Denying Competitive Substitution is Weakest Link of FCC’s De-Competition Policy

In order to justify broadband price regulation in the Open Internet and Data Roaming orders, the FCC and FreePress must continue to undermine Congress’ competition policy by denying the increasingly obvious and incontrovertible facts that users competitively substitute broadband services between various broadband technologies like copper networks/DSL, cable modems, fiber, WiFi/WiMax, wireless broadband, and satellite.

• Today the Pew Research Center released a new reportthat 24% of adult Internet users have placed calls online, the equivalent of 19% of all American adults.
  • “On Any given day 5% of Internet users are going online to place phone calls.”
• This is on top of the well-respected CDC research seriesthat estimates that:
  • “More than one of every four American homes (26.6%) had only wireless telephones…” and
  • “…nearly one of every six American homes (15.9%) received all or almost all calls on wireless telephones despite having a landline.“
• Even in the face of this overwhelmingly obvious evidence of users competitively substituting services across technologies, the FCC in its seminal FCC Qwest Phoenix Forbearance Order in mid-2010 refused to acknowledge that wireless phones compete with wireline phones!
  • FCC: “Although the leading mobile wireless providers have ubiquitous networks… we cannot conclude on the basis of the record that residential mobile services fall within the same relevant product market as wireline services.“
• With all the evidence and common sense experience of most every consumer, why does the FCC ignore everyday reality and the facts?
• The sad answer is that the “expert” agency here has a powerful conflict of interest.
• If the FCC admitted that convergence, the Internet and competition policy actually works (like everyone else knows), and acknowledged consumers in fact choose between competing technologies for their broadband services every day, then the FCC would have to face the unpleasant reality that the FCC is ripe for reform and downsizing over time— to better synch up limited government resources with the public’s rapidly diminishing need for FCC price regulation expertise.
• It is clear the FCC is in competition denial, and as I described last week, the FCC is desperately in search of relevance in the broadband competition era.

The indefensibility of the FCC’s denial of competitive substitution is that in the December Open Internet Order, the FCC classified competing broadband technologies as providing the exact same Broadband Internet Access Service (BIAS).

• How can the FCC logically claim that competitive Broadband Internet Access Services that for regulatory purposes all do the same thing — provide broadband Internet access services — are not also competitively substitutable?
• How is what is good for the goose not good for the gander here?

This ignoring of obvious marketplace evidence that any consumer can see clearly for themselves — that different broadband technologies enable the same competitively substitutable Internet, voice and video applications — is a quintessential example of arbitrary and capricious behavior by a regulatory agency.

Unfortunately, the FCC has a powerful self-interest to be “competition deniers” — i.e. bureaucratic survival.

As long as Congress, the courts, industry, and the public allow the FCC to keep their technology-silo blinders on, and only see intra-industry competition within technology-silos, and remain blind to inter-industry, cross-technology broadband competition, that was the core purpose of the Telecom Act and Section 706, the FCC will continue to deny effective broadband competition exists.

In sum, what’s badly needed now is much more research, surveys, and data-driven evidence that show consumers and businesses competitively substitute different broadband technologies routinely in the marketplace, so that the FCC cannot continue to deny effective broadband competition exists in stark opposition to reality, the law, and the real public interest.

 

Pro-regulation FreePress’ Fact-Challenged Opposition to AT&T/T-Mobile

FreePress’ radical anti-business, anti-capitalism politics lead it to make up or contort facts and analogies in order to promote its world view of a publicly-owned and regulated Internet commons.

In FreePress’ latest opposition to the AT&T-T-Mobile merger, FreePress continues to nonsensically analogize this merger with the Ma Bell monopoly.

