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Subject: [IP] more on Adam Thierer on how draft Communications Act bill is hyper-regulatory and just plain wrong [econ]

  • From: David Farber <>
  • To: Ip Ip <>
  • Date: Sun, 18 Sep 2005 14:27:25 -0400

Begin forwarded message:

From: Bob Frankston <>
Date: September 17, 2005 8:01:18 PM EDT
To:, 'Ip Ip' <>, 'Declan McCullagh' <>
Subject: RE: [IP] Adam Thierer on how draft Communications Act bill is hyper-regulatory and just plain wrong [econ]

There is a tragic consistency here.

FEMA was a sin of omission and this is a sin of commission.

In marketplaces that don't work the philosophy seems to be not so much
hands off but dollars off with the burden shifted to local groups with a
seeming emphasis on faith-based as if there is a higher authority that will
make things work.

In marketplaces that are working very well the government must intervene
because it's not working in accordance with the presumed higher authority.

If it weren't for Lakoff I'd be mystified. At least now I can simply be

-----Original Message----- From: David Farber [] Sent: Saturday, September 17, 2005 13:49 To: Ip Ip Subject: [IP] Adam Thierer on how draft Communications Act bill is hyper-regulatory and just plain wrong [econ]

Begin forwarded message:

From: Declan McCullagh <>
Date: September 16, 2005 7:40:42 PM EDT
Subject: [Politech] Adam Thierer on how draft Communications Act bill
is hyper-regulatory and just plain wrong [econ]

-------- Original Message --------
Subject: initial thoughts on House Commerce discussion draft
Date: Fri, 16 Sep 2005 12:02:12 -0400
From: Adam Thierer <>
To: Adam Thierer <>

Friends:   As you know, the House Commerce Committee released a
discussion draft yesterday proposing comprehensive Communications Act
reform. Regrettably, as I point out in my blog entry below, it instead
just largely imposes the old regulatory regime on broadband networks,
VoIP and the Internet. Particularly troubling are the broadband video
provisions of the discussion draft, which import some of the worst of
the old &quot;public interest&quot; regulatory mandates into the broadband /
Internet video universe. In sum, we have quickly gone from &quot;Hands Off
the Internet&quot; to Hands All Over the Internet.

For the grim details, read on...

Friday, September 16, 2005

Long Live Public Interest Regulation! Some Initial Thoughts Regarding the Broadband Video Provisions of the House Telecom Act Discussion Draft

The House of Representatives' Energy & Commerce Committee released draft
yesterday aimed a cleaning up the nation's telecom and cable laws. A
revision of the Telecom Act of 1996 has been in the works for some time
and is very much needed, so most parties welcomed this news.

Here at PFF, of course, we've been working hard with a group of
respected academics and experts to provide a new framework for
communications policy reform. That project is called &quot;DACA
<> ,&quot; which stands for Digital Age
Communications Act.

One thing we largely left out of DACA effort was any in-depth discussion
of video regulation. That is, the extensive &quot;public interest&quot; regulatory
regime that currently covers the broadcast sector and to some extent
cable and satellite services. There were several reasons we left it out
of the DACA project; most importantly, we simply felt that most of these
rules could easily be sunset in light of growing competition in the
multi-channel video marketplace and the media universe more broadly.
Under our DACA framework, any &quot;market power&quot; problems that might develop
in the future video / media marketplace would be handled with simple
competition policy principles borrowed from antitrust law.

So Much for &quot;Hands Off the Net&quot;
Unfortunately, after looking through the House Commerce Cmmt. draft
legislation last night, I realize that not everyone shares our opinion
about the growing media market competition alleviating the need for
extensive &quot;public interest&quot; regulation of the video marketplace.
Specifically, Sec. 304 of the bill (which begins on pg. 41 of the
discussion draft) is entitled &quot;Application of Video Regulations to
Broadband Service Providers.&quot; Section A which immediately follows is
appropriately labeled &quot;Comparable Requirements and Obligations,&quot; and
then goes on to not how &quot;each of the following provisions of the 1934
[Communications] Act, and the regulations under each such provision,
that apply to a cable operator shall apply to a broadband service
provider under this title in accordance with regulations prescribed by
the Commission...&quot;

The specific video regulations that this section is referring to are
pulled directly out of the Title 3 (broadcasting) and Title 6 (cable)
sections of the Communications Act of 1934. The House Commerce
discussion draft advocates imposing these rules on all broadband service
providers. The specific regulations that would be imposed on new
broadband service entrants include:

* &quot;Program Ratings&quot; -- Sec. 303(w)(2): These rules mandate ratings
* &quot;Facilities for Candidates for Public Office&quot; -- Sec. 315: These rules
mandate special access to broadcast facilities while running for office.

