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Last week, FCC General Counsel Jonathan Sallet pulled back the curtain on the FCC staff’s analysis behind its decision to block Comcast’s acquisition of Time Warner Cable. As the FCC staff sets out on its reported Rainbow Tour to reassure regulated companies that it’s not “hostile to the industries it regulates,” Sallet’s remarks suggest it will have an uphill climb. Unfortunately, the staff’s analysis appears to have been unduly speculative, disconnected from critical market realities, and decidedly biased — not characteristics in a regulator that tend to offer much reassurance.

Merger analysis is inherently speculative, but, as courts have repeatedly had occasion to find, the FCC has a penchant for stretching speculation beyond the breaking point, adopting theories of harm that are vaguely possible, even if unlikely and inconsistent with past practice, and poorly supported by empirical evidence. The FCC’s approach here seems to fit this description.

The FCC’s fundamental theory of anticompetitive harm

To begin with, as he must, Sallet acknowledged that there was no direct competitive overlap in the areas served by Comcast and Time Warner Cable, and no consumer would have seen the number of providers available to her changed by the deal.

But the FCC staff viewed this critical fact as “not outcome determinative.” Instead, Sallet explained that the staff’s opposition was based primarily on a concern that the deal might enable Comcast to harm “nascent” OVD competitors in order to protect its video (MVPD) business:

Simply put, the core concern came down to whether the merged firm would have an increased incentive and ability to safeguard its integrated Pay TV business model and video revenues by limiting the ability of OVDs to compete effectively, especially through the use of new business models.

The justification for the concern boiled down to an assumption that the addition of TWC’s subscriber base would be sufficient to render an otherwise too-costly anticompetitive campaign against OVDs worthwhile:

Without the merger, a company taking action against OVDs for the benefit of the Pay TV system as a whole would incur costs but gain additional sales – or protect existing sales — only within its footprint. But the combined entity, having a larger footprint, would internalize more of the external “benefits” provided to other industry members.

The FCC theorized that, by acquiring a larger footprint, Comcast would gain enough bargaining power and leverage, as well as the means to profit from an exclusionary strategy, leading it to employ a range of harmful tactics — such as impairing the quality/speed of OVD streams, imposing data caps, limiting OVD access to TV-connected devices, imposing higher interconnection fees, and saddling OVDs with higher programming costs. It’s difficult to see how such conduct would be permitted under the FCC’s Open Internet Order/Title II regime, but, nevertheless, the staff apparently believed that Comcast would possess a powerful “toolkit” with which to harm OVDs post-transaction.

Comcast’s share of the MVPD market wouldn’t have changed enough to justify the FCC’s purported fears

First, the analysis turned on what Comcast could and would do if it were larger. But Comcast was already the largest ISP and MVPD (now second largest MVPD, post AT&T/DIRECTV) in the nation, and presumably it has approximately the same incentives and ability to disadvantage OVDs today.

In fact, there’s no reason to believe that the growth of Comcast’s MVPD business would cause any material change in its incentives with respect to OVDs. Whatever nefarious incentives the merger allegedly would have created by increasing Comcast’s share of the MVPD market (which is where the purported benefits in the FCC staff’s anticompetitive story would be realized), those incentives would be proportional to the size of increase in Comcast’s national MVPD market share — which, here, would be about eight percentage points: from 22% to under 30% of the national market.

It’s difficult to believe that Comcast would gain the wherewithal to engage in this costly strategy by adding such a relatively small fraction of the MVPD market (which would still leave other MVPDs serving fully 70% of the market to reap the purported benefits instead of Comcast), but wouldn’t have it at its current size – and there’s no evidence that it has ever employed such strategies with its current market share.

It bears highlighting that the D.C. Circuit has already twice rejected FCC efforts to impose a 30% market cap on MVPDs, based on the Commission’s inability to demonstrate that a greater-than-30% share would create competitive problems, especially given the highly dynamic nature of the MVPD market. In vacating the FCC’s most recent effort to do so in 2009, the D.C. Circuit was resolute in its condemnation of the agency, noting:

In sum, the Commission has failed to demonstrate that allowing a cable operator to serve more than 30% of all [MVPD] subscribers would threaten to reduce either competition or diversity in programming.

The extent of competition and the amount of available programming (including original programming distributed by OVDs themselves) has increased substantially since 2009; this makes the FCC’s competitive claims even less sustainable today.

It’s damning enough to the FCC’s case that there is no marketplace evidence of such conduct or its anticompetitive effects in today’s market. But it’s truly impossible to square the FCC’s assertions about Comcast’s anticompetitive incentives with the fact that, over the past decade, Comcast has made massive investments in broadband, steadily increased broadband speeds, and freely licensed its programming, among other things that have served to enhance OVDs’ long-term viability and growth. Chalk it up to the threat of regulatory intervention or corporate incompetence if you can’t believe that competition alone could be responsible for this largesse, but, whatever the reason, the FCC staff’s fears appear completely unfounded in a marketplace not significantly different than the landscape that would have existed post-merger.

OVDs aren’t vulnerable, and don’t need the FCC’s “help”

After describing the “new entrants” in the market — such unfamiliar and powerless players as Dish, Sony, HBO, and CBS — Sallet claimed that the staff was principally animated by the understanding that

Entrants are particularly vulnerable when competition is nascent. Thus, staff was particularly concerned that this transaction could damage competition in the video distribution industry.

Sallet’s description of OVDs makes them sound like struggling entrepreneurs working in garages. But, in fact, OVDs have radically reshaped the media business and wield enormous clout in the marketplace.

Netflix, for example, describes itself as “the world’s leading Internet television network with over 65 million members in over 50 countries.” New services like Sony Vue and Sling TV are affiliated with giant, well-established media conglomerates. And whatever new offerings emerge from the FCC-approved AT&T/DIRECTV merger will be as well-positioned as any in the market.

In fact, we already know that the concerns of the FCC are off-base because they are of a piece with the misguided assumptions that underlie the Chairman’s recent NPRM to rewrite the MVPD rules to “protect” just these sorts of companies. But the OVDs themselves — the ones with real money and their competitive futures on the line — don’t see the world the way the FCC does, and they’ve resolutely rejected the Chairman’s proposal. Notably, the proposed rules would “protect” these services from exactly the sort of conduct that Sallet claims would have been a consequence of the Comcast-TWC merger.

If they don’t want or need broad protection from such “harms” in the form of revised industry-wide rules, there is surely no justification for the FCC to throttle a merger based on speculation that the same conduct could conceivably arise in the future.

The realities of the broadband market post-merger wouldn’t have supported the FCC’s argument, either

While a larger Comcast might be in a position to realize more of the benefits from the exclusionary strategy Sallet described, it would also incur more of the costs — likely in direct proportion to the increased size of its subscriber base.