• First, T-Mobile did not even exist in the 1980’s and it and its predecessors were never part of the Bell Monopoly.
• Second, the AT&T monopoly of the early 1980’s did not even believe in the future of cellular communications; it infamously projected that there would be no more than one million cellular customers by the year 2000.
  • As it turned out, the AT&T monopoly estimate was off by more than 150 fold!
  • That’s why the AT&T monopoly leadership spun off the Baby Bells and assigned what they estimated as a nothing business, cellular, to the divested Baby Bell businesses.
• Third, what most people don’t know is that the DOJ and Judge Greene, in breaking up AT&T had no preference about how many Baby Bells there could be; they told AT&T there could be one or any number. AT&T chose seven.
  • This is exactly why many of the Baby Bell companies did in fact consolidate because from the beginning of the Bell divestiture, consolidation of the Baby Bells was not viewed as an antitrust problem.
  • That’s why the DOJ and FCC approved the consolidation of the seven Baby Bells and GTE into the three successor companies today, Verizon, AT&T and CenturyTel.
• Fourth, the pre-divestiture AT&T monopoly had 95% of the local phone market and 95% of the long distance market.
  • Today, AT&T has ~20%of the local phone market and falling; long distance is no longer a business, but an integrated feature; and AT&T has about ~10% of the Internet backbone traffic.
  • The AT&T of today is nothing like the Ma Bell monopoly of 1980.
• Finally, wireless was not even a 1980 Ma Bell monopoly line of business. 

FreePress’ narrative that AT&T/T-Mobile is putting the Bell monopoly back together again is irresponsibly and laughably wrong on all the major facts.

• But Freepress has never let factsget in the way of bashing business or capitalism.
• This is further powerful evidence that FreePress is singularly one of the least credible sources of analysis in the FCC policy sphere of influence.

FreePress also unwisely said: “the wireless industry would be more consolidated that the oil, banking, automobile, and air travel.” An odd comparison, given all those industries have had massive consolidation and continue to consolidate today to stay economically viable. And all of those industries have had massive problems when the wireless industry has not.

• Oil:FreePress touted the merged names of Exxon-Mobil and Chevron-Texaco — totally missing the irony of using them in a consolidation comparison.
  • The oil industry is very different than wireless in that foreign companies like BP and Shell are willing to invest in distribution in the U.S., in stark contrast to the wireless industry, where the lone foreign entity in the market, T-Mobile, seeks to exit the market via selling to AT&T, because it is unwilling to invest in U.S. next generation 4G infrastructure.
• Banking: How soon FreePress forgets, the banking industry took so much risk and did so much wrong in the financial crisis that they had to be bailed out by the government — a huge disinvestment sector story.
  • In contrast the wireless industry is an enormous net-investor in infrastructure and is seeking no government handouts, just to be left alone to provide competitive choice to consumers, innovate, and generate generous economic growth and job creation.
• Autos:Once again FreePress’s memory is amoebic.
  • The U.S. auto industry also required a massive multi-billion dollar bailout from the taxpayer, in stark contrast to the wireless industry not requesting a dime from the government and being one of the most heavily taxed sectors in the economy.
• Air Transport:Finally, FreePress bringing up air transport is the most embarrassing attempted analogy of them all.
• Virtually all of the airlines, save for SouthWest, have gone bankrupt — multiple times.
• As the head of the Air Transport Association said today in the WSJ: “In the last decade, the industry has had only three profitable years. And between 2001 and 2010, the U.S. airline industry has lost nearly $55 billion, leading to service cuts and the loss of 160,000 jobs.“
• In stark contrast during that time annual wireless industryrevenues increased over $100b; it invested hundreds of billions of dollars in infrastructure; and it added 75,000 new jobs.
• The wireless industry is one of the most competitive, productive, innovative, and public-policy-problem-free sectors in the economy.

In sum, FreePress does not know what it is talking about.

• It makes ups its own facts out of thin air and has no clue about the real history or facts about the Ma Bell Monopoly, its divestiture, or the rise of a competitive wireless industry.
• FreePress also embarrassed itself in trying to compare industries that have had very big problems and cost taxpayers a lot of money, with the wireless industry that is a huge net contributor to the economy and society and amazingly free of big consumer problems.

FreePress won’t have any credibility until it does its homework and develops at least a rudimentary understanding of the relevant facts.

How FCC Data Roaming Order Undermines FCC’s Net Neutrality Regulations

The FCC’s Open Internet Order is even more likely to be overturned in court than before because the FCC’s extraordinary delay in publishing its December net neutrality regulations has oddly moved the FCC’s April Data Roaming Order to the front of the line of cases challenging the FCC’s overall legal authority to regulate broadband.

• (The April 7 Data Roaming Order was published in the Federal Register 29 days after the decision; the December 21 Open Internet Order may not be published until late summer or fall, 7-9 months after the decision, per Politico’s Morning Tech.)

