Times columnist Eduardo Porter apparently believes that he has seen the future and thinks it works: The French government forced France Télécom to lease capacity on its wires to rivals for a regulated price, he reports, and now competitor Iliad offers packages that include free international calls to 70 countries and a download speed of 100 megabits per second for less than $40.

It should be noted at the outset that the percentage of French households with broadband in 2009 (57%) was less than the percentage of U.S. households (63%) according to statistics cited by the Federal Communications Commission.

There is a much stronger argument for unbundling in France - which lacks a fully-developed cable TV industry - than in the U.S. As the Berkman Center paper to which Porter's column links notes on pages 266-68, DSL subscriptions - most of which ride France Télécom's network - make up 95% of all broadband connections in France. Cable constitutes approximately only 5% of the overall broadband market. Competition among DSL providers has produced lower prices for consumers, but at the expense of private investment in fiber networks.

The U.S. has already experimented with unbundling, and the trial was unsuccessful. Prior to 2003, new entrants could purchase the high-frequency portion of local telephone loops to provide their own DSL service. In February of 2003, the FCC eliminated line-sharing, which had allowed new entrants to offer DSL - but not voice - over incumbent loops (henceforth, new entrants could either purchase the entire loop or partner with a voice provider).

"There is no evidence that network sharing has increased competition in U.S. broadband markets," according to Robert W. Crandall of the Brookings Institution. "At the end of 2003, the FCC reported that only 1.7 percent of all broadband lines were DSL lines offered by nonincumbent telephone companies." (See Crandall, Competition and Chaos (2005).)

Porter also claims that cable is often the only choice for consumers who desire very high speeds. He is insinuating that there is monopoly problem in broadband, which might justify common carrier regulation pursuant to ancient legal theory. The legal scholar Blackstone wrote an early text book on this subject in the 18th century. Common carrier regulation guarded against monopolist misbehavior, but it also defended government-awarded monopolies from "ruinous" competition or unlimited liability. It turned out to be a sweet deal for monopolists. The fact that it victimized consumers became apparent by the 1970s.

Although telecommunications carriers are not investing in fiber-to-the-premises at the moment, they are investing in 4G wireless technologies that promise download speeds of 100 megabits per second or higher. Verizon Chairman and CEO Lowell C. McAdam predicted earlier this week in Tampa that "mobile devices will generate more Internet traffic than all wired devices combined" by the middle of this decade. And Wall Street Journal columnist Holman W. Jenkins, Jr. wrote this week that it seems, at least for now, that "wireless is the future of broadband."

None of us can be sure what this market will look like in the future. If big cable companies seem frightening now, it is worth recalling that for years doomsayers predicted that telecommunications carriers would monopolize data processing, video services, classified advertising, alarm monitoring, etc. None of these predictions proved accurate. Most successful commercial enterprises are one-trick ponies.

What is clear is that we never seem to tire of the network access regulation debate. After many years of consideration, the FCC ruled in 1984 that providers of "computer enhanced services" would not be regulated as common carriers. Under pressure to reverse course in the late 1990s, FCC Chairman William E. Kennard (Democrat) declared that "the best decision government ever made with respect to the Internet was the decision that the FCC made 15 years ago NOT to impose regulation on it." In 2010, the FCC voted along party lines to "preserve the Internet as an open network." That decision is the subject of pending litigation.

Hastings apparently hopes to write the next version.

Just imagine trying to run a business that is utterly dependent on a single delivery network -- a gatekeeper -- that can make up the rules on the fly and knows you have nowhere else to go. To get the predictability you need to stay solvent, you'll be told to pay a "first class" premium to reach your customers. From your perspective, the whole situation will feel like you're being shaken down: It's arbitrary, unfair, and coercive.

For one thing, Crawford seems to be annoyed that the "open Internet protections" adopted by the Federal Communications Commission in 2010 do not curtail specialized services -- such as an offering from Comcast that lets Xbox 360 owners get thousands of movies and TV shows from XFINITY On Demand. As the commission explained,

"[S]pecialized services," such as some broadband providers' existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide end users valued services, supplementing the benefits of the open Internet. (emphasis mine)

For the data usage threshold exemption to be provided at no charge to Netflix, however, Comcast would have to recover the cost and/or the value from somewhere else. Broadband providers invested nearly $65 billion in 2010 alone. FCC staff have estimated the cost of universal broadband availability is $350 billion for 100 Mbps or faster.