Think of it this way: To the extent that an MVPD can possibly constrain an OVD’s scope of distribution for programming, doing so also necessarily makes the MVPD’s own broadband offering less attractive, forcing it to incur a cost that would increase in proportion to the size of the distributor’s broadband market. In this case, as noted, Comcast would have gained MVPD subscribers — but it would have also gained broadband subscribers. In a world where cable is consistently losing video subscribers (as Sallet acknowledged), and where broadband offers higher margins and faster growth, it makes no economic sense that Comcast would have valued the trade-off the way the FCC claims it would have.

Moreover, in light of the existing conditions imposed on Comcast under the Comcast/NBCU merger order from 2011 (which last for a few more years) and the restrictions adopted in the Open Internet Order, Comcast’s ability to engage in the sort of exclusionary conduct described by Sallet would be severely limited, if not non-existent. Nor, of course, is there any guarantee that former or would-be OVD subscribers would choose to subscribe to, or pay more for, any MVPD in lieu of OVDs. Meanwhile, many of the relevant substitutes in the MVPD market (like AT&T and Verizon FiOS) also offer broadband services – thereby increasing the costs that would be incurred in the broadband market even more, as many subscribers would shift not only their MVPD, but also their broadband service, in response to Comcast degrading OVDs.

And speaking of the Open Internet Order — wasn’t that supposed to prevent ISPs like Comcast from acting on their alleged incentives to impede the quality of, or access to, edge providers like OVDs? Why is merger enforcement necessary to accomplish the same thing once Title II and the rest of the Open Internet Order are in place? And if the argument is that the Open Internet Order might be defeated, aside from the completely speculative nature of such a claim, why wouldn’t a merger condition that imposed the same constraints on Comcast – as was done in the Comcast/NBCU merger order by imposing the former net neutrality rules on Comcast – be perfectly sufficient?

While the FCC staff analysis accepted as true (again, contrary to current marketplace evidence) that a bigger Comcast would have more incentive to harm OVDs post-merger, it rejected arguments that there could be countervailing benefits to OVDs and others from this same increase in scale. Thus, things like incremental broadband investments and speed increases, a larger Wi-Fi network, and greater business services market competition – things that Comcast is already doing and would have done on a greater and more-accelerated scale in the acquired territories post-transaction – were deemed insufficient to outweigh the expected costs of the staff’s entirely speculative anticompetitive theory.

In reality, however, not only OVDs, but consumers – and especially TWC subscribers – would have benefitted from the merger by access to Comcast’s faster broadband speeds, its new investments, and its superior video offerings on the X1 platform, among other things. Many low-income families would have benefitted from expansion of Comcast’s Internet Essentials program, and many businesses would have benefited from the addition of a more effective competitor to the incumbent providers that currently dominate the business services market. Yet these and other verifiable benefits were given short shrift in the agency’s analysis because they “were viewed by staff as incapable of outweighing the potential harms.”

The assumptions underlying the FCC staff’s analysis of the broadband market are arbitrary and unsupportable

Sallet’s claim that the combined firm would have 60% of all high-speed broadband subscribers in the U.S. necessarily assumes a national broadband market measured at 25 Mbps or higher, which is a red herring.

The FCC has not explained why 25 Mbps is a meaningful benchmark for antitrust analysis. The FCC itself endorsed a 10 Mbps baseline for its Connect America fund last December, noting that over 70% of current broadband users subscribe to speeds less than 25 Mbps, even in areas where faster speeds are available. And streaming online video, the most oft-cited reason for needing high bandwidth, doesn’t require 25 Mbps: Netflix says that 5 Mbps is the most that’s required for an HD stream, and the same goes for Amazon (3.5 Mbps) and Hulu (1.5 Mbps).

What’s more, by choosing an arbitrary, faster speed to define the scope of the broadband market (in an effort to assert the non-competitiveness of the market, and thereby justify its broadband regulations), the agency has – without proper analysis or grounding, in my view – unjustifiably shrunk the size of the relevant market. But, as it happens, doing so also shrinks the size of the increase in “national market share” that the merger would have brought about.

Recall that the staff’s theory was premised on the idea that the merger would give Comcast control over enough of the broadband market that it could unilaterally impose costs on OVDs sufficient to impair their ability to reach or sustain minimum viable scale. But Comcast would have added only one percent of this invented “market” as a result of the merger. It strains credulity to assert that there could be any transaction-specific harm from an increase in market share equivalent to a rounding error.

In any case, basing its rejection of the merger on a manufactured 25 Mbps relevant market creates perverse incentives and will likely do far more to harm OVDs than realization of even the staff’s worst fears about the merger ever could have.

The FCC says it wants higher speeds, and it wants firms to invest in faster broadband. But here Comcast did just that, and then was punished for it. Rather than acknowledging Comcast’s ongoing broadband investments as strong indication that the FCC staff’s analysis might be on the wrong track, the FCC leadership simply sidestepped that inconvenient truth by redefining the market.

The lesson is that if you make your product too good, you’ll end up with an impermissibly high share of the market you create and be punished for it. This can’t possibly promote the public interest.

Furthermore, the staff’s analysis of competitive effects even in this ersatz market aren’t likely supportable. As noted, most subscribers access OVDs on connections that deliver content at speeds well below the invented 25 Mbps benchmark, and they pay the same prices for OVD subscriptions as subscribers who receive their content at 25 Mbps. Confronted with the choice to consume content at 25 Mbps or 10 Mbps (or less), the majority of consumers voluntarily opt for slower speeds — and they purchase service from Netflix and other OVDs in droves, nonetheless.

The upshot? Contrary to the implications on which the staff’s analysis rests, if Comcast were to somehow “degrade” OVD content on the 25 Mbps networks so that it was delivered with characteristics of video content delivered over a 10-Mbps network, real-world, observed consumer preferences suggest it wouldn’t harm OVDs’ access to consumers at all. This is especially true given that OVDs often have a global focus and reach (again, Netflix has 65 million subscribers in over 50 countries), making any claims that Comcast could successfully foreclose them from the relevant market even more suspect.

At the same time, while the staff apparently viewed the broadband alternatives as “limited,” the reality is that Comcast, as well as other broadband providers, are surrounded by capable competitors, including, among others, AT&T, Verizon, CenturyLink, Google Fiber, many advanced VDSL and fiber-based Internet service providers, and high-speed mobile wireless providers. The FCC understated the complex impact of this robust, dynamic, and ever-increasing competition, and its analysis entirely ignored rapidly growing mobile wireless broadband competition.

Finally, as noted, Sallet claimed that the staff determined that merger conditions would be insufficient to remedy its concerns, without any further explanation. Yet the Commission identified similar concerns about OVDs in both the Comcast/NBCUniversal and AT&T/DIRECTV transactions, and adopted remedies to address those concerns. We know the agency is capable of drafting behavioral conditions, and we know they have teeth, as demonstrated by prior FCC enforcement actions. It’s hard to understand why similar, adequate conditions could not have been fashioned for this transaction.