Consequently both cases are now more likely to be heard in the FCC-unfriendly D.C. Circuit Court of Appeals.

• First, the FCC is modifying wireless licenses in the data roaming order and relying on its general Title III licensing authority to do so, while adjudicating licensing issues falls under the exclusivejurisdiction of the D.C. Circuit.
• Second, the data roaming order raises the same fundamental legal question a D.C. Circuit panel unanimously decided in Comcast vs. FCC, which the FCC interestingly did not appeal.
• Finally, sequence, i.e. the order of court precedents being established, matters profoundly in clearly resolving the grand question of whether the FCC has the statutory authority to regulate broadband.

If the FCC has been trying to game the process (as it appears to be on the surface) by on one hand claiming the Open Internet rules are practically operative and enforceable for these several months in 2011, while on the other hand delaying the legal trigger that affords those affected the due process to legally challenge the rules in both Court and in the U.S. Senate, the delaying maneuver appears to have backfired and undercut the FCC’s strategy and hope to keep the question of the FCC’s overall authority to regulate broadband out of the clearly FCC-unfriendly D.C. Court of Appeals.

• In the end, the FCC’s apparent attempt to have it both ways — i.e. have both de facto and un-contestable net neutrality regulations for an extended period of time — could have real cost to the FCC’s ultimate legal broadband authority.

Most have missed the very important legal significance of Verizon’s challenge of the narrow Data Roaming Order to the FCC’s signature sector-wide Open Internet Order.

• It is critically important and relevant because both orders at bottom raise the exact same legal authority question: does the FCC has direct statutory authority to price regulate an unregulated information service?

The legal connection/significance was easy for many to miss, because:

• First the data roaming issue practically targeted only twocompanies, Verizon and AT&T, not the entire broadband industry;
• Second, the AT&T-T-Mobile transaction has distracted and diverted most media and industry attention from the significance of the Data Roaming Order;
• Third, the pretext for the data roaming regulations was a politically positive public narrative of promoting universal broadband coverage by helping politically sympathetic rural carriers, not the negative and highly controversial net neutrality demonization campaign by FreePress et al, of unproven network “discrimination;” and
• Finally there was little to no public analogizing of the data roaming issue to net neutrality, so most people did not catch the arcane but hugely significant legal analogy at work here.

However, just because the politics and media coverage did not connect-the-dots between the Comcast vs. FCC decision, the FCC data Roaming Order, and the FCC Open Internet Order, that does not mean that the legal challenges of the twin broadband price regulation orders won’t easily connect-the-dots legally.

As the incisive dissents to the Data Roaming Order by Commissioners’ McDowell and Baker exposed, the FCC does not have the sweeping statutory authority to price regulate unregulated broadband information services.

• As Commissioner McDowell dissented: “…my colleagues in the majority are, in essence, imposing a Title II common carrier regulatory regime in violation of Title III of the Communications Act and contrary to Commission precedent.”
  • Simply the FCC is ignoring the plain language of the law and ignoring that the FCC decided unanimously just four years ago that wireless broadband is an unregulated information service and that “data roaming must be ‘free from common carrier regulation.'”
• As Commissioner Baker dissented: “…in imposing data roaming obligations on mobile broadband services, we exceed our authority and impose rules of common carriage that are impermissible under our statute.”

Anyone who reads the law, the FCC’s legal analysis and the McDowell/Baker dissents, will see how tortured and inherently self-contradictory the FCC majority’s legal defense of the FCC’s authority is.

• It is eerily similar to the presumptuous and inherently self-contradictory legal defenses of both the Comcast enforcement decision and the FCC’s Open Internet Order.

And if one reads Verizon’s Notice of Appeal, and the FCC’s data roaming order, which legally depends exclusively on the FCC’s Title III radio license authority, it is pretty clear that the FCC’s data roaming order, unlike the Open Internet Order, will fall under the D.C. Circuit Court of Appeals exclusive jurisdiction to adjudicate matters involving the modification of wireless radio licenses.

• Thus, it is then more likely that the new D.C. Circuit panel that decides the data roaming order will be more likely to respect the precedent already established unanimously by the D.C. Court of Appeals panel in Comcast vs. FCC, i.e. that the FCC does not have unbounded legal authority to regulate broadband services and prices because that would give the FCC the power to de facto legislate, violating the Constitution’s separation of powers doctrine.

