Network Neutrality Redux and the Return of Falsehoods and Disinformation

            Despite vowing to eschew involvement in the latest Network Neutrality drama, I cannot sit back and let stand the resumption of the distorted gospel preached by the anti-network neutrality crowd.  This group has legitimate criticisms, many of which I have tried, via hundreds of law review pages—to analyze, and even endorse, in specific instances.  

            For example, see Freedom to Discriminate: Assessing the Lawfulness and Utility of Biased Broadband Networks, 20 VANDERBILT JOURNAL OF ENTERTAINMENT AND TECHNOLOGY LAW, 655-708 (2018); https://scholarship.law.vanderbilt.edu/jetlaw/vol20/iss3/2/; Grey nuances in the black and white debate over subsidized Internet access, 41 TELECOMMUNICATIONS POLICY 1017-1026 (2017); http://dx.doi.org/10.1016/j.telpol.2016.10.002; Network Neutrality and Consumer Demand for “Better Than Best Efforts” Traffic Management, 26 FORDHAM INTELLECTUAL PROPERTY, MEDIA & ENTERTAINMENT LAW JOURNAL, 71-102 (Fall, 2015); http://www.fordhamiplj.org/publications/network-neutrality-and-consumer-demand-for-better-than-best-efforts-traffic-management/; Internet Protocol Television and the Challenge of “Mission Critical” Bits, 33 CARDOZO ARTS & ENTERTAINMENT LAW JOURNAL, No. 1, 47-87 (2015);http://www.cardozoaelj.com/wp-content/uploads/2014/01/Frieden-FINAL.pdf.

Even current FCC Commissioners, who ought to know better, will trot out the same clearly untrue parade of horribles.

            Network neutrality regulation will not create a suffocating Internet rate regulation regime.  The Democratic majority has clearly exempted broadband internet access from Title II common rate regulation. By the way, Title II still explicitly applies to wireless telecommunications, like cellphone service, and no one can credibly claim that carriers are severely constrained by  overpowering FCC oversight.  Network neutrality orders have always applied light-handed regulatory oversight.

            Title II of the Communications Act does not impose some atavistic, old school “public utility” regulation.  Despite the growing efforts of the Supreme Court to prevent regulatory agencies from responding to changed circumstances, the FCC has frequently recalibrated its Title II regulatory toolkit over time.  My prior blog post https://telefrieden.blogspot.com/2023/10/upcoming-limits-on-fcc-statutory.html noted that an expansive reading of West Virginia. v. EPA,  https://www.supremecourt.gov/opinions/21pdf/20-1530_n758.pdf might prevent the Commission from streamlining and reducing regulation, unless the Court can craft language that creates an exemption for deregulatory initiatives that require a new and improved statutory interpretation.

A doctrinal and wrong-headed insistence on legislative clarity, ironically could prevent the FCC from improving regulations and make them better in light of fast changing technological and marketplace conditions.  Bear in mind that the last major revision to the Communications Act of 1934, took place in 1996, a time preceding the emergence of a mission critical Internet for most people.  It appears that some of the six conservative Supreme Court Justices now expect Congress to act early and often in revising the Communications Act.  If Congress fails to act—and we surely can expect that--then apparently the FCC is powerless to respond to changed circumstances.

Over several decades, I have tried to explain that much of the problems in applying statutory definitions to Internet access, stems from the FCC’s insistence that a single classification must apply.  The FCC created mutually exclusivity between telecommunications services and information services in 1998 in response to a letter of inquiry from a Senator Ted Stevens. See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd 11501(1998).

Nothing in the Communications Act prevents the FCC from recognizing that technological and marketplace convergence creates service offerings that combine basic and enhanced, telecommunications and information services. Our wireless handsets offer basic plain old telephone service, texting, which used to be a legacy telecommunications service, and other services that combine data processing/information services with telecommunications carriage.

            The FCC does not have to insist on an either/or dichotomy,  Nothing in the Communications Act mandates this.  We have had to tolerate decades long regulatory toggling between telecommunications service and information service, because the FCC cannot wrap its head around the reality that convergence requires a nuanced and admittedly more complicated blend of definitions.  Sometimes the statute does not even provide a definition, such as “advanced telecommunications capability.” The FCC interprets these words to include broadband, but the Republican Commissioners want to ignore the word telecommunications and instead insert information service.  This sure looks like overreaching, legislating by unelected bureaucrats so reviled by the right.  Then again, some of them want to convert social networks into involuntary common carriers to deny them any sort of First Amendment editorial freedom.

            Lastly (I hope!), we really ought to laugh at the false notion that a single regulatory initiative will exclusively impact the aggregate level of infrastructure investment carriers will make in a given year.  Former FCC Chairman Ajit Pai preached this gospel relentlessly and it became a truth for anti-network neutrality advocates. One has to ignore the carriers’ business plans and the ebb and flow of technology investment as a function of innovation and product life cycles. 

