American Enterprise Institute

[Commentary] It is far too early to predict with certainty which issues will be the focal point of regulatory scrutiny of the AT&T/Time Warner merger. But based on the issues flagged in the Comcast/NBC proceeding, one can expect that regulators will at least ask about the following topics:

Nondiscriminatory access to programming: Many of the conditions placed on the NBC transaction involved Comcast’s commitment to allow rival cable operators and potential online video distributors access to Comcast-owned content. One can imagine regulators will discuss similar conditions to assure that AT&T’s library of content post-transaction will not remain the exclusive prerogative of AT&T customers. It’s important to note that, independently of any merger conditions, the Federal Communications Commission’s program access rules give the agency jurisdiction to investigate such conduct if a cable company complains.

Management of Hulu: Although the transaction is primarily vertical, there is one potential anticompetitive wrinkle. Time Warner has a 10 percent stake in Hulu, which potentially competes with AT&T U-Verse, DirecTV, and the company’s proposed DirecTV Now virtual cable offering. In the NBC case, regulators required Comcast to be a silent partner with regard to its 33 percent stake in Hulu, out of fear that Comcast would steer Hulu in ways that limited competition. The Justice Department is likely to ask similar questions with regard to AT&T’s exercise of its shares as well.

Zero-rating of Time Warner content: The FCC conditioned its approval of the Charter-Time Warner Cable merger on the company’s commitment to avoid usage-based pricing. Given the heat and light about this issue, one might anticipate regulators to explore whether AT&T would be permitted to exempt Time Warner content from monthly wireless data caps. Such agreements might raise anticompetitive concerns, although I have written before that these concerns are probably overblown, particularly in today’s competitive wireless marketplace. Nonetheless, regulators are likely to consider this issue as part of their overall regulatory approval.

[Daniel Lyons is an associate professor at Boston College Law School]

[Commentary] The Federal Communications Commission’s recent report, Empowering the 21st Century Consumer, outlines “recent actions that the FCC has taken to protect consumers while promoting the competition and ingenuity that keep our markets thriving.” The report, which grandstands on questionable and litigated FCC rulemaking and enforcement actions, appears to be timed with the FCC’s next open meeting, when the agency will vote on controversial online privacy rules. On page 3 of their report, the FCC claims that “protecting consumers is part of its DNA.” Similarly Chairman Wheeler announced in an op-ed timed with the release of the report that “We’re here to reinforce consumer rights.”

However, a review of the FCC’s rules and the 1934 Communications Act that founded the agency shows that consumer protection was not a base concept of the agency at all. At best, one could argue that this concept has evolved as a (quite liberal) interpretation of the FCC’s mission. At worst, it’s a statement the FCC makes up to justify rulemaking which is otherwise not part of their mission — perhaps even unlawful. While the notion of consumer protection is sovereign, the FCC does not conform to any such consumer bill of rights. Rather, the agency seems to define “consumer rights” to suit its preferred policy outcomes.

[Layton is a PhD Fellow at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark.]

[Commentary] As Wired magazine put it, Oct 21’s distributed denial of service (DDoS) attack on Domain Name System provider Dyn was “a definite reminder of the fragility of the web, and the power of the forces that aim to disrupt it.” The fact that we haven’t experienced a serious kinetic-effects attack does not mean one is not coming or that we are prepared for it if it does. As National Security Agency's Curt Dukes noted, not one of the attacks in the past 24 months (OPM, the Democratic National Convention hacks, and so forth) has involved use of a “zero day” exploit — the most potent and unpredictable kind of cyberattack, because it involves a software vulnerability that has not yet been discovered or used. They have all been carried out using more mundane, well-understood vulnerabilities.

