Analysis

This study evaluates the estimated impact of the Federal Communications Commission’s recent efforts to remove barriers to investment into next-generation wireless and wireline broadband networks, and thereby to accelerate the transition from legacy copper networks to next-generation services.

We estimate that these proposed changes could have a significant impact not only on new wireless and wireline broadband infrastructure investment, but could also positively impact job creation, economic output and consumer welfare. Our models forecast that with these new rules in place, up to an incremental 26.7 million premises would become economical to serve with next generation networks, driving up to $45.3 billion in capital investment. This investment would be made by incumbent service providers across the country and is expected to take place over at least five years.

This reply to "The Curious Absence of Economic Analysis at the Federal Communications Commission" (Faulhaber, Singer, & Urschel, 2017) makes three claims.

First, we document the paper's undisclosed origins as a white paper commissioned by an advocacy group with deep ties to the telecommunications industry. Second, we describe two of the authors' active participation, on behalf of clients, in a range of contested issues before the FCC in recent years, none of which they disclose. Finally, our review of FCC workshops, roundtables, seminars, dockets and rulings—including during its landmark 2015 Open Internet Order and several blockbuster mergers and acquisitions—provides detailed evidence to refute the paper's core "curious absence" charge. The stakes could not be higher, we conclude, as the new FCC chair Ajit Pai has repeatedly referenced the paper to justify his rollback of FCC regulations—including, crucially, the common carriage/net neutrality rules so vigorously opposed by the paper's funders.

[Commentary] What is the role of cities in assuring that their residents have the affordable bandwidth necessary to thrive in the 21st century information economy? Municipal governments—more than other jurisdictions—will directly affect the cost of deploying fiber, the foundation for the abundant bandwidth that will serve next generation networks like 5G Mobile and the Internet of Things. Yet with a huge range of choices on how to influence their local broadband market, governments can struggle to understand how best to proceed. Into that breach arrives a new report entitled “Municipal Fiber in the United States: An Empirical Assessment of Financial Performance” by Christopher S. Yoo and Timothy Pfenninger of the University of Pennsylvania. Its stated purpose is to help municipalities by filling an “information gap by conducting a systematic analysis of every municipal fiber project in the United States.” Critically, the report concludes that the projects are money losers. I’m certain the report will provide sound bites for opponents of such projects. Unfortunately, for municipal leaders seeking a map for the path forward, it is both largely irrelevant and misleading. It’s a shame that the authors narrowly focused their gaze on Excel spreadsheets while ignoring how markets and communities are responding to the need for more abundant bandwidth. The report’s core message—which can be summarized as ‘let them eat DSL’—is one that does not deserve serious attention from cities.

Ever since Congress repealed the Federal Communication Commission’s broadband privacy rules, consumers have expressed outrage over their lack of privacy protections when accessing broadband networks. In response to the public outcry, members of Congress have introduced legislation to enhance consumers’ online privacy protections.

Thus far, Sens Ed Markey (D-MA), Richard Blumenthal (D-CT), and Reps Jerry McNerney (D-CA), and Marsha Blackburn (R-TN) have all introduced online privacy legislation. Each bill has strong components that provide various levels of online privacy protections for consumers. However, the three bills all have limitations that must be addressed to provide Americans all the privacy protections they deserve. Fortunately, the bills at least open the door to a discussion on what true comprehensive online privacy legislation should look like and what protections consumers expect when it comes to their online privacy.

Some of the nation's biggest Internet service providers are begging a court not to weaken the power of a major regulatory agency — the Federal Trade Commission — in a case that has implications for businesses and consumers nationwide and puts the companies at odds with another key industry player, AT&T.

The request earlier this week by Charter, Comcast, Cox and Verizon seeks to shore up the FTC's ability to regulate Internet providers, in a case about whether the FTC can punish AT&T for allegedly misleading consumers with its marketing of "unlimited" data plans. But the case also has other implications. It could create an undesirable regulatory environment for the companies, they say. "At first glance, [our] position might seem surprising — four leading corporations are arguing in favor of restoring the FTC’s authority to regulate," the ISPs wrote. They added: "If the FTC is divested of jurisdiction," the companies wrote, "it is likely that a variety of federal, state, and local government agencies that lack the appropriate reach, perspective, and experience … will attempt to fill the perceived 'regulatory gaps,' thereby creating a patchwork of unreasonable, duplicative, and inconsistent rules."

Google suddenly grew up at midday June 27 — and the way it conducts business in Europe and probably further afield will have to catch up fast.