Neither taxpayers nor lenders are going to sustain this level of investment in the current economic and political environment. It will have to come from private investors, who have many options for managing their money and demand competitive returns on equity. Since specialized services share last-mile facility capacity with broadband Internet access services, they provide a valuable additional source of revenue for fueling investment in the network. The concept is the same as first class and economy class passengers sharing the cost of air travel.

Increasing broadband adoption is justifiably a major objective of FCC Chairman Julius Genachowski, who estimated that more than 100 million Americans (roughly 35% of U.S. households) could but did not have broadband in 2010 in part because they felt they could not afford it.

Making broadband universally affordable and preventing businesses from having the option to pay a first class premium to reach their customers (if they want) are not compatible goals. If anything, there is a need to reduce broadband prices, not subsidize Netflix sales. Broadband providers must be allowed to let customers who value their products and services pay more money so broadband providers will be in a stronger position to appeal to price-conscious consumers.

Kindle users, for example, pay for the content and get the wireless connectivity for free.

Crawford falsely claims that broadband is a "single delivery network -- a gatekeeper -- that can make up the rules on the fly and knows you have nowhere else to go." She makes this untrue claim because "natural monopoly" is the classic legal justification for close government scrutiny and pervasive regulation.

The fact is that cable, telephone and mobile wireless providers all compete to offer similar broadband Internet access services. Fourth-generation wireless technologies being deployed now are believed to be capable of delivering peak download speeds of 100 Mbps or higher, comparable to DOCSIS 3.0 and Verizon's FiOS service. There is no gatekeeper problem, only a desire on the part of some firms to seek political favors instead of undertaking the difficult and uncertain task of creating real consumer value.

Netflix's success derives in large part because FedEx, UPS and the U.S. Postal Service did not rent out DVDs. Delivering video is a Comcast speciality, however, and Netflix has no obvious source of competitive advantage. That's unfortunate, but a bailout would impose hidden costs on consumers in the form of high prices for broadband Internet access.

When government intrudes in the free market to perform a rescue of the type Netflix is seeking, it is picking winners and losers. Capricious government intervention frightens private investors and can lead to crony capitalism and corruption.

I'm not sure what Susan Crawford can do to avoid having to gate check her viola in the future. But not even she is advocating that Congress repeal airline deregulation so airlines are treated the same as telecommunications carriers again. Which is exactly what she is advocating for broadband.

the telecom industry is forcing policymakers to re-examine what has long been a basic guarantee of government - that every American home should have access to a phone, along with other utilities such as water or electricity. Industry executives and state lawmakers who support this effort want to expand the definition of the phone utility beyond the century-old icon of the American home to include Web-based devices or mobile phones.

This has become a problem as more and more consumers are "cutting the cord" in favor of wireless or VoIP services. AT&T, for example, has lost nearly half of its consumer switched access lines since the end of 2006. However, most of the loops, switches, cables and other infrastructure which comprise the telephone network must be maintained if telecom providers have to furnish telephone service to anyone who wants it within days.

In other words, there are high fixed costs in the telecom business which do not vary in direct proportion to the number of consumers who choose to pay for telephone service in any given month or year. When millions of consumers cut the cord, there are far fewer customers to share these substantial fixed costs.

The legacy telephone network, which is extremely reliable but horribly inefficient, cannot be sustained indefinitely. Voice services will be delivered over broadband platforms along with data and video. Once networks are optimized for video, incidentally, voice may become a free app. "The challenge for the country," according to the National Broadband Plan at page 59, "is to ensure that as [Internet Protocol]-based services replace circuit-switched services, there is a smooth transition for Americans who use traditional phone service and for the businesses that provide it."

States with legacy COLR requirements will have no choice but to act. Where consumers have a choice between voice service providers, no provider should be saddled with a monopoly-era COLR obligation.