* &quot;Announcements with Respect to Certain Matter Broadcast and Disclosure
of Certain Payments&quot; -- Sec. 317: These rules forbid &quot;payola,&quot; or the
practice of broadcasters accepting payment to run certain programs with
acknowledging receipt of payment for doing so.
* &quot;Retransmission&quot; -- Sec. 325: These regulations govern how various
types of signals are carried or retransmitted to the public. The draft
also specifies that FCC network non-duplication, syndicated exclusivity,
and sports black-out rules are to be rolled onto broadband service
providers as well.
* &quot;Ownership&quot; -- Sec. 613: These rules impose ownership caps on the
reach of cable systems and would be extended to broadband providers.
* &quot;Carriage of Local Commercial and Noncommercial Educational Television
Signals&quot; -- Sec. 614 and 615: These &quot;must-carry&quot; mandates force cable
operators to carry local broadcast TV signals on their cable systems.
* &quot;Blocking and Scrambling of Channels&quot; -- Sec. 624(d)(2): Mandates that
a cable provider scramble access to certain channels if a subscriber
demands it.
* &quot;Public, Educational, or Governmental [Set-Asides]&quot;: These are the
mandates imposed on video operators forcing them to carry certain local
programs on their systems. (You know those dreadfully boring channels
between roughly 11 and 35 on your cable box that absolutely no one
watches? Those are the &quot;PEG&quot; access channels that Congress is now
proposing every broadband provider carry.)

And there are many other mandates in the bill that I have not summarized
here, including anti-&quot;redlining&quot; regulations and yet-to-be-determined
&quot;build-out&quot; requirements governing the pace and structure of broadband
diffusion. To repeat, all of these regulations, and the many others I
chose not to list, would be imposed on all new broadband video service
providers. What are we to make of these proposals?

&quot;Mother, May I&quot; Regulation: Will It Ever End?
Well, the first conclusion we can draw from this is that, contrary to
their announced intentions, these proposals clearly contradict the
supposedly deregulatory thrust of the measure. This is not deregulation,
this is expanded regulation. This is not &quot;Hands Off the Net;&quot; this is
Hands All Over the Net. In fact, right from the start of the bill, I was
shocked to see just how much &quot;Mother, May I
<> &quot;
regulation this bill contains.

Its 77 pages (and do we really need 77 pages to deregulate an industry?)
are filled with numerous prophylactic provisions forcing broadband
carriers to get permission before they do much of anything.

Here's a fairly simple exercise for you to conduct if you want to see
just how much regulation is in this bill. Use Adobe Acrobat to search
the bill and type in the word &quot;registration.&quot; You'll get 51 hits and
Adobe will list each one of those registration requirements out for you
so that you can see what is required. I'm not sure that there were this
many registration requirements in old Soviet Union factories! Here's
another test of just how much &quot;Mother, May I&quot; regulation you'll find in
the measure: Search for the word &quot;shall&quot; in the document. You'll get a
stunning 151 hits. Now, admittedly, not every use of the term &quot;shall&quot; in
the bill is followed by a pro-regulatory proposal. Regrettably, however,
most are.

I don't see how the FCC is going to get much smaller under this measure.
In fact, I can't seem to find anything in the bill about downsizing the
FCC at all. The bill's authors even felt the need to cap off the bill
with 20-plus pages of regulations listed under the banner of &quot;National
Consumer Protection Standards&quot; to apparently keep us all safe from those
evil new broadband service providers. Wheh! Thank you Congress! God only
knows what I do without those protections. I might do something stupid
like switch carriers if I was unsatisfied.

Excuse Me, But Isn't It the Other Way Around?
OK, let me stop being so sarcastic for a moment and get back to the
video competition provisions of the measure since I think they deserve
special attention. First, there is no explanation in the text of the
discussion draft regarding why the old public interest regulations new
to be extended to cover all new broadband networks and providers. It is
important to remember that the rationale underlying most of these old
regulatory mandates was that we lived in a world of scarcity and
regulated monopoly. Competition was thought to be impossible in this
environment and, therefore, regulation was to serve as a rough surrogate
to ensure price competition and program diversity.

Well, along comes more competition, first from direct broadcast
satellite (DBS) sources and then from overbuilders, and now from the
telephone companies, and what do we propose in this discussion draft?
Regulate 'em. All of 'em. Apparently the presence of new competitors and
the overall explosion of media diversity mean absolutely nothing to
these lawmakers. The discussion draft basically says that we're just
going to go right on regulating the way we always have. You thought
public interest regulation was dead? Ha! This bill basically says: Long
live public interest regulation!

And scarcity is now a laughable proposition for regulating the video
marketplace. Don't take my word for it. Read this FCC white paper from
last year entitled &quot;The Scarcity Rationale for Regulating Traditional
Broadcasting: An Idea Whose Time Has Passed
<> .&quot;
This report by John Beresford, an attorney with the FCC's Media Bureau,
lays out a devastating case against the scarcity rationale, which has
governed spectrum & broadcast regulation in the United States for over
seven decades. Calling the scarcity rationale &quot;outmoded&quot; and &quot;based on
fundamental misunderstandings of physics and economics,&quot; Beresford goes
on to show why just about everything the FCC every justified on this
basis was misguided and unjust. He points out what countless economists
have concluded through the years, namely that the scarcity the
government complained of was &quot;largely the result of decisions by
government, not an unavoidable fact of nature.&quot; In other words, the
government's licensing process created artificial scarcity.