In the end, while I appreciate Sallet’s attempt to explain the FCC’s decision to reject the Comcast/TWC merger, based on the foregoing I’m not sure that Comcast could have made any argument or showing that would have dissuaded the FCC from challenging the merger. Comcast presented a strong economic analysis answering the staff’s concerns discussed above, all to no avail. It’s difficult to escape the conclusion that this was a politically-driven result, and not one rigorously based on the facts or marketplace reality.

Yesterday, the International Center for Law & Economics, together with Professor Gus Hurwitz, Nebraska College of Law, and nine other scholars of law and economics, filed an amicus brief in the DC Circuit explaining why the court should vacate the FCC’s 2015 Open Internet Order.

A few key points from ICLE’s brief follow, but you can read a longer summary of the brief here.

If the 2010 Order was a limited incursion into neighboring territory, the 2015 Order represents the outright colonization of a foreign land, extending FCC control over the Internet far beyond what the Telecommunications Act authorizes.

The Commission asserts vast powers — powers that Congress never gave it — not just over broadband but also over the very ‘edge’ providers it claims to be protecting. The court should be very skeptical of the FCC’s claims to pervasive powers over the Internet.

In the 2015 Order, the FCC Invoked Title II, admitted that it was unworkable for the Internet, and then tried to ‘tailor’ the statute to avoid its worst excesses.

That the FCC felt the need for such sweeping forbearance should have indicated to it that it had ‘taken an interpretive wrong turn’ in understanding the statute Congress gave it. Last year, the Supreme Court blocked a similar attempt by the EPA to ‘modernize’ old legislation in a way that gave it expansive new powers. In its landmark UARG decision, the Court made clear that it won’t allow regulatory agencies to rewrite legislation in an effort to retrofit their statutes to their preferred regulatory regimes.

Internet regulation is a question of ‘vast economic and political significance,’ yet the FCC  didn’t even bother to weigh the costs and benefits of its rule. 

FCC Chairman Tom Wheeler never misses an opportunity to talk about the the Internet as ‘the most important network known to Man.’ So why did he and the previous FCC Chairman ignore requests from other commissioners for serious, independent economic analysis of the supposed problem and the best way to address it? Why did the FCC rush to adopt a plan that had the effect of blocking the Federal Trade Commission from applying its consumer protection laws to the Internet? For all the FCC’s talk about protecting consumers, it appears that its real agenda may be simply expanding its own power.

Joining ICLE on the brief are:

  • Richard Epstein (NYU Law)
  • James Huffman (Lewis & Clark Law)
  • Gus Hurwitz (Nebraska Law)
  • Thom Lambert (Missouri Law)
  • Daniel Lyons (Boston College Law)
  • Geoffrey Manne (ICLE)
  • Randy May (Free State Foundation)
  • Jeremy Rabkin (GMU Law)
  • Ronald Rotunda (Chapman Law)
  • Ilya Somin (GMU Law)

Read the brief here, and the summary here.

Read more of ICLE’s work on net neutrality and Title II, including:

  • Highlights from policy and legal comments filed by ICLE and TechFreedom on net neutrality
  • “Regulating the Most Powerful Network Ever,” a scholarly essay by Gus Hurwitz for the Free State Foundation
  • “How to Break the Internet,” an essay by Geoffrey Manne and Ben Sperry, in Reason Magazine
  • “The FCC’s Net Neutrality Victory is Anything But,” an op-ed by Geoffrey Manne, in Wired
  • “The Feds Lost on Net Neutrality, But Won Control of the Internet,” an op-ed by Geoffrey Manne and Berin Szoka in Wired
  • “Net Neutrality’s Hollow Promise to Startups,” an op-ed by Geoffrey Manne and Berin Szoka in Computerworld
  • Letter signed by 32 scholars urging the FTC to caution the FCC against adopting per se net neutrality rules by reclassifying ISPs under Title II
  • The FCC’s Open Internet Roundtables, Policy Approaches, Panel 3, Enhancing Transparency, with Geoffrey Manne​

Remember when net neutrality wasn’t going to involve rate regulation and it was crazy to say that it would? Or that it wouldn’t lead to regulation of edge providers? Or that it was only about the last mile and not interconnection? Well, if the early petitions and complaints are a preview of more to come, the Open Internet Order may end up having the FCC regulating rates for interconnection and extending the reach of its privacy rules to edge providers.

On Monday, Consumer Watchdog petitioned the FCC to not only apply Customer Proprietary Network Information (CPNI) rules originally meant for telephone companies to ISPs, but to also start a rulemaking to require edge providers to honor Do Not Track requests in order to “promote broadband deployment” under Section 706. Of course, we warned of this possibility in our joint ICLE-TechFreedom legal comments:

For instance, it is not clear why the FCC could not, through Section 706, mandate “network level” copyright enforcement schemes or the DNS blocking that was at the heart of the Stop Online Piracy Act (SOPA). . . Thus, it would appear that Section 706, as re-interpreted by the FCC, would, under the D.C. Circuit’s Verizon decision, allow the FCC sweeping power to regulate the Internet up to and including (but not beyond) the process of “communications” on end-user devices. This could include not only copyright regulation but everything from cybersecurity to privacy to technical standards. (emphasis added).

While the merits of Do Not Track are debatable, it is worth noting that privacy regulation can go too far and actually drastically change the Internet ecosystem. In fact, it is actually a plausible scenario that overregulating data collection online could lead to the greater use of paywalls to access content.  This may actually be a greater threat to Internet Openness than anything ISPs have done.

And then yesterday, the first complaint under the new Open Internet rule was brought against Time Warner Cable by a small streaming video company called Commercial Network Services. According to several news stories, CNS “plans to file a peering complaint against Time Warner Cable under the Federal Communications Commission’s new network-neutrality rules unless the company strikes a free peering deal ASAP.” In other words, CNS is asking for rate regulation for interconnectionshakespeare. Under the Open Internet Order, the FCC can rule on such complaints, but it can only rule on a case-by-case basis. Either TWC assents to free peering, or the FCC intervenes and sets the rate for them, or the FCC dismisses the complaint altogether and pushes such decisions down the road.

This was another predictable development that many critics of the Open Internet Order warned about: there was no way to really avoid rate regulation once the FCC reclassified ISPs. While the FCC could reject this complaint, it is clear that they have the ability to impose de facto rate regulation through case-by-case adjudication. Whether it is rate regulation according to Title II (which the FCC ostensibly didn’t do through forbearance) is beside the point. This will have the same practical economic effects and will be functionally indistinguishable if/when it occurs.

In sum, while neither of these actions were contemplated by the FCC (they claim), such abstract rules are going to lead to random complaints like these, and companies are going to have to use the “ask FCC permission” process to try to figure out beforehand whether they should be investing or whether they’re going to be slammed. As Geoff Manne said in Wired:

That’s right—this new regime, which credits itself with preserving “permissionless innovation,” just put a bullet in its head. It puts innovators on notice, and ensures that the FCC has the authority (if it holds up in court) to enforce its vague rule against whatever it finds objectionable.

