he prefers some choices to others.

[Thomas M. Lenard is senior fellow and president emeritus of the Technology Policy Institute.]

[Commentary] The pending transition of the Internet Corporation for Assigned Names and Numbers (ICANN) away from US government oversight has involved in-depth discussion about how to maintain an open Internet free from government control. What has received considerably less attention in these discussions is how ICANN has performed while under US oversight—especially as a regulator. This lack of attention can partly be attributed to ICANN’s insistence that, as its president Göran Marby said at a Senate hearing recently, “ICANN is not a regulator.” Perhaps not officially, but what ICANN actually does is indistinguishable from a regulatory agency.

ICANN, however, is a regulator with a difference. It is not a government agency, but rather a private-sector corporation that is and will continue to be subject to US antitrust laws whether or not its tie to the US government ends. The presence of antitrust oversight is a good thing. So, as the clock winds down on ICANN’s contractual relationship with the US government, it is important to ask how well ICANN is performing its regulatory functions. Using the standard criterion for regulation—promoting competition and consumer welfare—it would appear that the US antitrust agencies could provide ICANN some beneficial oversight.

[Thomas M. Lenard is a senior fellow and president emeritus at the Technology Policy Institute. Lawrence J. White is professor of economics at the NYU Stern School of Business.]

[Commentary] The middle ground is not as safe as it might seem. The three options available to the Federal Communications Commission in the open Internet debate can broadly be characterized as light, medium and heavy regulation.

At least two of the three main provisions of the FCC's "medium" regulation proposal have the potential to be quite harmful. The first involves "transparency." Mandated price disclosure helps facilitate cartel behavior.

Second is the prohibition against "commercially unreasonable" practices. The commercially unreasonable standard, particularly in combination with the detailed disclosure requirements, risks generating a steady stream of complaints from interested parties.

[Lenard is president and senior fellow of the Technology Policy Institute]

[Commentary] With the decision to transition away from US control, addressing Internet Corporation for Assigned Names and Numbers (ICANN)’s longstanding accountability and "legitimacy" issues becomes even more pressing. If ICANN is not accountable to the US government or to other governments, to whom will it be accountable?

The Internet Corporation for Assigned Names and Numbers, a non-profit, places a great deal of emphasis on obtaining input from the Internet "community," but in the end, it is ICANN's board that makes the decisions. That board has no external entities to which it is accountable. Meaningful accountability requires meaningful external checks, and virtually all major organizations are structured so as to be externally accountable. ICANN has no shareholders, members, or donors. The most direct way for ICANN to be externally accountable is to modify its governance structure so that board members, or at least a significant number of them, are accountable to external groups.

Our research shows that many organizations with coordination functions that are similar to ICANN's are governed by their direct users, who have a strong interest in the organization doing its job effectively. The direct users of ICANN include:

• "Registries," which are companies that coordinate gTLDs, such as .com, .edu and .org;
• "Registrars,” which register the second-level domain names that we all use, such as aol.com; and
• Regional Internet Registries (RIRs), which are responsible for distributing numeric Internet Protocol (IP) addresses that are needed for the Internet to work.

In sum, as part of this transition, the issue of ICANN external accountability urgently needs to be addressed. We believe that our suggested system of accountability to ICANN's direct users would be the best way to move to the next phase of Internet governance.

[Lenard is president and senior fellow at the Technology Policy Institute; White is a professor of economics at New York University's Stern School of Business]