If it is necessary to require an incumbent to provide service, the incumbent should be free to choose the technology(ies) it will use to serve its customers. It might be cheaper, for example, to serve consumers in some remote areas by satellite than by other means.

What about Susan Shaw cited in the Washington Post, the 53-year-old grandmother who is not interested in paying for cellular service, which would probably be costlier than the $12 a month she pays for her plain old phone?

Ms. Shaw's landline phone service is heavily subsidized, costing far in excess of the $12 a month she pays. Telecom providers no longer have captive ratepayers. They are struggling to compete and cannot continue to act as private-sector tax collectors.

If $12 a month voice service for Ms. Shaw is a national priority, Congress should commit general tax revenues for that purpose. In that case, Congress might want to consider that the economics of fixed-line telephone service doesn't compute anymore and there may be a range of more efficient alternatives.

It was clear there is no way T-Mobile - which lost 802,000 contract customers in the fourth quarter - is capable of becoming a significant competitor in the near future. T-Mobile doesn't have the capital or rights to the necessary electromagnetic spectrum to build an advanced fourth-generation wireless broadband network of its own.

T-Mobile's parent, Deutsche Telekom AG, has been losing money in Europe and expected its American affiliate to become self-reliant. In 2008, T-Mobile sat out the last major auction for spectrum the company needs.

The company received cash and spectrum worth $4 billion from AT&T when the merger fell apart, from which T-Mobile plans to spend only $1.4 billion this year and next on the construction of a limited 4G network in the U.S. But it must acquire additional capital and spectrum to become a viable competitor.

Unfortunately, every wireless service provider requires additional spectrum. "[P]rojected growth in data traffic can be achieved only by making more spectrum available for wireless use," according to the President's Council of Economic Advisers. Congress recently gave the FCC new authority to auction more spectrum, but it failed - in the words of FCC Chairman Julius Genachowski - to "eliminate traditional FCC tools for setting terms for participation in auctions."

Everyone fears it will take the FCC years to successfully conduct the next round of auctions while it fiddles "in the public interest." That's why Verizon Wireless is seeking to acquire airwaves from a consortium of cable companies, and why T-Mobile will do anything to stop it.

When government intervenes to protect an underdog, it diminishes the rewards for success and the penalties for failure that drive competition and innovation.

In this case, T-Mobile is arguing that (1) spectrum is not created equal, (2) Verizon Wireless has acquired more than its "fair" share of the most valuable frequencies, (3) Verizon Wireless is acting with anticompetitive animus to foreclose T-Mobile's access to a critical input, i.e., low-frequency spectrum, which (4) Verizon Wireless itself does not need but intends to "warehouse."

The argument that Verizon Wireless has ended up with valuable frequencies while T-Mobile has not does not stand up to close scrutiny. The FCC has wisely declined to take this bait in the past.

Although it is true that it takes fewer towers or cell sites to serve a geographical area at a lower frequency, superior coverage counts for less in urban areas where heavier demand requires more towers to boost capacity. In higher population densities, low and high frequencies offer almost equivalent performance, according to Peter Rysavy. Operating in the higher frequencies in congested areas, as T-Mobile does, if anything, provides a competitive advantage, because those frequencies have a lower market value and therefore cost less to acquire.

Verizon Wireless does require additional spectrum, just like every other wireless provider. The issue here is simply who is more "deserving" of spectrum that is available for purchase now on a secondary market while the rest of the industry waits for the FCC to play its political games. No one is suggesting that any entity has more spectrum than needed to accommodate rapidly increasing demand for wireless services.

The contention that Verizon Wireless plans to warehouse the spectrum it seeks to purchase ignores the fact that the FCC imposes performance requirements on licensees. There are buildout deadlines, plus the necessity to demonstrate that substantial service was provided in order to win a license renewal every ten years or so.

When the Department of Justice and the FCC prevented AT&T from acquiring T-Mobile last year, they apparently thought they were promoting competition. But government efforts to enhance competition, accelerate private investment or attract new entrants almost always have unintended consequences.