I mean, I don’t wanna brag or nothin, but it seems to me that we critics have been right so far. The reclassification of broadband Internet service as Title II has had the (supposedly) unintended consequence of sweeping in far more (both in scope of application and rules) than was supposedly bargained for. Hopefully the FCC rejects the petition and the complaint and reverses this course before it breaks the Internet.

The TCPA is an Antiquated Law

The TCPA is an Antiquated Law

The Telephone Consumer Protection Act (“TCPA”) is back in the news following a letter sent to PayPal from the Enforcement Bureau of the FCC.  At issue are amendments that PayPal intends to introduce into its end user agreement. Specifically, PayPal is planning on including an automated call and text message system with which it would reach out to its users to inform them of account updates, perform quality assurance checks, and provide promotional offers.

Enter the TCPA, which, as the Enforcement Bureau noted in its letter, has been used for over twenty years by the FCC to “protect consumers from harassing, intrusive, and unwanted calls and text messages.” The FCC has two primary concerns in its warning to PayPal. First, there was no formal agreement between PayPal and its users that would satisfy the FCC’s rules and allow PayPal to use an automated call system. And, perhaps most importantly, PayPal is not entitled to simply attach an “automated calls” clause to its user agreement as a condition of providing the PayPal service (as it clearly intends to do with its amendments).

There are a number of things wrong with the TCPA and the FCC’s decision to enforce its provisions against PayPal in the current instance. The FCC has the power to provide for some limited exemptions to the TCPA’s prohibition on automated dialing systems. Most applicable here, the FCC has the discretion to provide exemptions where calls to cell phone users won’t result in those users being billed for the calls. Although most consumers still buy plans that allot minutes for their monthly use, the practical reality for most cell phone users is that they no longer need to count minutes for every call. Users typically have a large number of minutes on their plans, and certainly many of those minutes can go unused. It seems that the progression of technology and the economics of cellphones over the last twenty-five years should warrant a Congressional revisit to the underlying justifications of at least this prohibition in the TCPA.

However, exceptions aside, there remains a much larger issue with the TCPA, one that is also rooted in the outdated technological assumptions underlying the law. The TCPA was meant to prevent dedicated telemarketing companies from using the latest in “automated dialing” technology circa 1991 from harassing people. It was not intended to stymie legitimate businesses from experimenting with more efficient methods of contacting their own customers.

The text of the law underscores its technological antiquity:  according to the TCPA, an “automatic telephone dialing system” means equipment which “has the capacity” to sequentially dial random numbers. This is to say, the equipment that was contemplated when the law was written was software-enabled phones that were purpose built to enable telemarketing firms to make blanket cold calls to every number in a given area code. The language clearly doesn’t contemplate phones connected to general purpose computing resources, as most phone systems are today.

The modern phone systems, connected to intelligent computer backends, are designed to flexibly reach out to hundreds or thousands of existing customers at a time, and in a way that efficiently enhances the customer’s experience with the company. Technically, yes, these systems are capable of auto-dialing a large number of random recipients; however, when a company like PayPal uses this technology, its purpose is clearly different than that employed by the equivalent of spammers on the phone system. Not having a nexus between an intent to random-dial and a particular harm experienced by an end user is a major hole in the TCPA. Particularly in this case, it seems fairly absurd that the TCPA could be used to prevent PayPal from interacting with its own customers.

Further, there is a lot at stake for those accused of violating the TCPA. In the PayPal warning letter, the FCC noted that it is empowered to levy a $16,000 fine per call or text message that it finds violates the terms of the TCPA. That’s bad, but it’s nowhere near as bad as it could get. The TCPA also contains a private right of action that was meant to encourage individual consumers to take telemarketers to small claims court in their local state.  Each individual consumer is entitled to receive provable damages or statutory damages of $500.00, whichever is greater. If willfulness can be proven, the damages are trebled, which in effect means that most individual plaintiffs in the know will plead willfulness, and wait for either a settlement conference or trial to sort the particulars out.

However, over the years a cottage industry has built up around class action lawyers aggregating “harmed” plaintiffs who had received unwanted automatic calls or texts, and forcing settlements in the tens of millions of dollars. The math is pretty simple. A large company with lots of customers may be tempted to use an automatic system to send out account information and offer alerts. If it sends out five hundred thousand auto calls or texts, that could result in “damages” in the amount of $250M in a class action suit. A settlement for five or ten million dollars is a deal by comparison. For instance, in 2013 Bank of America entered into a $32M settlement for texts and calls made between 2007 and 2013 to 7.7 million people.  If they had gone to trial and lost, the damages could have been as much as $3.8B!

The purpose of the TCPA was to prevent abusive telemarketers from harassing people, not to defeat the use of an entire technology that can be employed to increase efficiency for businesses and lower costs for consumers. The per call penalties associated with violating the TCPA, along with imprecise and antiquated language in the law, provide a major incentive to use the legal system to punish well-meaning companies that are just operating their non-telemarketing businesses in a reasonable manner. It’s time to seriously revise this law in light of the changes in technology over the past twenty-five years.

Recently, Commissioner Pai praised the introduction of bipartisan legislation to protect joint sales agreements (“JSAs”) between local television stations. He explained that

JSAs are contractual agreements that allow broadcasters to cut down on costs by using the same advertising sales force. The efficiencies created by JSAs have helped broadcasters to offer services that benefit consumers, especially in smaller markets…. JSAs have served communities well and have promoted localism and diversity in broadcasting. Unfortunately, the FCC’s new restrictions on JSAs have already caused some stations to go off the air and other stations to carry less local news.

fccThe “new restrictions” to which Commissioner Pai refers were recently challenged in court by the National Association of Broadcasters (NAB), et. al., and on April 20, the International Center for Law & Economics and a group of law and economics scholars filed an amicus brief with the D.C. Circuit Court of Appeals in support of the petition, asking the court to review the FCC’s local media ownership duopoly rule restricting JSAs.

Much as it did with with net neutrality, the FCC is looking to extend another set of rules with no basis in sound economic theory or established facts.

At issue is the FCC’s decision both to retain the duopoly rule and to extend that rule to certain JSAs, all without completing a legally mandated review of the local media ownership rules, due since 2010 (but last completed in 2007).

The duopoly rule is at odds with sound competition policy because it fails to account for drastic changes in the media market that necessitate redefinition of the market for television advertising. Moreover, its extension will bring a halt to JSAs currently operating (and operating well) in nearly 100 markets.  As the evidence on the FCC rulemaking record shows, many of these JSAs offer public interest benefits and actually foster, rather than stifle, competition in broadcast television markets.

In the world of media mergers generally, competition law hasn’t yet caught up to the obvious truth that new media is competing with old media for eyeballs and advertising dollars in basically every marketplace.

For instance, the FTC has relied on very narrow market definitions to challenge newspaper mergers without recognizing competition from television and the Internet. Similarly, the generally accepted market in which Google’s search conduct has been investigated is something like “online search advertising” — a market definition that excludes traditional marketing channels, despite the fact that advertisers shift their spending between these channels on a regular basis.