What would it mean to take cyber power more seriously? Earlier this year, AEI published a report on An American Strategy for Cyberspace, which I coauthored with other AEI scholars. Our recommendations included being more willing to retaliate against cyberattacks when they occur, loosening the reins on government’s use of active defense, and if the stakes merit it, even taking preemptive action. Whatever the details of the solution, the time has come to realize that cybersecurity is no longer just about embarrassing e-mails and lost credit card numbers. In today’s world, cyber power has the capacity to cripple infrastructures, disrupt economies, enable deadly terrorist attacks, and profoundly threaten America’s national security. We ought to be taking it more seriously than we are.

[Commentary] The Federal Communications Commission under Chairman Tom Wheeler has come under increasing fire for suppressing economic analysis and being politically driven. In effect, we have not had an FCC for the past three years, at least not in the way the agency was intended to operate. So that raises the question: Do we really need the FCC? The answer is “no, but yes.”

There seem to be three reasons why we still have the FCC. One is inertia: Dissolving a federal agency is a large task and Congress often has higher priorities. Second, the FCC is valuable to businesses and interest groups that are benefitting from its activities: The recent work on network neutrality, business data services, and set-top boxes are bestowing benefits to some segments of the industry at the expense of other segments, and at the expense of customers, who ultimately bear the brunt of regulatory rent seeking. The FCC’s universal service subsidies have, for example, delivered profits to numerous telephone companies over the years. And the cottage industries formed in support of net neutrality, set-top box regulation, and universal service policies employ a large number of people. The third reason we still have an FCC appears to be that it is important to keep radio spectrum allocation independent of day-to-day political pressures.

[Jamison is director and Gunter Professor of the Public Utility Research Center at the University of Florida and serves as its director of telecommunications studies.]

[Commentary] Now that Brexit is underway, maybe we can ask the Brits to help us with some of our own independence problems. In particular, could we get some guidance on how to make the Federal Communications Commission more independent and substantive? Can we reform the FCC without losing its world-class talents? Yes. The problem appears to be largely governance.

Taking lessons from the Brits (and others), a new governance model would have a small executive team that is responsible for carrying out the work of the agency, subject to a board made up of economists, accountants, engineers, social scientists, and business persons whose professional loyalties are to their professions, not politics. As with today’s commission, the board would be held accountable by courts, administrative procedures, and congressional oversight, and members would serve staggered terms and could not be removed without cause. A key difference would be selection: Appointments would be made by a joint committee consisting of equal numbers of Republican and Democratic members of Congress, board members, and representatives of academia and business. It appears that regulation by president-appointed commissions is an idea whose time has passed in the US. If we make effective reforms, maybe the US can once again become a world leader in effective regulation.

[Mark Jamison is the director and Gunter Professor of the Public Utility Research Center at the University of Florida and serves as its director of telecommunications studies.]

[Commentary] The Federal Communications Commission’s open Internet rules address free data and zero rating on a case-by-case basis. The Body of European Regulators of Electronic Communications’ (BEREC) non-binding guidelines for implementing network neutrality in the European Union also support this approach. While case-by-case assessment may be a workable solution for zero rating, it is not unproblematic. Allocating scarce regulatory resources and selecting the forum in which the analysis takes place is not straightforward. Given the dearth of academic literature on the topic, here are four questions to help regulators assess the economic merits of specific zero rated offers and to prioritize whether a given zero-rated offer warrants scrutiny.

1. What perfect or very close substitutes would the zero rating offer foreclose?
2. Is the zero-rated offer intended to increase the number of individuals using the Internet?
3. Which party makes the zero rating complaint?
4. Is free data being used to lower consumers’ search costs, thereby boosting competition?

[Roslyn Layton is a PhD Fellow at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark. Bronwyn Howell is a faculty member at the School of Management, Victoria University of Wellington, New Zealand.]

[Commentary] No good deed goes unpunished. Try giving away free stuff to consumers, and Washington gets very suspicious. Especially if it involves Internet content. We’ve talked a lot about the case of “zero rating” or “free data,” the practice of exempting certain content from data allowances on mobile broadband plans. Free data can be thought of like toll-free 800 numbers or even simply as advertising. Early examples are T-Mobile’s Binge On and Verizon’s FreeBee. AT&T and Comcast have similar programs, and Facebook famously offered a mobile plan called Free Basics in India before the government there shut it down.