The principle of moral hazard posits that if the cost of failure will be borne by someone else, those who are in the best position to minimize risk will have little incentive to do so. When government partners with private companies, it often ends in bankruptcy. As a nation, we depend on businesspeople to manage firms with skill and foresight, not on taxpayers to bail them out.

If T-Mobile can't make it on its own, which seems more likely than not, the FCC and DOJ have merely laid the foundation for a vicious cycle of regulatory battles, of which Verizon Wireless/SpectrumCo/Cox Wireless transaction is just the beginning. One suspects the agencies have signed on a high-maintenance client.

Audits have uncovered serious shortcomings and the agency has resisted needed reforms for years. The time has come for lawmakers to brush aside rosy assurances from agency officials and wind the program down.

Testifying in February of last year, the Department of Agriculture's Inspector General briefly summarized a shocking set of audit findings from 2005 that included waste, fraud and abuse, and noted that most of the issues had still not been resolved satisfactorily .

Of the $895 million in grants and loans RUS issued from 2001 to 2005, we reviewed $599 million and questioned the expenditure of $340 million for reasons including loans that were approved despite incomplete applications, loans that defaulted, and grant funds used for inappropriate purposes. We further found that RUS had not maintained its focus on rural communities lacking preexisting broadband service. ****

We also questioned RUS' practice of devoting significant portions of its resources to funding competitive service in areas with preexisting broadband access rather than expanding service to communities without existing access. In 2004, we found that 159 of the 240 communities associated with the loans (66 percent) already had preexisting broadband service, despite the fact that the law establishing the broadband program made it clear that these funds were intended to be used first for "eligible rural communities in which broadband service is not available to residential customers."

The Broadband Loan Program was conceptually flawed at its inception. Broadband is not available in remote areas when the cost of building a broadband network is so high that the broadband provider does not expect to recover the investment. If it is uneconomic to provide service to a particular locale, how can a loan recipient repay the loan? This is why most of the loans are used to build redundant facilities in areas that are already served. As a general matter, a grant not a loan would be required to finance the construction of facilities in an area that is uneconomic to serve.

States including Alabama, Florida, Georgia, Indiana, Illinois, North Carolina, Ohio, Tennessee and Wisconsin have all recently revamped their telecommunications statutes, and Mississippi is in the process of considering similar legislation. SB 135 would put Kentucky in a strong position relative to these nearby states in terms of creating a favorable business climate for private investment in advanced networks.

Rates for basic local exchange service would be market-based and not subject to commission jurisdiction beginning 60 months after a telephone utility elects (or has already elected) to adopt price cap regulation. The requirement to file tariffs would be eliminated at that time.

The bill also provides that the provision of broadband services shall be market-based and not subject to state administrative regulation.

The PSC would retain jurisdiction in matters including 911 and billing. Among other things, it would assist in the resolution of consumer complaints and help resolve disputes between telecommunications carriers in matters involving interconnection, resale and access to unbundled network elements.

Utility regulation was necessary at one time when telephone service was furnished by monopolies. But the federal Telecommunications Act of 1996 removed legal barriers to competition, and wireless providers, cable operators and others now compete to provide voice service. Only 16% of Kentucky voice connections were served by incumbent local exchange carriers (ILECs) subject to legacy utility regulation at the end of 2010, according to the Federal Communications Commission (see tables 9 and 17).

By forcing providers to maintain single-purpose voice networks when voice can be delivered over multifunctional broadband platforms at lower cost, regulation of competitive ILEC services is actually harmful to consumers.

As it becomes increasingly costly to maintain a legacy telephone network to serve fewer and fewer subscribers due to high fixed costs, there is a danger that telephone service providers may be forced to subsidize legacy service from wireless and broadband revenues, which would be wasteful and inefficient. Forcing wireless and VoIP customers to subsidize legacy networks would penalize - and therefore diminish - investment and innovation in advanced new services.

For these reasons, the National Broadband Plan endorses a strategy for replacing the traditional circuit-switched telephone network with an IP-enabled network which includes the removal of legacy telephone regulation that could impede a smooth transition (see p. 59).