To believe the network neutrality investment disincentive canard, one would have to discount the billions invested in new 5G spectrum and network upgrades.  I expect sponsored, voodoo economists to “prove” a decline in carrier network investment going forward.  Should aggregate investment actually decline, this outcome more likely results from the winding down of 5G investments, not the onset of innovation and investment stifling regulation.

The Resilient Advertiser-Support Video Content Model

             Changes in the rates for Netflix and other video content show a major nudge (make that push) toward a cheaper advertiser-supported option.  Just now, Netflix has raised its ad-free plans to $11.99-22.99 monthly, but kept its newly offered ad-supported plan at $6.99. https://www.cbsnews.com/news/netflix-price-increase-2023/.  Apparently, the company can accrue higher revenues and profits by combining monthly subscriber payments with advertising revenues.  I expect the number of advertising minutes to creep up incrementally, but who counts?

            The more things change, the more they remain the same.  Not too long ago, pundits touted the pay per view, and all you can eat pricing models, often with no advertising.  HBO considered ad free a competitive advantage underscoring its premium status. Now, the new HBO, called Max, offers an ad-supported option, for $9.99 compared to the $15.99-19.99 ad-free option. https://www.cabletv.com/hbo-max.

            The ad-support model comes at a time when consumers appear inclined to trim their monthly video content expenditures.  Increasingly, cable subscribers have “cut the cord,” no longer willing to pay an average $112.70 monthly for an array of content, much of which they do not watch. https://cordcuttersnews.com/the-average-cable-tv-bill-from-comcast-spectrum-more-is-now-112-70-a-month-just-for-tv-in-2023/. Why pay a cable operator $9.42 or more a month for ESPN channels (https://www.sportico.com/business/media/2023/sports-tv-cable-bundle-license-to-print-money-1234734446/) if you don’t care about sports programming?

            The resiliency of the advertiser supported pricing model presents consumers with a mixed bag.  On one hand, advertising interferes with the flow of programming, especially long form content, such as movies.  While Max currently emphasizes that it will interrupt programming with comparatively fewer minutes, it will join the bandwagon of incrementally more and more ads.  I recently watched programming on Amazon’s Freevee, https://www.amazon.com/gp/video/splash/freevee_findus and YoutubeTV.  It seemed that viewers face a sequence of 5 minute content blocs followed by 5 minutes of advertising.  A two hour movie extends well beyond three hours. 

            On the other hand, while you have to tolerate interruptions, you do not have to consume the products and services advertised.  You are not a complete “free rider,” as you still pay for a subscription, but there are growing out of pocket savings compared to the ever increasing ad free option.

            Content vendors will do more with less as they reduce programming expenses.  Another economic fact of life comes to mind: you get what you pay for.  Expect a speedy decline in the value proposition from streaming video.

 

 

 

Upcoming Limits on FCC Statutory Interpretations Unless It Deregulates

             The activist, results-driven Supreme Court appears ready to limit severely the ability of the Federal Communications Commission and other independent regulatory agencies to interpret ambiguous statutory language and answer essential questions about statutory meaning, even when vastly changing markets and technologies makes such work essential.  Lacking humility and common sense, the Court appears hellbent to outlaw statutory interpretation like what kinds of services fit within the following ambiguous words Congress crafted, circa 1996: “advanced telecommunications capability.” 47 U.S.C. § 1302(a), codified by the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, (1996)

            If one applies basic jurisprudence, telecommunications means what Congress defined it to be in the applicable statute, i.e., 47 U.S. Code § 153 – Definitions. It just so happens that Congress did provide a definition of advanced communications services, information service, telecommunications, and telecommunications service.  Applying the yet to be reversed Chevron Doctrine, the FCC has no need to interpret unambiguous statutory language, because it can apply the plain meaning.

            However, Congress failed to provide a definition for something that is both advanced and telecommunications.  The legislature did not define “advanced telecommunications capability.” Heretofore, no one has questioned the lawfulness of the FCC’s determination that this undefined category includes broadband, Internet access.  Additionally, no one has challenged the lawfulness of the FCC’s determination that its universal service mission, spelled out in Section 254 of the Telecommunications Act, includes promoting affordable access to broadband, interpreted by the Commission to fit somewhere within the definition of advanced telecommunications and/or information services.

            Just now, the Court finds it mission critical to ignore regulatory agency expertise, because deference might legitimize more, different, or possibly even improved regulation.  Apparently, any recalibration expands the dreaded regulatory state, managed by unelected officials intent on micromanaging our lives and depriving us of life, liberty, and the pursuit of happiness. 

            How ironic, that no one raised a peep when the FCC unilaterally decided to reclassify as an information service a legacy technology for decades fitting snugly in the telecommunications category.  With an eye toward expanding further the array of convergent services that combine both basic and advanced telecommunications capabilities, in 2018 then FCC Chairman Ajit Pai championed a new determination that paging, texting, and short messaging was much more sophisticated and “advanced” than simply keying in letters and numbers on a telephone handset.  See Petitions for Declaratory Ruling on Regulatory Status of Wireless Messaging Service, Declaratory Ruling, 33 FCC Rcd. 12075 (2018); available at: https://docs.fcc.gov/public/attachments/FCC-18-178A1.pdf.