For those looking for additional parallels here, the Wiley Rien lawyer, Helgi Walker, that beat the FCC in Comcast vs. FCC, is the same lawyer that will argue for Verizon in both the Data Roaming Order and in the Open Internet Order.

In sum, the FCC’s apparent tactical machinations to delay the publication of the Open Internet rules in order to enjoy de facto industry regulation without affording those affected the due process opportunity to legally challenge the net neutrality regulations, ultimately have backfired on the FCC, because the delay now has most likely reordered the legal sequence of how these cases are decided in a manner that strongly disfavors the FCC.

The law of unintended consequences proves once again, it cuts in very unexpected ways.

FCC’s In Search of Relevance in 706 Report

The FCC’s latest arbitrary and capricious torturing of the facts, law, and common sense, in its most recent 706 report, makes it obvious that the FCC is “in search of relevance” and highly insecure about its authority and role in the broadband competition era.

• Apparently, the FCC now sees competition-driven consumer benefits as a threat to the FCC’s relevance, role and authority.
  • If the bipartisan policy/law of promoting competition succeeds, then the FCC by definition has less and less to do.
• It is becoming increasingly apparent that many at the FCC don’t want competition policy to succeed, because they vainly believe that the FCC can, and should, mandate social outcomes “better” than market forces and consumer choice can produce via competition.

Thus the pro-regulation forces at the FCC are increasingly and proactively seeking to discredit competition policy wherever possible by ignoring and torturing any facts, evidence, logic and common sense that do not forward their government-centric-view that “expert” FCC regulators invariably know best.

Consider the common thread between:

• The FCC’s nonsensically-twisted 706 report…
• The FCC’s blindfold tour of wireless competition in the wireless competition report… and
• The FCC deeming itself unlimited new legal authority (over a majority of Congress’ objections) in its December Open Internet Order?
  • The common thread here is an FCC desperately in search of relevance.

More specifically, the FCC’s common approach to broadband deployment, wireless competition, and net neutrality is an “ends justify the means” approach — the end is more permanent FCC-centric regulation and the means are whatever is necessary — ignoring facts and evidence and/or flouting the law, the court and Congress — in order to promote the survival of permanent FCC-centric regulation.

Given the FCC’s recent actions, apparently it is OK for the FCC to:

• Twist an obviously deregulatory provision of law, Section 706, beyond all recognition, in order to justify new price regulation…
• Point to a broadband deployment “glass” that has been filled super-fast by competitive forces to be 95% full, and then exclaim horrors the broadband deployment glass is still 5% empty and its all the fault of the fast-filling market competition…
• Ignore the overwhelming  facts and evidence that the wireless market is highly competitive, to justify new wireless price regulations like data roaming…
• Preemptively mandate net neutrality regulations with miniscule evidence of the existence of a problem to be solved… and
• Flout the D.C. Court of Appeals’ Comcast decision that the FCC did not have statutory authority to regulate broadband as the FCC did in passing the Open Internet Order.

Ironically at core, the FCC’s ends justify the means approach — that ignores the rule of law, the Courts and Congress — will likely accelerate the fate that the FCC desperately seeks to avoid.

• If the FCC can’t be trusted to respect the court, Congress and the public — because it serially ignores the facts, the law, plain language and common sense in order to price regulate broadband competition — how can the Courts, Congress and the public trust the FCC?

The ultimate fate of the FCC’s search for relevance is in the hands of Congress and the Courts — the entities that the FCC is most antagonizing with its lawless ends justify the means approach to broadband price regulation.

My Forbes Op-ed on Google’s Disregard for the Law

My new Forbes’ op-ed: Google Disregards the Law, tells the sordid story behind today’s story of Google apparently agreeing to settle a criminal investigation with the Department of Justice for ~$500m for promoting and accepting advertising from illegal online pharmacies.

• The op-ed sadly chronicles that this latest law-breaking by Google is part of a well-established pattern of disregard for the rule of law.
• If one cannot trust a public Fortune 100 company to obey the law, one cannot trust them overall as I explain in much great detail in my new book “Search & Destroy Why You Can’t Trust Google Inc.“
• See: www.SearchAndDestroyBook.com for the different ways you can buy the book.