At the end of 2010, 56% of Kentucky households had a broadband connection over 200 kbps in at least one direction, and 30% had a connection at least 3 mbps downstream and 768 kbps upstream, according to the FCC (see tables 15 and 16). Nationwide, 13% of households have a broadband connection of at least 100 mbps in both directions (Table 5).

Connected Nation concluded in 2008 that a 7% increase in household broadband adoption in Kentucky led to over 30,000 jobs being created or saved. These jobs were not only in telecommunications equipment and services, but also in manufacturing and service industries (especially finance, education and health care). Thousands more jobs can be created or sustained in Kentucky as more households subscribe to broadband and upgrade the service they receive.

By enacting regulatory reform so that all providers of voice services are subject to minimum regulation which does not discriminate on the basis of technology or history (just like virtually every other competitive market), legislators can expand customer choice and ignite the broadband expansion necessary for economic growth, technological progress and ultimately lower prices.

The bill also clarifies that nothing in Title 77, Chapter 3 (Regulation of Public Utilities) of the Mississippi Code may be construed to apply to video services, voice over Internet protocol services ("VoIP"), commercial mobile services, Internet protocol ("IP") enabled services, in addition to broadband services.

The commission would continue to regulate intrastate switched access service, as well as arbitrate and enforce interconnection agreements between telecommunication providers. Providers of intrastate access and unbundled network elements would not be required to file financial, service quality or other information with the commission. Intrastate access fees would be the same as the fees for interstate access services.

Utility regulation was appropriate years ago when telephone service was furnished by monopolies. But the federal Telecommunications Act of 1996 removed legal barriers to competition, and now wireless providers, cable operators and others compete to provide voice service. Only about 16% of Mississippi voice connections were served by incumbent local exchange carriers (ILECs) subject to legacy utility regulation at the end of 2010, according to the Federal Communications Commission (see tables 9 and 17).

Continued regulation of competitive ILEC services is actually harmful to consumers, by forcing providers to maintain single-purpose voice networks when voice can be delivered over multifunctional broadband platforms at lower cost. The National Broadband Plan embraces a vision of the future in which the traditional circuit-switched telephone network will be replaced by an IP-enabled network, and the plan confirms that legacy telephone regulation is an impediment to a smooth transition (see p. 59).

As it becomes increasingly costly to maintain a legacy telephone network to serve fewer and fewer subscribers, there is a danger that telephone service providers may be forced to subsidize legacy service from wireless and broadband revenues, which is wasteful and inefficient. Forcing wireless and VoIP customers to subsidize legacy networks would penalize - and therefore diminish - investment and innovation in advanced new services.

At present, 44% of Mississippi households have a broadband connection over 200 kbps in at least one direction, and 11% have a connection at least 3 mbps downstream and 768 kbps upstream, according to the FCC (see tables 15 and 16). Nationwide, 13% of households have a broadband connection of at least 100 mbps in both directions (Table 5). Connected Nation concluded in 2008, when the FCC defined broadband as over 200 kbps in at least one direction, that a mere 7% increase in broadband adoption (similar to the household broadband adoption achieved in Kentucky, above the national average, by addressing local supply and demand issues) would create or save almost 19,000 new jobs per year in Mississippi. The jobs are not just in telecommunications equipment and services, but also in manufacturing and service industries (especially finance, education and health care).

By enacting regulatory reform so that all providers of voice services are subject to minimum regulation which does not discriminate on the basis of technology or history, just like in any competitive market, legislators will expand customer choice and ignite the broadband expansion necessary for economic growth, technological progress and ultimately lower prices.

"It's a mistake," according to Genachowski, "because it preempts an expert agency process that's fact-based, data-driven and informed by a broad range of economists, technologists and stakeholders on an open record."

Genachowski's old boss, former FCC Chairman Reed E. Hundt, reportedly criticized the proposals during a Capitol Hill briefing on Tuesday, as well.

He worried that the bill would allow the largest wireless carriers to buy up all of the spectrum at auction, expanding their dominance of the airwaves. He said the carriers might not even plan to use some of the spectrum but could buy it just to kill off competition.

