Reboot the FCC? Problem is Bigger Than That

Alright. You come here to keep up on tech and topics related to tech. This time its a policy brief. Yes, as exciting as a sap drip in February in Vermont. But really this stuff is more important than you can imagine. Here’s an example. In days of yore (circa 1970 lets say) if somebody wanted to understand the inner workings of say a PC system driver they would whip out a disassembler and reconstruct the code. Look at it critically, identify opportunities for improvement and act on those findings. We, society, end up with a better product and the technologist may end up with a few pieces of eight in his pocket for the trouble.

Now? Heh. If the Sun, Moon and Jupiter are in alignment just right our technologist might find himself on the short end of DMCA stick. That stick being held by a well fed corporate lawyer with time to burn. Society is less one more innovation and the technologist after a long legal fight finds himself on the street having just lost his house in a settlement. Such is the nature of IP law these days. So you understand this stuff MATTERS.

Well along comes Mr. Lessing in this Newsweak piece. Mr. Lessing is considered a fairly renound fellow for being able to straddle the intersection of technology, law and social mores. A tough order in most cases. Mr. Lessing opines –

If history is our guide, these new technologies are at risk, and with them, everything they make possible. With so much in its reach, the FCC has become the target of enormous campaigns for influence. Its commissioners are meant to be “expert” and “independent,” but they’ve never really been expert, and are now openly embracing the political role they play. Commissioners issue press releases touting their own personal policies. And lobbyists spend years getting close to members of this junior varsity Congress. Think about the storm around former FCC Chairman Michael Powell’s decision to relax media ownership rules, giving a green light to the concentration of newspapers and television stations into fewer and fewer hands. This is policy by committee, influenced by money and power, and with no one, not even the President, responsible for its failures.

The solution here is not tinkering. You can’t fix DNA. You have to bury it. President Obama should get Congress to shut down the FCC and similar vestigial regulators, which put stability and special interests above the public good. In their place, Congress should create something we could call the Innovation Environment Protection Agency (iEPA), charged with a simple founding mission: “minimal intervention to maximize innovation.” The iEPA’s core purpose would be to protect innovation from its two historical enemies—excessive government favors, and excessive private monopoly power.

Now hold that thought.

Well over at WetMachine there’s another opinion on Mr. Lessing’s thought by Harold Feld –

I indulge in this lengthy preamble to set up my primary argument for Larry Lessig’s piece in Newsweek to abolish the existing FCC an replace it with an innovation environmental protection agency (iEPA). Larry believes the iEPA, free of the 1930s ideology of regulated monopoly that shaped the FCC’s underlying statutes and designed to encourage innovation, would end up producing superior policies that would do things like encourage new uses of spectrum against the wishes of exclusive licensees, protect us from abuse of market power by enforcing network neutrality rules in a fashion similar to the Comcast/BitTorrent complaint, without stifling everything in tariffs and restrictions that incumbents can manipulate as they have throughout the FCC’s 70 year history.

Maybe. But I think it more likely things would turn out like they did with ICANN. Despite moving management of the DNS out of government into a non-profit supposedly managed by engineers and limited to “voluntary coordination” and “bottom up processes,” ICANN has proven as prone to abuse and capture by incumbents as any federal agency — possibly more so because it lacks judicial oversight or mandatory procedural safeguards (it has adopted some, but they are ultimately voluntary). As I observed in my last post, ICANN didn’t end up like it did because it was designed by bad people. It happened because we live in a messy world and expecting that good intentions and trustworthy actors with the best interest of the “Internet community” at heart could magically overcome the realities of stakeholder incentives and econonmic and political realities is as much a fantasy as the Gods of the Marketplace and the Competition Fairy.

Mr. Fled is also a very bright fellow who has operated in the communications arena for quite some time.

At this point you are probably saying to yourself, “Ok but who’s right?” Hate to say it but up to a point they both are. At least from an observational point of view. Lessing correctly points out that too much control via surrogates stifles innovation. So what you have at the FCC is the ‘K’ Street crowd jostling for position as a matter of policy to gain an economic advantage. That advantage usually takes two forms. A) Retention of the policy status quo to the benefit of the incumbent providers. B) Statutory barriers to entry of additional players in the economic arena.

Feld on the other hand argues that regulatory hand maidens can get such polices right with equal frequency. There is historical references sufficient to bolster his view. The FDA for example preventing untested drugs in the market for one. The early days of the FCC maintaining order in the frequency bands for another. Of course there can be unintended consequences of such activism. A prime example is the CPSC requiring that all wood toys for children under the age of 13 must be tested. That pretty much eliminates the small mom & pop producer. They can’t afford the testing fees as percentage of their product cost. The reality being that most wooden toys for children are not coated or are coated with beeswax and the regulation was targeted to eliminate hazards associated with lead based toys. Another words bad regulatory draft coupled with lack of economic impact review. What is of particular note is Feld himself will tell you he is not Geek like a Cerf or Metcalf. In my eye, how can one fully understand what one regulates without that level of knowledge?