Alas, while the FCC has given up on the scarcity rationale, Congress
appears ready to cling to it as long as possible to ensure that they can
retain some degree of leverage over media operators in this country. At
least that what the House Commerce Committee draft seems to imply.

In sum, the logic underlying these video provisions of the discussion
draft get it exactly backwards. Lawmakers could have looked at the
current video marketplace
<>  with its
rapidly expanding choice, competition, and innovation and said to
themselves: &quot;OK, this means we can start getting rid of all those old
public interest regulations now. Competition can check any stupid,
anti-consumer moves a given carrier might make.&quot; Instead they looked at
the current situation and said: &quot;My God, all these new competitors mean
that consumers could get screwed by even more people!&quot; It really shows
how little faith the current Congress has in the free market.

The Sun Never Sets on the FCC's Empire
Third, there is no effort made in the bill to sunset any of these public
interest requirements in the future. It is troubling enough that
lawmakers would propose extending public interest regulation to cover
all new broadband networks and providers, but it absolutely unforgivable
that they would not propose sunsetting these rules at some point in the
future. In the absence of any such sunsetting language, I guess we can
assume that these old rules will cover any new provider or technology
that comes along in the future, including wireless broadband providers
or broadband over powerline companies. Again: Long live public interest

I must ask again: In a world of increasing competition and media
diversity, why do we need ANY rules like this? Heck, there is now more
competition in the broadband field than there is in the market for
online auctions. Seriously, can you name a competitor to eBay? Despite
that fact, no one is proposing extensive public interest regulations and
consumer safeguards for the online auction marketplace. Nor are
lawmakers asking eBay or any potential competitor to register with the
FCC and get permission before they make any moves in that market. Why
shouldn't that same mentality apply to broadband?

Should I Bother Mentioning the First Amendment?
Finally, although I'm probably wasting my breath in doing so, I feel
compelled to once again point out that all these old public interest
regulatory mandates are at odds with the First Amendment. Whether policy
makers are looking to compel speech or restrict it, it all runs counter
to the &quot;Congress shall make no law...&quot; vision of the First Amendment.

Although the Supreme Court has allowed much of this nonsense to remain
on the books, they largely did so by resorting to the now thoroughly
discredited scarcity rationale. One wonders what possible constitutional
defense can be put forward now to justify treating all these new
broadband / media competitors as second-class citizens in the eyes of
the First Amendment.

Nonetheless, it is my hope that if this bill passes as is that some new
broadband operator will immediately challenge several provisions of the
Act, especially the must carry mandates, the PEG requirements, and the
regulation buried in Section 402(a)(10) of the bill (on pg. 50) that
would &quot;prohibit the use of any equipment used for the provision of BITS,
VOIP services, and broadband video services for obscene or indecent
communications.&quot; Hasn't Congress learned any lesson from the numerous
measures the Court has struck down in the wake of the Communications
Decency Act of 1996?

I want to make it clear that, despite what I have said here, there are
some important things accomplished by this bill. And in some ways, it
represents a small improvement over the status quo. Heck, I've been
covering telecom and media policy long enough now that I remember
reading through proposed Communications Act revisions 15 years ago that
obsessed over what to do about telephone company entry into the home
alarm market! There was an entire bill introduced on that issue back in
1993. And a year before that, I cut my teeth as a young telecom policy
wonk by analyzing numerous proposals to regulate cable rates, one of
which finally passed into law as the Cable Act of 1992.

We can all give thanks that those days are over and at least measures
like this current House Commerce Committtee discussion draft aren't
proposing comprehensive price control schemes or new entry barriers for
the market. So it's important not to lose perspective and forget just
how far we've come.

Alas, I still hoped for something better out of the gates than this
discussion draft. Given the intense media and broadband competition
we're seeing out there today, one would have hoped that a Republican
Congress that supposedly believes in markets and limited government
would have kicked off a major reform effort with something bolder than
this. As it stands now, however, I do not believe this effort represents
a major improvement over the status quo.

posted by Adam Thierer @ 11:07 AM


Adam Thierer

Senior Fellow and Director,

Center for Digital Media Freedom <>

Progress & Freedom Foundation <>

1444 Eye St., NW    Suite 500

Washington, DC 20005

202-289-8928 (x53)

202-969-2953 (direct)

PFF Blog:

my essays on Free Speech / First Amendment


my essays on Media Economics


... And please read my new book: Media Myths: Making Sense of the Debate
over Media Ownership

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