American Enterprise Institute

[Commentary] The EU Parliament voted on a telecommunications package that includes free roaming and net neutrality.

Future historians will likely mark the date as a key event for the onset of the EU’s digital crisis. U politicians have made free roaming the centerpiece of their digital market effort. Essentially, it is an effort to harmonize mobile roaming prices across the 28 member nations, regardless of the underlying costs. It is nothing more than “feel good” politics. Plus, it’s a cheap win for politicians as operators foot the bill. No matter where their customers go, operators are forced to eat the costs of their customers’ traffic, even if the costs exceed their revenues.

There are two nasty intended consequences of the free roaming regime. First, artificial price ceilings create a perverse market for mobile arbitrage. People and speculators can game the trade of SIM cards, buying them in low cost traffic countries (Lithuania) and bringing them to high cost traffic countries (e.g. UK or Germany where spectrum costs and taxes are considerably higher). Second, in order to police this illicit activity, the EU will have to start a surveillance regime. Europe, which is still smarting from the financial crisis, is on the course for another, digital one, where users will not be able to get the network service they need because operators are too poor to deliver it.

Wrong-headed and overzealous investment has stifled broadband investment. Network neutrality is a mess, not least for content/applications providers. Creating a world with a patchwork of net neutrality regulation will itself provide arbitrage opportunities.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] Aereo goes to the Supreme Court in what is one of the most important broadcasting and copyright cases in recent history.

Unfortunately the question that the Court is considering -- whether Aereo violates broadcasters’ public performance right under copyright law -- is the wrong question to ask. No matter the outcome of the case, it will be the wrong policy outcome. Either Aereo wins, which is the right outcome under copyright law but the wrong one for broadcast policy, or Aereo loses, which is the right outcome for broadcast policy but the wrong one for copyright law.

Unfortunately, these copyright issues miss the more challenging -- and important -- question in this case. The central issue in the Aereo case is not about copyright law -- it’s about how much, and whether, we continue to value over-the-air broadcast television as we transition to primarily wireline-based distribution of video content. On this front, Aereo deserves to lose. Aereo’s business model is problematic not because it pushes the boundaries of copyright law, but because it undermines the economics of the over-the-air model. In other words, Aereo’s business model threatens the two sources of revenue that underlie the broadcast business: advertising and retransmission fees.

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

[Commentary] Some 45 years after design work started on the cellular network and the Internet, the Federal Communications Commission (FCC) issued an Internet Protocol (IP) Technology Transitions Order amounting to a reluctant invitation for trials on the decommissioning of the legacy telephone network.

While the telephone network is no longer the centerpiece of telecommunications in the United States or around the world, the FCC is clearly anxious about turning it off, probably because the FCC and telephone network grew up together. This reluctance is apparent in the many obstacles the FCC’s transition order places in the way of the decommissioning trials. While it is worthwhile to ensure that no essential capabilities are abandoned in the transition from the telephone network to its replacement (pervasive broadband networks running IP), it is important for the FCC to approach this transition sensibly.

[Commentary] If you happened to turn your eyes towards Capitol Hill, you might have witnessed the latest round of senatorial efforts to discover an effective cybersecurity strategy.

In a pair of hearings, Senators and administration officials focused on stricter data breach reporting regulations and expanded liability protection. Sen John McCain (R-AZ) again proposed a separate committee on cybersecurity. Federal Trade Commission Chairwoman Edith Ramirez stressed that the government needs stricter rules for data breach reporting and greater freedom to prosecute offending institutions.

Our congressmen and women would do well to read “Navigating Conflicts in Cyberspace: Lessons from the History of War at Sea” by Professor Jeremy Rabkin of the George Mason School of Law (and Adjunct Scholar here at AEI) and his son, Ariel Rabkin. In their article, published in the Chicago Journal of International Law in the summer of 2013, the Rabkins redirect the reader’s gaze from small-scale modifications to a broader, more ambitious proposal: “ground American policy on cyberattacks in…[the body of law] dealing with armed conflict on the high seas.”