He argued that Congress should rely on the FCC to use its technical expertise to set the conditions of the auction.

The FCC has a poor track record of trying to improve on the free market, and the Reed Hundt era is recent exhibit "A." Seeking to promote competition in local telephone service during Hundt's tenure in the late 1990s, the FCC required incumbent local telephone companies to provide below-cost wholesale access to their networks while preventing them from competing in the long-distance market. According to Hundt, in You Say You Want a Revolution? (2000),

The Clinton administration had the conviction that astute and sharp-edged rules could open markets to competitors ... some firms would succeed, others fail. But the competition would create choice for consumers, and the diversity of the competitors would weaken the political influence of the big, established (and typically Republican-leaning) firms. The new competitive markets would stimulate investment in new technologies and lead to fair prices for consumers. All five lanes of the information highway would converge in a race to tomorrow (which we would not stop thinking and talking about).

For the most part, these policies simply transferred billions of dollars from incumbent telephone companies to fund marketing campaigns required to sell the same services under a different name [that of an unaffiliated retail competitor].

Earlier this month New York Times columnist Thomas L. Friedman criticized the Republican presidential candidate debates, because no one mentioned broadband policy. Friedman thinks each of the candidates ought to have a plan for ensuring that America has a "strategic broadband advantage" vis-à-vis our international competitors.

Overtaking the "broadband superpowers," Seattle Times guest columnist Timothy Karr has suggested, warrants investment from the public and private sectors as well as government intervention on behalf of consumers. Unlike telephone service, broadband is essentially unregulated in the U.S. and receives minimal subsidies.

The private sector invested $65 billion in broadband infrastructure in the U.S. in 2010 alone, according to the Federal Communications Commission's Seventh Broadband Progress Report. More than 95 percent of the U.S. population lives in housing units with access to fixed-line broadband service capable of supporting actual download speeds of at least 4 megabits per second, and the average advertised speed purchased by broadband users has increased by approximately 20 percent each year for the past decade, according to the National Broadband Plan (Chap. 3, at 20-21).

Almost 92% of the U.S. population can also choose between two or more providers of mobile wireless broadband service, and several wireless service providers are deploying fourth generation broadband technologies that permit faster mobile broadband connections, according to the FCC's Fifteenth Wireless Competition Report. Mobile broadband is becoming an increasingly popular means of Internet access, and for some consumers, substitutes for fixed broadband.

Not everyone chooses to purchase fixed broadband where it is available. In terms of the number of households that subscribe to fixed broadband services, the U.S. is behind a handful of countries like South Korea and Denmark, notes Karr. Broadband subscribership was 63 percent of households in the U.S. (72 percent in Washington State) in 2009, versus 84 percent in South Korea and 76 percent in Denmark, according to the FCC's Second International Broadband Data Report(Appendix D).

The FCC cautions that data sources on international broadband adoption and pricing are incomplete and challenging to compare. For example, the household fixed broadband data includes mobile broadband for South Korea, but not for the U.S. Setting that aside, the same report shows that broadband adoption by U.S. consumers exceeds that of other countries commonly viewed as major competitors. Adoption in the U.S. exceeds Japan and the European Union average, and no one alleges that the U.S. is in danger of losing strategic broadband superiority to China, India or Russia according to this measure.In terms of pricing, a ranking of broadband prices for 2009 by the International Telecommunication Union places the United States among the least expensive countries for fixed broadband services.

Yet the FCC is determined act. "We need universal broadband adoption," claims Chairman Julius Genachowski, "so that every American is taking advantage of our 21st century communications platform".

No one is proposing a government mandate requiring every household to purchase broadband service, at least not yet, although that is what it might take to achieve universal adoption. The FCC was created in 1934 with the same goal for telephone service. By 1996, when Congress reformed the Communications Act to allow competition and reduce regulation, telephone adoption was still under 94 percent.

Intervention would likely take the form of competition policy designed to reduce the size and increase the number of broadband service providers, which the JOBS Act would prevent the FCC from unilaterally imposing, at its sole discretion, in the spectrum auctioning process.