The right course? Well first of all lets set some markers –

• Government is NEVER an innovator. That last innovation issued by government was in 1789 which happens to be the Constitution.
• Anything that is to be classified as too big to fail should also be classified as too big to exist.
• The artificial person fiction of equal standing before the law to that of a actual person is dangerous. (Such that I am bucking a legal trend 200 years in the making.)
• Recent modifications in Copyright and Patent law are going the wrong direction.

Lessing’s observations are correct but his prescription will never fly. He complains that the DNA fix is in at the FCC that stifles competition. To a point yes. But his cure is to create another set of DNA that takes the opposite view but yet again an government agency. He misses totally the fact in the first bullet above that there can be no such thing as a innovative agency. Government as it is constructed under our Constitution is a tool based on restriction. So the DNA is baselined by being an outgrowth of government.

Feld on the other hand takes the tact that moderate regulation can be beneficial. I’ll grant that. But any cabal of policy nerds will NEVER see every possible contingency. Nor, even if an economic impact study is done, will such a study be exhaustive enough to encompass all factors. Such studies are usually constrained to the time alloted which means all manner of alternate viewpoints, factors and usage is set aside never to be discussed. As a matter of human nature, once a group is under pressure by conflicting demands there is a tendency to withdraw from conflict and make decisions in a vacuum. Or to opt for the path of least resistance as a course of action.

So Dog’s prescription:

• Start with the second bullet above. For whatever reason of late the antitrust provisions have been infrequently applied. The last time of any note being against Microsoft both here and the EU. My view is that Verizon and AT&T have become too big. The litmus test should be not only “has monopolist practices been applied” but one that also asks “If either firm failed could services be substituted by another supplier?” Even if they pass the first test, should they fail the second then actions should be triggered that forces divestiture.
• Artificial persons like corporations, LLC’s and the like should also have time limits. Natural persons in the West are averaging 70 year lifespans. So lets be generous and by statute have 100 years as the natural death of a business entity. Institute a new Chapter in bankruptcy law to handle the ‘natural death’ of the entity. Provide a sufficient period so that the assets can be adequately sold at FMV. The assets are disbursed to the bondholders and shareholders as set forth in the corporate charter and ancillary agreements.
• Redress. Were I to have my druthers, artificial persons — Corps, NGO’s, Unions — would have no standing in this regard. The Constitution states — “…or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” But it does not say GM, Tyco, GE, SEIU. The problem is how do you separate the person from their economic interests? You can’t. Bill Gates the corporate maven, I would tell him to go pound sand and stand in a corner. Gates the shareholder has as much right to voice his redress as I do. You can’t separate these facts without turning some people into second class citizens.

  Best that I can suggest is that Congress would only address natural persons, and end lobbying by ‘K’ Street corporate interests. (Tall order I know.) Where regulatory implementation is concerned all voices should be heard. You can’t regulate in a vacuum.

• In IP we should have a roll back. The old rules of IP served us well for roughly 150 years. The Mickey Mouse changes are counter productive. They extend the ownership rights too far. From a purely business perspective if you can’t turn your profit in a 20 year timeframe then most likely you never will even if you hold exclusive right for 100 years. The firm is misallocating funds to shareholders detriment. As to Disney in particular why aren’t they licensing the cartoon characters in a manner they can be used in a daycare setting rather than suing the same? As a shareholder I would want to leverage the opportunity. Now we have had some favorable moves of late but Congress really needs to reconsider undoing much of what they have issued in the last 10 years.
• Finally to the FCC itself. Regardless of its policy operations, band allocations should have a set aside for open bandwidth at various frequencies. Such set asides would both spur development in ways not even known today. It would also provide areas of experimentation that won’t require megadollars just to get the regulatory approvals to try. A final outcome would be a damping effect on price gouging due to monopolistic tendencies of the current crop of carriers.

  As to FCC policy, given its charter, and being a creature of Congress. Due consideration should be implemented that requires that agency to perform economic impact statements of whether a given regulation results in distortion effects vs no implementation at all. If doing nothing is less injurious to the economy then no regulations should issue forth.

Perfect answers? Probably not. But it is the best I can offer knowing that some of the problems have nothing to do with policy.

Newsweek article.
WetMachine.