Currently, the law of armed conflict governs American and international cyber conflict. These rules, the Rabkins argue, unduly limit national and private cyber defense options. Cyberattacks, however, do not solely target military facilities, personnel, or capabilities, nor do they solely originate from military facilities or personnel. The law of armed conflict, by designating military objectives as the only acceptable targets of armed responses -- cyber retaliation included -- fails to account for the civilian involvement that is an unavoidable reality of conflicts in cyberspace.

Underlying the Rabkins’ proposal is a basic and natural argument for adopting the laws governing conflict at sea: the right of self-defense. The same should apply to companies operating in cyberspace.

[Cunningham is a Research Assistant at the Center for Internet, Communications, and Technology Policy (AEI)]

[Commentary] Susan Crawford is talking again, this time in a long interview with Ezra Klein of Vox.

Klein pushes her more than most of her interlocutors, and, as a result, we see her arguments in all their naked glory. Crawford’s is not just a statist view of communications, but also a deeply pessimistic and nostalgic one. It must be. Otherwise, she would have to concede the success of a “private market… left to its own devices.”

Crawford selectively cites statistics that show US consumers getting poor service compared with Swedes, Slovenians, Singaporeans and the like. My colleagues Rosyln Layton and Bret Swanson dispose of such deceptive comparisons easily. For example, the current generation standard of 4G/LTE networks are available to 97% of Americans but just 26% of Europeans.

But where Crawford truly fails is her confusion between these selective inputs and America’s spectacular outputs. What the cable companies, the telecoms, and the satellites provide is an infrastructure, a platform. On top of that platform has been built a magnificent, rapidly changing edifice. Further, the Klein interview reveals Crawford’s fixation on delivery of Internet by wire.

But the growth and the future of broadband are mobile. Just ask Facebook. The mobile broadband market has ignited major capital spending by US companies -- six times more per subscriber than global counterparts.

[Glassman is a visiting fellow at the American Enterprise Institute (AEI), where he works on Internet and communications policy in the new AEI Center for Internet, Communications, and Technology Policy]

[Commentary] The state of Illinois gave $2 million to Gigabit Squared to wire the Chicago South Side for ultra-high speed broadband, and now they want their money back. This story is more common than you might think, and Gigabit Squared isn’t the only offender.

From Burlington (VT) to Provo, Utah, it doesn’t matter whether a city is large or small, or if it goes it alone or bands together with neighbors: designing, building, and operating a broadband network is harder than running a water system. Very few municipalities have the expertise to do these things successfully, and those who leap before they look are likely to end up wishing they’d examined all possible outcomes before committing their cash. Mooresville (NC) had to lay off police, fire fighters, and teachers to cover their broadband debt. This is more likely to happen than not.

The main reason we can expect municipal networks to fail is revealed in their goal-setting exercise. It’s perfectly reasonable for some form of subsidized broadband program in an unserved or severely underserved area: people can gain great benefits from using a smartphone, an iPad, or a laptop to access the Internet, explore educational opportunities, or read the news. But you don’t need the world’s fastest network to do these things; all you really need is a garden-variety DSL, cable, or mobile network. And given those choices, most people will adopt mobile first. As history shows, the speed and capacity of broadband networks generally improves to meet and exceed customer demands.

[Bennett is a visiting fellow at AEI]

[Commentary] The European Union Digital Single Market initiative is a set of 7 goals (interoperability, security, broadband, research, innovation, digital literacy, etc.), with an associated 101 actions to be realized by 2020.

The EU tracks its progress on a Digital Scoreboard. From time to time, the EU Commission makes rules intended to expedite these goals. In in the EU has the courage to take on the root causes of its competitiveness problem because it requires a fundamental change to the status quo. Instead politicians rely on feel good proposals without substance, giving voters a placebo which they hope will make them feel better.

With EU Parliamentary elections in May, politicians have reached a new low in pandering to voters, as a recent Industry, Research and Energy Committee vote on mobile roaming demonstrates.