Broadband service is widely available in the U.S., and the evidence does not reveal a serious gap in broadband adoption in the U.S. relative to other countries. Claiming there is a need for government-led strategic planning for broadband to maintain our nation's competitiveness is a cynical indictment of a free market success story. Even if government action were indicated, proposals for government subsidies and reinvigorated competition policy could prove costly and counter-productive.

Progressives can rest assured that broadband services show unmistakable signs of continuous improvement as a result of massive private investment. Meanwhile, there are genuine government failures -- bankrupted green energy firms, Chevy Volt fires and stubbornly high unemployment among them -- that progressives should be worried about.

This story, based on an infographic from MBA Online the day before, puts Apple's big quarter in prospective. GeekWire characterizes their revenue as "Three Yahoos, two Googles and a Microsoft". It's also interesting, and worth noting, that 2/3 of it is stored overseas.

Here we have a company that makes trinkets, bought voluntarily by free people, produced willingly by free people. Yet even after giving billions of dollars to the governments they labor under, they still make more money than even the most irresponsible governments can lose. Consider: Governments take money from people by threat of force, they have more resources than a corporation can dream of, they can quite literally eliminate their competition, and by-in-large, they're above the law. Yet they still can't take enough to rival what this one corporation can get people to freely hand over. There are of course many mitigating factors on both sides, but the numbers still stun. This company, with its relatively minimal staff, produces more in a year than the GDPs of 2/3 the world's countries. ...but big government is clearly the answer .

A recent column in Roll Call by Stephen DeMaura and David Segal, entitled "All Candidates Should Be Concerned About SOPA," for example, suggests that SOPA could be exploited by political opponents to restrict free speech.

Here's a plausible campaign scenario under SOPA. Imagine you are running for Congress in a competitive House district. You give a strong interview to a local morning news show and your campaign posts the clip on your website. When your opponent's campaign sees the video, it decides to play hardball and sends a notice to your Internet service provider alerting them to what it deems "infringing content." It doesn't matter if the content is actually pirated. The ISP has five days to pull down your website and the offending clip or be sued. If you don't take the video down, even if you believe that the content is protected under fair use, your website goes dark.

The conservative and liberal blogospheres are unifying behind opposition to Congress's Stop Online Piracy Act, with right-leaning bloggers arguing their very existence could be wiped out if the anti-piracy bill passes.

Second, access to a foreign infringing site cannot be blocked on the basis of a private right of action. Only the Attorney General can bring an action to block access to a site via the use of a familiar domain name. The holder of a valuable intellectual property right can only ask a federal court to stop payment processors and advertising networks from providing services to a rogue website, but not service providers or search engines. In either case, a federal judge would have to approve such a request. A third party, such as a rival political candidate, would lack "standing" to pursue a private right of action.

A manager's amendment further clarifies these issues. For example, the definition of a "foreign infringing site" is strengthened, and an informal process under which rights holders could have avoided judicial process by providing direct notice to intermediaries is eliminated. The manager's amendment also clarifies that providers have no duty to monitor the use of their networks or services for illegal activities, nor are they required to employ any particular technologies. Thus, it is fanciful to assume that combating online piracy will lead to censorship or heavy-handed regulation.

Also note how in DeMaura's and Segal's hypothetical the political campaign decided to post a clip of the interview to its website rather than furnish a link to the morning news show's website. Since the value of the advertising on the news show's website reflects how many visitors the site receives, the news show may not like the fact that the campaign is making it possible for viewers to watch the interview without visiting the news show's website. Under existing law, the news show, i.e., the copyright owner, can request that the campaign remove the clip. This isn't censorship, this is an accepted infringement remedy. If a campaign wanted to post the entire clip, the obvious course of action would be to request permission from the media outlet. Generally, media outlets have an incentive to cultivate relationships with political candidates, not poison them. A candidate could also request the right to display an interview on his or her website as a condition for giving the interview.