But the FCC fares even worse here. The FCC’s duopoly rule is premised on an “eight voices” test for local broadcast stations regardless of the market shares of the merging stations. In other words, one entity cannot own FCC licenses to two or more TV stations in the same local market unless there are at least eight independently owned stations in that market, even if their combined share of the audience or of advertising are below the level that could conceivably give rise to any inference of market power.

Such a rule is completely unjustifiable under any sensible understanding of competition law.

Can you even imagine the FTC or DOJ bringing an 8 to 7 merger challenge in any marketplace? The rule is also inconsistent with the contemporary economic learning incorporated into the 2010 Merger Guidelines, which looks at competitive effects rather than just counting competitors.

Not only did the FCC fail to analyze the marketplace to understand how much competition there is between local broadcasters, cable, and online video, but, on top of that, the FCC applied this outdated duopoly rule to JSAs without considering their benefits.

The Commission offers no explanation as to why it now believes that extending the duopoly rule to JSAs, many of which it had previously approved, is suddenly necessary to protect competition or otherwise serve the public interest. Nor does the FCC cite any evidence to support its position. In fact, the record evidence actually points overwhelmingly in the opposite direction.

As a matter of sound regulatory practice, this is bad enough. But Congress directed the FCC in Section 202(h) of the Telecommunications Act of 1996 to review all of its local ownership rules every four years to determine whether they were still “necessary in the public interest as the result of competition,” and to repeal or modify those that weren’t. During this review, the FCC must examine the relevant data and articulate a satisfactory explanation for its decision.

So what did the Commission do? It announced that, instead of completing its statutorily mandated 2010 quadrennial review of its local ownership rules, it would roll that review into a new 2014 quadrennial review (which it has yet to perform). Meanwhile, the Commission decided to retain its duopoly rule pending completion of that review because it had “tentatively” concluded that it was still necessary.

In other words, the FCC hasn’t conducted its mandatory quadrennial review in more than seven years, and won’t, under the new rules, conduct one for another year and a half (at least). Oh, and, as if nothing of relevance has changed in the market since then, it “tentatively” maintains its already suspect duopoly rule in the meantime.

In short, because the FCC didn’t conduct the review mandated by statute, there is no factual support for the 2014 Order. By relying on the outdated findings from its earlier review, the 2014 Order fails to examine the significant changes both in competition policy and in the market for video programming that have occurred since the current form of the rule was first adopted, rendering the rulemaking arbitrary and capricious under well-established case law.

Had the FCC examined the record of the current rulemaking, it would have found substantial evidence that undermines, rather than supports, the FCC’s rule.

Economic studies have shown that JSAs can help small broadcasters compete more effectively with cable and online video in a world where their advertising revenues are drying up and where temporary economies of scale (through limited contractual arrangements like JSAs) can help smaller, local advertising outlets better implement giant, national advertising campaigns. A ban on JSAs will actually make it less likely that competition among local broadcasters can survive, not more.

OfficialPaiCommissioner Pai, in his dissenting statement to the 2014 Order, offered a number of examples of the benefits of JSAs (all of them studiously ignored by the Commission in its Order). In one of these, a JSA enabled two stations in Joplin, Missouri to use their $3.5 million of cost savings from a JSA to upgrade their Doppler radar system, which helped save lives when a devastating tornado hit the town in 2011. But such benefits figure nowhere in the FCC’s “analysis.”

Several econometric studies also provide empirical support for the (also neglected) contention that duopolies and JSAs enable stations to improve the quality and prices of their programming.

One study, by Jeff Eisenach and Kevin Caves, shows that stations operating under these agreements are likely to carry significantly more news, public affairs, and current affairs programming than other stations in their markets. The same study found an 11 percent increase in audience shares for stations acquired through a duopoly. Meanwhile, a study by Hal Singer and Kevin Caves shows that markets with JSAs have advertising prices that are, on average, roughly 16 percent lower than in non-duopoly markets — not higher, as would be expected if JSAs harmed competition.

And again, Commissioner Pai provides several examples of these benefits in his dissenting statement. In one of these, a JSA in Wichita, Kansas enabled one of the two stations to provide Spanish-language HD programming, including news, weather, emergency and community information, in a market where that Spanish-language programming had not previously been available. Again — benefit ignored.

Moreover, in retaining its duopoly rule on the basis of woefully outdated evidence, the FCC completely ignores the continuing evolution in the market for video programming.

In reality, competition from non-broadcast sources of programming has increased dramatically since 1999. Among other things:

  • VideoScreensToday, over 85 percent of American households watch TV over cable or satellite. Most households now have access to nearly 200 cable channels that compete with broadcast TV for programming content and viewers.
  • In 2014, these cable channels attracted twice as many viewers as broadcast channels.
  • Online video services such as Netflix, Amazon Prime, and Hulu have begun to emerge as major new competitors for video programming, leading 179,000 households to “cut the cord” and cancel their cable subscriptions in the third quarter of 2014 alone.
  • Today, 40 percent of U.S. households subscribe to an online streaming service; as a result, cable ratings among adults fell by nine percent in 2014.
  • At the end of 2007, when the FCC completed its last quadrennial review, the iPhone had just been introduced, and the launch of the iPad was still more than two years away. Today, two-thirds of Americans have a smartphone or tablet over which they can receive video content, using technology that didn’t even exist when the FCC last amended its duopoly rule.

In the face of this evidence, and without any contrary evidence of its own, the Commission’s action in reversing 25 years of agency practice and extending its duopoly rule to most JSAs is arbitrary and capricious.

The law is pretty clear that the extent of support adduced by the FCC in its 2014 Rule is insufficient. Among other relevant precedent (and there is a lot of it):

The Supreme Court has held that an agency

must examine the relevant data and articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choice made.

In the DC Circuit:

the agency must explain why it decided to act as it did. The agency’s statement must be one of ‘reasoning’; it must not be just a ‘conclusion’; it must ‘articulate a satisfactory explanation’ for its action.


[A]n agency acts arbitrarily and capriciously when it abruptly departs from a position it previously held without satisfactorily explaining its reason for doing so.


The FCC ‘cannot silently depart from previous policies or ignore precedent’ . . . .”

And most recently in Judge Silberman’s concurrence/dissent in the 2010 Verizon v. FCC Open Internet Order case:

factual determinations that underly [sic] regulations must still be premised on demonstrated — and reasonable — evidential support

None of these standards is met in this case.

It will be noteworthy to see what the DC Circuit does with these arguments given the pending Petitions for Review of the latest Open Internet Order. There, too, the FCC acted without sufficient evidentiary support for its actions. The NAB/Stirk Holdings case may well turn out to be a bellwether for how the court views the FCC’s evidentiary failings in that case, as well.