Likely more important in the immediate future for Google, which rejects the findings and says it may appeal, the decision will serve as a model for regulators across the globe closely scrutinizing Google, from Seoul to Brasilia, and it will bolster those in the U.S. trying to prod domestic regulators into action. “As matters now stand, the Commission is the primary regulator of internet services in the Western world,” said David Cantor, a Brussels-based technology lawyer. In addition, the decision hurts Google’s otherwise stellar brand and reputation. Its “search franchise is built upon the notion that it is an honest broker of the world’s information,” said Scott Cleland, a founder of consultancy Precursor, an adviser to Google rivals and a trenchant critic of Google. That damage can work in significant and long-lasting ways. For example, Microsoft’s aggressive tactics and antitrust problems made it less attractive to some of the best engineers and university talent, who opted to join nicer companies — like Google.

[Commentary] Comcast and Charter are negotiating with Sprint to offer wireless services to their cable and high-speed internet customers. The real disruption may be how Sprint’s negotiations with the cable companies put a potential merger with T-Mobile USA in limbo. The parent companies of Sprint and T-Mobile, SoftBank of Japan and Deutsche Telekom of Germany, have been in negotiations to merge their American wireless companies. If Comcast and Charter are bidding for a stake in Sprint, then those Sprint and T-Mobile negotiations will be affected.

[Commentary] Sprint needs a deal. With a market value roughly equal to its $33 billion in net debt, a tie up may be the only way for Sprint to get the resources to invest enough in its network to remain competitive. A deal with cable would be bad for Sprint’s wireless competitors because it would reduce the likelihood of industry consolidation through the hoped-for merger of Sprint and T-Mobile . It also would lower the cost of offering wireless service for the two cable companies, further exacerbating wireless competition. The optimistic view is that Sprint is talking to the cable guys to get T-Mobile and its majority owner Deutsche Telekom to agree to a deal on more favorable terms.

[Commentary] Network neutrality rules are not the way to maintain a free and open Internet, according to Michael Katz, professor of economics and director of the Center for Telecommunications and Digital Convergence in the Haas School of Business at the University of California, Berkeley. Regulation never “levels” a playing field because that assumes we know the optimal balance between firms. We don’t, and if an optimal balance exists today it might be different tomorrow.

In this case, proponents believe tilting the field more towards edge providers is important for innovation. One problem with that belief, Katz argues, is that the Internet has never been neutral. For example, the Internet was designed in a way that “works relatively poorly for applications that are highly sensitive to packet loss and require very low latency (e.g., telepresence) and works relatively well for applications that require little bandwidth and are not time sensitive (e.g., email).” Another problem with the level playing field argument is that it should apply to many industries and services, not just the Internet. Yet, we know that paid prioritization has become crucial in other areas, like package delivery (think FedEx, UPS, or expedited shipping in e-commerce). Finally, the argument tends to focus on particular firms that might not do well with paid prioritization at the expense of consumer welfare. However, consumer welfare may be improved by new services that cannot currently exist, or must exist via workarounds that are not technically “paid prioritization.” The point is not that one of these necessarily outweighs the other, only that it is incorrect to automatically conclude that the net effect of paid prioritization is negative.

Twenty years ago, on June 26, 1996, the US Supreme Court unanimously decided Reno v. American Civil Liberties Union, which found the communications decency provisions of the Telecommunications Act of 1996 to be unconstitutional. Applying strict scrutiny under the First Amendment, the Supreme Court concluded that unlike broadcasting – where the Federal Communications Commission’s indecency regulation has been upheld due to the unique characteristics of that medium – no content regulation with a justification of online child protection would be allowed. This means that there continues to be no content restrictions on what American internet users can send or receive.

Viewed in contemporary context, two lessons from Reno v. ACLU endure. First, as a constitutional law matter, there is a firewall for US government restrictions on any non-obscene online content. In turn, this virtually unfettered freedom has fueled the pervasiveness of the internet in our lives. Remember, Facebook and the world of online apps – which now exceed websites as the go-to sources online – did not even exist then. Mark Zuckerberg was only 13 years old when the court decision was released, and other app content pioneers such as Snapchat’s Evan Spiegel were still in elementary school.

This leads to the case’s second legacy, which is more implicit but also of great importance. Given the continuing inability to predict the speed and scale of internet development or changing consumer preferences, there seems to be a subtext in that government may find it difficult to develop broad prescriptive long-lasting approaches to internet regulation. The FCC favored this ex ante approach when crafting the Open Internet order under the Obama Administration. Under new FCC Chairman Ajit Pai, the agency seems to favor a revision that limits government oversight to the Federal Trade Commission’s traditional enforcement authority. As the FCC compiles its rulemaking record to justify this significant change in approach, it would not be surprising to see the Reno v. ACLU decision used to support a return of this light-touch regulatory framework.