            In a Declaratory Ruling, the FCC asked and answered whether it should shift its classification of texting from “old school” basic, common carrier telecommunications to something advanced and largely unregulatable information processing.  Most short messaging still involves keying in letters and numbers on a wireless handset, but clever statutory reinterpretation made it possible for a deregulatory-driven FCC to take matters into its own hand without awaiting new legislation.

            With the Supreme Court’s newfound antipathy to regulatory agency overreach, would the FCC’s reclassification of texting as data processing pass muster now?  If so, why would deregulatory freelancing not constitute unlawful overreach by a regulatory agency unwilling to await new statutory instruction?

 

Show Me One Merger or Acquisition That Promotes Competition or Enhances Consumer Welfare

            I marvel how sponsored researchers have perpetuated the myth that mergers and acquisitions are great events. Can anyone provide an example how consumers benefits?  How did removing Sprint from the marketplace make the wireless ecosystem more rewarding to consumers?  TMobile improved their quality of service, but no longer offers lower prices, or innovations.  Anyone care to assert that the company remains an iconoclastic champion of competition and enhanced consumer welfare?

            Why companies merge reminds me of the question why robbers target banks.  There’s money in banks and higher revenues, less competition, better stock prices, more annual bonuses, and less senior management wear and tear when markets concentrate.  Why spend sleepless afternoons competing when you can reduce the number of competitors making it more likely that the cartel can fix prices.  That’s what has occurred in meat packing, healthcare, commercial aviation, insurance companies, car rentals, and every other concentrated marketplace

            There’s an inconvenient fact that U.S. wireless subscribers pay some of the highest rates globally. See, e.g., https://communitytechnetwork.org/blog/why-is-the-internet-more-expensive-in-the-usa-than-in-other-countries/; https://kushnickbruce.medium.com/at-ts-wireless-profits-are-outrageous-at-t-s-5g-wireless-prepaid-prices-are-obscene-compared-dc15c57926f; https://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-country; https://www.quora.com/Why-are-phone-plans-in-the-US-so-expensive-compared-to-other-countries-not-hate/.

Statistics do show a long-term reduction in cost based on increasing minutes of use and data consumption, i.e., the per voice minute or per megabyte of data price has dropped precipitously.  As markets evolve and carriers accrue greater economies of scale, prices should decline.  However, the rate of decline in the U.S. pales in comparison to that occurring just about everywhere else.  Recently, U.S. carriers have raised, not further reduced rates.  See, e.g., https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. Also, the three national carriers remarkably have the same prices for service, with differentiation a matter of which “free” content subscription is offered.

I also cannot wrap my mind around the persistent view that markets can be viewed from a static and fixed vertical and horizontal template.  The conventional wisdom views market “food chains” in a discrete, mutually exclusive frame where ventures compete, or not.  Horizontally, companies must compete, because they operate in the same market.  Vertically, they target separate markets and accordingly do not compete.

            This is a simplistic and ill-conceived conceptualization of how markets operate.  Of course, ABC, CBS, Fox, and NBC compete on a horizontal plane for advertising revenues and viewers’ attention.  If two of these companies sought to merge, a court might interpret the Sherman Act as a bar, based on the sense that market concentration would harm consumers.  But if any one these multinational giants wanted to acquire a wireless carrier, a reviewing court would have no concerns, based on the false notion that a content creator and distributor has no interest in, or impact on the wireless telecommunications marketplace.  If a venture does not directly compete with a merger or acquisition target, then where is the actual or potential harm to consumers?

            There’s plenty, because markets do not conveniently operate in mutually exclusive ecosystems. Vendors of video content have an interest in distributing their content in wireless markets.  They might consider a wireless carrier acquisition as a way to reduce their carriage costs, or a way to raise consumers’ total out of pocket costs, because a complete service requires both content and delivery of the content to screens.

            Consider the recent approval of Microsoft’s $69+ billion acquisition of Activision. https://www.nytimes.com/2023/10/13/technology/microsoft-activision-blizzard-deal-closes.html.

Reviewing courts and oversight bodies dismissed antitrust concerns, based on the simple notion that Microsoft, a software vendor, was acquiring a computer game content vendor.  As the two ventures presumably did not compete, no harm no foul.

            Yes foul, if you free your mind of this ridiculous locked in frame of mutual exclusivity.  Microsoft surely operates in gaming markets.  The company sells a gaming computer, Xbox.  It has created an operating system for gaming and surely wants that software to become dominant in the wireless gaming marketplace.  Did anyone think that Microsoft would use the compelling content available from Activision as a lure for consumers to migrate to devices, operating systems, and platforms controlled by Microsoft? Where is the enhanced consumer welfare in a more concentrated marketplace for games, gaming devices, gaming platforms, and gaming operating systems?

            I understand that in capitalism, companies do not operate as charities. They generate revenues to reward shareholders and to earn more money.  It’s their money, but our marketplace.