The scholars joining ICLE on the brief are:

  • Babette E. Boliek, Associate Professor of Law, Pepperdine School of Law
  • Henry N. Butler, George Mason University Foundation Professor of Law and Executive Director of the Law & Economics Center, George Mason University School of Law (and newly appointed dean).
  • Richard Epstein, Laurence A. Tisch Professor of Law, Classical Liberal Institute, New York University School of Law
  • Stan Liebowitz, Ashbel Smith Professor of Economics, University of Texas at Dallas
  • Fred McChesney, de la Cruz-Mentschikoff Endowed Chair in Law and Economics, University of Miami School of Law
  • Paul H. Rubin, Samuel Candler Dobbs Professor of Economics, Emory University
  • Michael E. Sykuta, Associate Professor in the Division of Applied Social Sciences and Director of the Contracting and Organizations Research Institute, University of Missouri

The full amicus brief is available here.

reason-mag-dont-tread-on-my-internetBen Sperry and I have a long piece on net neutrality in the latest issue of Reason Magazine entitled, “How to Break the Internet.” It’s part of a special collection of articles and videos dedicated to the proposition “Don’t Tread on My Internet!”

Reason has put together a great bunch of material, and packaged it in a special retro-designed page that will make you think it’s the 1990s all over again (complete with flaming graphics and dancing Internet babies).

Here’s a taste of our article:

“Net neutrality” sounds like a good idea. It isn’t.

As political slogans go, the phrase net neutrality has been enormously effective, riling up the chattering classes and forcing a sea change in the government’s decades-old hands-off approach to regulating the Internet. But as an organizing principle for the Internet, the concept is dangerously misguided. That is especially true of the particular form of net neutrality regulation proposed in February by Federal Communications Commission (FCC) Chairman Tom Wheeler.

Net neutrality backers traffic in fear. Pushing a suite of suggested interventions, they warn of rapacious cable operators who seek to control online media and other content by “picking winners and losers” on the Internet. They proclaim that regulation is the only way to stave off “fast lanes” that would render your favorite website “invisible” unless it’s one of the corporate-favored. They declare that it will shelter startups, guarantee free expression, and preserve the great, egalitarian “openness” of the Internet.

No decent person, in other words, could be against net neutrality.

In truth, this latest campaign to regulate the Internet is an apt illustration of F.A. Hayek’s famous observation that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Egged on by a bootleggers-and-Baptists coalition of rent-seeking industry groups and corporation-hating progressives (and bolstered by a highly unusual proclamation from the White House), Chairman Wheeler and his staff are attempting to design something they know very little about-not just the sprawling Internet of today, but also the unknowable Internet of tomorrow.

And the rest of the contents of the site are great, as well. Among other things, there’s:

  • “Why are Edward Snowden’s supporters so eager to give the government more control over the Internet?” Matt Welch’s  take on the contradictions in the thinking of net neutrality’s biggest advocates.
  • “The Feds want a back door into your computer. Again.” Declan McCullagh on the eternal return of government attempts to pre-hack your technology.
  • “Uncle Sam wants your Fitbit.” Adam Thierer on the coming clampdown on data coursing through the Internet of Things.
  • Mike Godwin on how net neutrality can hurt developing countries most of all.
  • “How states are planning to grab tax dollars for online sales,” by Veronique de Rugy
  • FCC Commissioner Ajit Pai on why net neutrality is “a solution that won’t work to a problem that simply doesn’t exist.”
  • “8 great libertarian apps that make your world a little freer and a whole lot easier to navigate.”

There’s all that, plus enough flaming images and dancing babies to make your eyes bleed. Highly recommended!

By a 3-2 vote, the Federal Communications Commission (FCC) decided on February 26 to preempt state laws in North Carolina and Tennessee that bar municipally-owned broadband providers from providing services beyond their geographic boundaries.  This decision raises substantial legal issues and threatens economic harm to state taxpayers and consumers.

The narrow FCC majority rested its decision on its authority to remove broadband investment barriers, citing Section 706 of the Telecommunications Act of 1996.  Section 706 requires the FCC to encourage the deployment of broadband to all Americans by using “measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”  As dissenting Commissioner Ajit Pai pointed out, however, Section 706 contains no specific language empowering it to preempt state laws, and the FCC’s action trenches upon the sovereign power of the states to control their subordinate governmental entities.  Moreover, it is far from clear that authorizing government-owned broadband companies to expand into new territories promotes competition or eliminates broadband investment barriers.  Indeed, the opposite is more likely to be the case.

Simply put, government-owned networks artificially displace market forces and are an affront to a reliance on free competition to provide the goods and services consumers demand – including broadband communications.  Government-owned networks use local taxpayer monies and federal grants (also taxpayer funded, of course) to compete unfairly with existing private sector providers.  Those taxpayer subsidies put privately funded networks at a competitive disadvantage, creating barriers to new private sector entry or expansion, as private businesses decide they cannot fairly compete against government-backed enterprises.  In turn, reduced private sector investment tends to diminish quality and effective consumer choice.

These conclusions are based on hard facts, not mere theory.  There is no evidence that municipal broadband is needed because “market failure” has deterred private sector provision of broadband – indeed, firms such as Verizon, AT&T, and Comcast spend many billions of dollars annually to maintain, upgrade, and expand their broadband networks.  Indeed, far more serious is the risk of “government failure.”  Municipal corporations, free from market discipline and accountability due to their public funding, may be expected to be bureaucratic, inefficient, and slow to react to changing market conditions.  Consistent with this observation, an economic study of government-operated municipal broadband networks reveals failures to achieve universal service in areas that they serve; lack of cost-benefit analysis that has caused costs to outweigh benefits; the inefficient use of scarce resources; the inability to cover costs; anticompetitive behavior fueled by unfair competitive advantages; the inefficient allocation of limited tax revenues that are denied to more essential public services; and the stifling of private firm innovation.  In a time of tight budget constraints, the waste of taxpayer funds and competitive harm stemming from municipal broadband activities is particularly unfortunate.  In short, real world evidence demonstrates that “[i]n a dynamic market such as broadband services, government ownership has proven to be an abject failure.”  What is required is not more government involvement, but, rather, fewer governmental constraints on private sector broadband activities.

Finally, what’s worse, the FCC’s decision has harmful constitutional overtones.  The Chattanooga, Tennessee and Wilson, North Carolina municipal broadband networks that requested FCC preemption impose troublesome speech limitations as conditions of service.  The utility that operates the Chattanooga network may “reject or remove any material residing on or transmitted to or through” the network that violates its “Accepted Use Policy.”  That Policy, among other things, prohibits using the network to send materials that are “threatening, abusive or hateful” or that offend “the privacy, publicity, or other personal rights of others.”  It also bars the posting of messages that are “intended to annoy or harass others.”  In a similar vein, the Wilson network bars transmission of materials that are “harassing, abusive, libelous or obscene” and “activities or actions intended to withhold or cloak any user’s identity or contact information.”  Content-based prohibitions of this type broadly restrict carriage of constitutionally protected speech and, thus, raise serious First Amendment questions.  Other municipal broadband systems may, of course, elect to adopt similarly questionable censorship-based policies.