Unlike India, the Federal Communications Commission (FCC) has not yet prohibited free data in the US. But the agency has been investigating the practice for 10 months, so far without resolution. Still, according to FCC Commissioner Michael O’Rielly, the FCC inquiry itself has led companies to keep free data offerings on the drawing board, not in the marketplace. Not to be outdone, the Department of Justice (DOJ) is threatening to shut down the University of California-Berkeley’s free online educational offerings. In an investigation unrelated to free data, DOJ says Berkeley’s numerous and heterogeneous online courses don’t comply with the Americans with Disabilities Act and must be fixed or taken down. DOJ claims the multitude of free course videos don’t all contain proper captioning or sound or video quality.

[Bret Swanson is president of Entropy Economics LLC]

[Commentary] Recently, all five Commissioners of the Federal Communications Commission yet again found themselves facing tough questions in a Senate oversight hearing which highlighted the partisan nature of policymaking at the FCC.

The hearing highlighted the continuing soap opera regarding whether or not FCC Chairman Tom Wheeler will step down (as is customary when a new president takes office), and whether Commissioner Jessica Rosenworcel will be re-confirmed (a quid pro quo promised to get Republican Commissioner Mike O’Rielly on board). The political reality of the commissioner appointment process is at odds with the very premise of an expert, independent agency. It demonstrates that the so-called independent expert agency is subject to the same jockeying and gerrymandering as politics itself. Given the political nature of the FCC’s leadership, it may come as little surprise that the agency has difficulty accomplishing even the most basic function of telecom regulation: collecting information.

The FCC’s disregard for information requests also extends to the public. Two years ago, the Washington Post reported that in the run-up to the September 15th deadline for comments in the open internet rulemaking process, “grass-roots activists and staffers inside the FCC worked together, hour-by-hour” in an “unusual collaboration” to keep the FCC’s information technology systems running.

[Roslyn Layton is a PhD Fellow at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark.]

[Commentary] The Federal Communications Commission (FCC) is the embodiment of the Progressive and New Deal era ideals from which it was born. Under Tom Wheeler’s leadership, it has consistently championed progressive policies supported and advanced by progressive advocates and interests. At each turn, the commission wastes no opportunity to congratulate itself for the good work that it is doing on behalf of the American public — on behalf of the entire American public, including those most in need of assistance from the government. It is surprising, then, that many of the commission’s flagship policy efforts are, in fact, regressive, benefiting those who already have ample access to telecommunications and media resources at the expense of those lacking such access. Cases in point: set-top boxes, network neutrality, and broadband privacy.

[Hurwitz is an assistant professor at the University of Nebraska College of Law]

[Commentary] For the past two years, internet policy types have debated the wisdom of reclassification — the decision by the Federal Communications Commission (FCC) to saddle broadband providers with arcane statutory common carriage restrictions originally developed to discipline 19th century railroads. Just when we thought we had covered every possible angle of that debate, the Ninth Circuit Court of Appeals added a new wrinkle.

In FTC v. AT&T Mobility, the court broadly exempted common carriers from a key antitrust law designed to promote fair competition. The ruling could have far-reaching implications for the future of internet regulation. A status-based common carrier exemption made sense in the early 1900s, when Congress relied on other mechanisms such as tariffs to discipline common carrier monopolies. It is more problematic today, where competitive markets require antitrust oversight to police against abuses. The FCC may aggrandize power to itself to fill the gap, but as it has shown in the privacy proceeding, it does not always view issues through a competition law perspective. Overall, the Ninth Circuit has shown yet another unintended consequence of the FCC’s hasty decision to resurrect common carriage as a vehicle for its paid prioritization ban — and I fear this will not be the last.
[Lyons is an associate professor at Boston College Law School]