The only way an operator can be competitive is to own its own network across as large a distance as possible. The tortured EU approach of managed access means that an operator has to lease its network at a regulated rate. Whatever investment it makes must be shared with resellers. It is difficult, if not impossible, to earn a profit under this scenario. A single, low tax rate across Europe would do more for consumers and the ailing economy than any of the EU’s sugar-coated placebos. It would make the whole EU competitive, increase employment, and create a level playing field for goods and services. But don’t expect any bitter medicine in the EU, especially before an election.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] Content delivery networks (CDNs) are essentially digital libraries, allowing multiple copies of content to be placed strategically around the world. A request for Netflix’s House of Cards from Miami doesn’t need to go all the way to Mountain View (CA); it can be served closer to the user. In addition to caching, CDNs enable website acceleration, enterprise applications, peer to peer communications, and live video. The next stage in the evolution of CDNs may involve adaptation to individual users and self-organizing content delivery with associated quality of service levels.

So if the definition of net neutrality is that all traffic is treated the same and that all traffic moves at the same speed, then CDNs are already upsetting the balance. In any case, CDNs were specifically exempted in the 2010 Open Internet ruling. However those rules were struck down and the Federal Communications Commission is now going back to the drawing board. Thus CDNs are back on the table, along with all the other service providers.

If net neutrality morphs into regulation of interconnection, not just the last mile, as some net neutrality theorists suggest it should, it could bring this bustling connected TV affair to a grinding halt. Content providers, applications, and websites operate in a competitive environment. Using a CDN is a way to leverage technology to improve user experience and enhance market share. To say that this is unfair or discriminatory is to rebuke the market system itself. It is precisely because firms compete, whether by leveraging technology or creating partnerships, that consumers benefit.

[Layton studies Internet economics at the Center for Communication, Media, and Information Technologies (CMI) at Aalborg University in Copenhagen, Denmark]

[Commentary] The National Telecommunications and Information Administration (NTIA) announced that it plans to end its formal relationship with the Internet Corporation for Assigned Names and Numbers (ICANN) by not renewing the Internet Assigned Numbers Authority (IANA) contract in 2015.

Now, as this technical function of the Internet enters a highly politicized environment, new challenges arise. Chief among those challenges are the lack of a public plan regarding whom to transfer the root zone management function to in the absence of the NTIA and how to protect this function from political desires by foreign countries or here in the US to limit freedom of speech.

For instance, the Chairman of the Senate Commerce Committee, Senator Jay Rockefeller (D-WV), issued a statement praising NTIA for its move on the IANA function a day after he sent a letter to the Obama Administration suggesting “.sucks” should not be added to the root zone as a new Top Level Domain. If the first amendment protects “.sucks,” it should also protect .wtf, .god, .dog, or .shabaka. Similar letters have arrived at the Department of Commerce from multiple foreign governments for years, but no one worried that the suggestion of censoring the Internet via the root zone was truly a possibility.

Now, censorship is a live question thanks to the NTIA’s announcement. Those of us who care about the future of the Internet have it in our best interest to make sure ICANN keeps the free and open Internet as its top priority.

[Tews is the Chief Policy Officer at 463 Communications]

[Commentary] The story of the transition from the telephone to the pervasive, broadband Internet as the primary means of electronic communication is one of conflict.

The principal means by which the Federal Communications Commission stands in the way of history is through its insistence that it has discovered a “Network Compact” consisting of “enduring values” embedded in the corpus of telecom law that magically pertain not just to the particular historical circumstances around the formation of America’s telephone network, but to all future networks as well.

Effectively, the FCC wants the terms of the Kingsbury Commitment of 1913 to constrain the growth of the Internet, lest something bad might happen. This posture necessarily prevents any number of good things from happening as well, or at least postpones them indefinitely.

The telephone network has been replaced by a multitude of options: the mobile network, wireline broadband networks, satellite services, and public Wi-Fi networks that are often free to use. While Americans have largely abandoned the telephone network, regulators who have invested careers in learning, interpreting, and applying telecommunications law are reluctant to let it go. Hidebound regulators and holdout citizens are the primary obstacles to the complete phase-out of the telephone network and the reallocation of its operational expense in more worthwhile alternatives.

While the Commission is clearly doing its best to serve the public interest as it sees it, it must do better. Preserving the technologies of the past has sentimental appeal, but it’s ultimately counter-productive to delay new technologies that are already broadly accepted and widely used. The expense of maintaining the old networks only retards the construction and use of new ones that are better in every dimension.

[Bennett is a visiting fellow at AEI, has a 30-year background in network engineering and standards]