In short, the FCC’s broadband preemption decision is likely to harm economic welfare and is highly problematic on legal grounds to boot.  The FCC should rescind that decision.  If it fails to do so, and if the courts do not strike the decision down, Congress should consider legislation to bar the FCC from meddling in state oversight of municipal broadband.

Much ink has been spilled (and with good reason) about the excessive and totally unnecessary regulatory burdens associated with the Federal Communications Commission’s (FCC) February 26 “Open Internet Order” (OIO), which imposes public utility regulation on Internet traffic.  For example, as Heritage Foundation Senior Research Fellow James Gattuso recently explained, “[d]evised for the static monopolies, public-utility regulation will be corrosive to today’s dynamic Internet. There’s a reason the phrase ‘innovative public utility’ doesn’t flows easily from the tongue. The hundreds of rules that come with public utility status are geared to keeping monopolies in line, not encouraging new or innovative ways of doing things. . . .  Even worse, by imposing burdens on big and small carriers alike, the new rules may actually stifle chances of increasing competition among broadband providers.”

Apart from its excessive and unjustifiable economic costs, the OIO has another unfortunate feature which has not yet been widely commented upon – it is an invitation to cronyism, which is an affront to the neutral application of the laws.  As Heritage Foundation President Jim DeMint and Heritage Action President Mike Needham have emphasized, well-connected businesses use lobbying and inside influence to benefit themselves by having government enact special subsidies, bailouts and complex regulations. Those special preferences undermine competition on the merits firms that lack insider status, harming the public.

But what scope is there for cronyism in the FCC’s application of its OIO?  A lotAs I explain in a March 30 Heritage Foundation Daily Signal blog posting, the FCC will provide OIO guidance through “enforcement advisories” and “advisory opinions,” and the Commission’s Enforcement Bureau can request written opinions from outside organizations.  Translating this bureaucratese into English, the FCC is saying that the inherently open-ended language that determines whether an Internet business practice is given a thumbs up or thumbs down will turn on “opinions” that will require the input of high-priced lawyers and advisers.  Smaller and emerging firms that cannot afford to pay for influence may be out of luck.  Moreover, large established companies that are experts at the “Washington game” and engage in administration-approved activities or expenditures (such as politically correct green projects or the right campaign contributions) may be given special consideration when the FCC’s sages decide whether an Internet business practice is “unreasonable” or not.  This means, for example, that firms that are willing to pay more for better Internet access to challenge such powerful firms as Netflix in video services or Google in search activities or Facebook in social networking may be out of luck, if they are less effective at playing the Washington influence game than at competing on the merits.  Those who downplay this risk should recall that the FCC has a long and sad record of using regulations to advantage powerful incumbents (for decades the FCC shielded AT&T from cellular telephony competition and the over-the-air television broadcasters from cable competition).

In short, the benefits to American consumers and the overall American economy generated by a regulation-free Internet—not to mention the ability of entrepreneurs to thrive, free from cronyism—may soon become a thing of the past, unless action is taken by Congress or the courts.  American citizens deserve better than that from their government.

On February 13 an administrative law judge (ALJ) at the California Public Utility Commission (CPUC) issued a proposed decision regarding the Comcast/Time Warner Cable (TWC) merger. The proposed decision recommends that the CPUC approve the merger with conditions.

It’s laudable that the ALJ acknowledges at least some of the competitive merits of the proposed deal. But the set of conditions that the proposed decision would impose on the combined company in order to complete the merger represents a remarkable set of unauthorized regulations that are both inappropriate for the deal and at odds with California’s legislated approach to regulation of the Internet.

According to the proposed decision, every condition it imposes is aimed at mitigating a presumed harm arising from the merger:

The Applicants must meet the conditions adopted herein in order to provide reasonable assurance that the proposed transaction will be in the public interest in accordance with Pub. Util. Code § 854(a) and (c).… We only adopt conditions which mitigate an effect of the merger in order to satisfy the public interest requirements of § 854.

By any reasonable interpretation, this would mean that the CPUC can adopt only those conditions that address specific public interest concerns arising from the deal itself. But most of the conditions in the proposed decision fail this basic test and seem designed to address broader social policy issues that have nothing to do with the alleged competitive effects of the deal.

Instead, without undertaking an analysis of the merger’s competitive effects, the proposed decision effectively accepts that the merger serves the public interest, while also simply accepting the assertions of the merger’s opponents that it doesn’t. In the name of squaring that circle, the proposed decision seeks to permit the merger to proceed, but then seeks to force the post-merger company to conform to the merger’s critics’ rather arbitrary view of their preferred market structure for the provision of cable broadband services in California.

For something — say, a merger — to be in the public interest, it need not further every conceivable public interest goal. This is a perversion of the standard, and it turns “public interest” into an unconstrained license to impose a regulatory wish-list on particular actors, outside of the scope of usual regulatory processes.

While a few people may have no problem with the proposed decision’s expansive vision of Internet access regulation, California governor Jerry Brown and the overwhelming majority of the California state legislature cannot be counted among the supporters of this approach.

In 2012 the state legislature passed by an overwhelming margin — and Governor Brown signed — SB 1161 (codified as Section 710 of the California Public Utilities Code), which expressly prohibits the CPUC from regulating broadband:

The commission shall not exercise regulatory jurisdiction or control over Voice over Internet Protocol and Internet Protocol enabled services except as required or expressly delegated by federal law or expressly directed to do so by statute or as set forth in [certain enumerated exceptions].”

The message is clear: The CPUC should not try to bypass clear state law and all institutional safeguards by misusing the merger clearance process.

While bipartisan majorities in the state house, supported by a Democratic governor, have stopped the CPUC from imposing new regulations on Internet and VoIP services through SB 1161, the proposed decision seeks to impose regulations through merger conditions that go far beyond anything permitted by this state law.

For instance, the proposed decision seeks to impose arbitrary retail price controls on broadband access:

Comcast shall offer to all customers of the merged companies, for a period of five years following the effective date of the parent company merger, the opportunity to purchase stand-alone broadband Internet service at a price not to exceed the price charged by Time Warner for providing that service to its customers, and at speeds, prices, and terms, at least comparable to that offered by Time Warner prior to the merger’s closing.

And the proposed decision seeks to mandate market structure in other insidious ways, as well, mandating specific broadband speeds, requiring a break-neck geographic expansion of Comcast’s service area, and dictating installation and service times, among other things — all without regard to the actual plausibility (or cost) of implementing such requirements.

But the problem is even more acute. Not only does the proposed decision seek to regulate Internet access issues irrelevant to the merger, it also proposes to impose conditions that would actually undermine competition.

The proposed decision would impose the following conditions on Comcast’s business VoIP and business Internet services:

Comcast shall offer Time Warner’s Business Calling Plan with Stand Alone Internet Access to interested CLECs throughout the combined service territories of the merging companies for a period of five years from the effective date of the parent company merger at existing prices, terms and conditions.

Comcast shall offer Time Warner’s Carrier Ethernet Last Mile Access product to interested CLECs throughout the combined service territories of the merging companies for a period of five years from the effective date of the parent company at the same prices, terms and conditions as offered by Time Warner prior to the merger.

But the proposed decision fails to recognize that Comcast is an also-ran in the business service market. Last year it served a small fraction of the business customers served by AT&T and Verizon, who have long dominated the business services market:

According to a Sept. 2011 ComScore survey, AT&T and Verizon had the largest market shares of all business services ISPs. AT&T held 20% of market share and Verizon held 12%. Comcast ranked 6th, with 5% of market share.

The proposed conditions would hamstring the upstart challenger Comcast by removing both product and pricing flexibility for five years – an eternity in rapidly evolving technology markets. That’s a sure-fire way to minimize competition, not promote it.

The proposed decision reiterates several times its concern that the combined Comcast/Time Warner Cable will serve more than 80% of California households, and “reduce[] the possibilities for content providers to reach the California broadband market.” The alleged concern is that the combined company could exercise anticompetitive market power — imposing artificially high fees for carrying content or degrading service of unaffiliated content and services.

The problem is Comcast and TWC don’t compete anywhere in California today, and they face competition from other providers everywhere they operate. As the decision matter-of-factly states:

Comcast and Time Warner do not compete with one another… [and] Comcast and Time Warner compete with other providers of Internet access services in their respective service territories.

As a result, the merger will actually have no effect on the number of competitive choices in the state; the increase in the statewide market share as a result of the deal is irrelevant. And so these purported competition concerns can’t be the basis for any conditions, let alone the sweeping ones set out in the proposed decision.

The stated concern about content providers finding it difficult to reach Californians is a red herring: the post-merger Comcast geographic footprint will be exactly the same as the combined, pre-merger Comcast/TWC/Charter footprint. Content providers will be able to access just as many Californians (and with greater speeds) as before the merger.

True, content providers that just want to reach some number of random Californians may have to reach more of them through Comcast than they would have before the merger. But what content provider just wants to reach some number of Californians in the first place? Moreover, this fundamentally misstates the way the Internet works: it is users who reach the content they prefer; not the other way around. And, once again, for literally every consumer in the state, the number of available options for doing so won’t change one iota following the merger.

Nothing shows more clearly how the proposed decision has strayed from responding to merger concerns to addressing broader social policy issues than the conditions aimed at expanding low-price broadband offerings for underserved households. Among other things, the proposed conditions dramatically increase the size and scope of Comcast’s Internet Essentials program, converting this laudable effort from a targeted program (that uses a host of tools to connect families where a child is eligible for the National School Lunch Program to the Internet) into one that must serve all low-income adults.

Putting aside the damage this would do to the core Internet Essentials’ mission of connecting school age children by diverting resources from the program’s central purpose, it is manifestly outside the scope of the CPUC’s review. Nothing in the deal affects the number of adults (or children, for that matter) in California without broadband.

It’s possible, of course, that Comcast might implement something like an expanded Internet Essentials program without any prodding; after all, companies implement (and expand) such programs all the time. But why on earth should regulators be able to define such an obligation arbitrarily, and to impose it on whatever ISP happens to be asking for a license transfer? That arbitrariness creates precisely the sort of business uncertainty that SB 1161 was meant to prevent.

The same thing applies to the proposed decision’s requirement regarding school and library broadband connectivity:

Comcast shall connect and/or upgrade Internet infrastructure for K-12 schools and public libraries in unserved and underserved areas in Comcast’s combined California service territory so that it is providing high speed Internet to at least the same proportion of K-12 schools and public libraries in such unserved and underserved areas as it provides to the households in its service territory.

No doubt improving school and library infrastructure is a noble goal — and there’s even a large federal subsidy program (E-Rate) devoted to it. But insisting that Comcast do so — and do so to an extent unsupported by the underlying federal subsidy program already connecting such institutions, and in contravention of existing provider contracts with schools — as a condition of the merger is simple extortion.

The CPUC is treating the proposed merger like a free-for-all, imposing in the name of the “public interest” a set of conditions that it would never be permitted to impose absent the gun-to-the-head of merger approval. Moreover, it seeks to remake California’s broadband access landscape in a fashion that would likely never materialize in the natural course of competition: If the merger doesn’t go through, none of the conditions in the proposed decision and alleged to be necessary to protect the public interest will exist.

Far from trying to ensure that Comcast’s merger with TWC doesn’t erode competitive forces to the detriment of the public, the proposed decision is trying to micromanage the market, simply asserting that the public interest demands imposition of it’s subjective and arbitrary laundry list of preferred items. This isn’t sensible regulation, it isn’t compliant with state law, and it doesn’t serve the people of California.

It’s easy to look at the net neutrality debate and assume that everyone is acting in their self-interest and against consumer welfare. Thus, many on the left denounce all opposition to Title II as essentially “Comcast-funded,” aimed at undermining the Open Internet to further nefarious, hidden agendas. No matter how often opponents make the economic argument that Title II would reduce incentives to invest in the network, many will not listen because they have convinced themselves that it is simply special-interest pleading.

But whatever you think of ISPs’ incentives to oppose Title II, the incentive for the tech companies (like Cisco, Qualcomm, Nokia and IBM) that design and build key elements of network infrastructure and the devices that connect to it (i.e., essential input providers) is to build out networks and increase adoption (i.e., to expand output). These companies’ fundamental incentive with respect to regulation of the Internet is the adoption of rules that favor investment. They operate in highly competitive markets, they don’t offer competing content and they don’t stand as alleged “gatekeepers” seeking monopoly returns from, or control over, what crosses over the Interwebs.

Thus, it is no small thing that 60 tech companies — including some of the world’s largest, based both in the US and abroad — that are heavily invested in the buildout of networks and devices, as well as more than 100 manufacturing firms that are increasingly building the products and devices that make up the “Internet of Things,” have written letters strongly opposing the reclassification of broadband under Title II.

There is probably no more objective evidence that Title II reclassification will harm broadband deployment than the opposition of these informed market participants.

These companies have the most to lose from reduced buildout, and no reasonable nefarious plots can be constructed to impugn their opposition to reclassification as consumer-harming self-interest in disguise. Their self-interest is on their sleeves: More broadband deployment and adoption — which is exactly what the Open Internet proceedings are supposed to accomplish.

If the FCC chooses the reclassification route, it will most assuredly end up in litigation. And when it does, the opposition of these companies to Title II should be Exhibit A in the effort to debunk the FCC’s purported basis for its rules: the “virtuous circle” theory that says that strong net neutrality rules are necessary to drive broadband investment and deployment.

Access to all the wonderful content the Internet has brought us is not possible without the billions of dollars that have been invested in building the networks and devices themselves. Let’s not kill the goose that lays the golden eggs.