Property Rights Need Protecting
There is nothing un-American about protecting private property rights, in which there is a central role for government. In Capitalism: The Unknown Ideal, Ayn Rand warned that collectivists "seem to realize that patents are the heart and core of property rights, and that once they are destroyed, the destruction of all other rights will follow automatically..." Rand, who understood attacks on patents as a "spectacle of mediocrity scrambling to cash-in on the achievements of genius," was equally supportive of copyrights.

[W]hat the patent and copyright laws acknowledge is the paramount role of mental effort in the production of material values; these laws protect the mind's contribution in its purest form: the origination of an idea. The subject of patents and copyrights is intellectual property.

* * * *

The government does not "grant" a patent or copyright, in the sense of a gift, privilege, or favor; the government merely secures it -- i.e., the government certifies the origination of an idea and protects its owner's exclusive right of use and disposal.

Jobs
The true cost of online piracy is a matter of debate. "The illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult," notes a recent report from the Government Accountability Office (GAO-10-423), yet the report acknowledges that "research in specific industries suggest that the problem is sizeable, which is of particular concern as many U.S. industries are leaders in the creation of intellectual property."

According to Rep. Marsha Blackburn (R-TN),

Estimates show almost 25 percent of total global online traffic goes to pirated sites. Why are we allowing profits from a quarter of all Internet traffic to flow to criminal interests? If copyright piracy is expected to take approximately 375,000 jobs away from the U.S. economy next year, shouldn't we do something serious to minimize the damage?

Online Protection and Enforcement of Digital Trade Act (OPEN)
The draft Online Protection and Enforcement of Digital Trade Act (OPEN), which is supported by Senator Ron Wyden (D-OR) and Rep. Darrell Issa (R-CA), would authorize the International Trade Commission (ITC) to investigate alleged infringements and serve orders preventing financial transaction providers and Internet advertising services from supplying service to foreign rogue websites. Internet service providers and search engines are left out.

There are several other problems with the Wyden-Issa proposal. For one thing, OPEN authorizes the President to terminate a determination of the ITC "for policy reasons." This provision provides enormous scope for political shenanigans.

The proposal would also establish another specialized tribunal, with hearing officers who possess a minimum of only 7 years of legal experience and whatever technical expertise and experience in patent, trademark, copyright and unfair competition law as the ITC shall prescribe by regulation. Appeals of ITC determinations are heard in the U.S. Court of Appeals for the Federal Circuit.

Specialized tribunals are a double-edged sword. The Federal Circuit, for example, has received significant criticism over the past several years for being too patent-friendly; or biased, in other words. In Innovation and its Discontents (Princeton Univ. Press 2004), Adam B. Jaffe and Josh Lerner write that the creation of the Federal Circuit in 1982 is one of two seemingly mundane procedural changes that resulted in the most profound changes in patent policy and practice since 1836.

Whereas 62 percent of district court findings of patent infringement were upheld by generalist courts of appeal in the three decades before the Federal Circuit was established, they report, 90 percent of these decisions were affirmed by the Federal Circuit in its first 8 years. "As Richard Posner has argued," they note, "judges in specialized courts may be particularly prone to identify with government programs. Put another way, they may be prone to be 'captured' by those who benefit from the program." (footnote omitted.)

While it may be hard for a politician to anticipate the views of a [judicial] appointee across a variety of disciplines, an appointee to a specialized court may be more easily vetted to ensure decisions of a particular type. This narrowing of focus might lead to the creation of highly ideological courts, reflecting the political preferences of the chief executive -- or the special interests that gained a disproportionate control over the appointments process.

Domain Name System Security Extensions (DNSSEC)
There is an interesting debate about whether a provision in SOPA that would require Internet search engines, pursuant to a court order, to prevent a foreign infringing site from being served as a direct hypertext link in search results might be both ineffective as a result of, and also threaten, the implementation of a protocol (DNSSEC) intended to prevent criminals from redirecting traffic to fake websites. Stewart Baker, for example, explains the DNSSEC will automatically locate a server in a foreign jurisdiction, not subject to a U.S. court order, to find the desired web address, and thus expose search engines to unacceptable legal liability. But as Dan Castro points out, DNSSEC is still a work in progress.

Although DNSSEC has been codified in various technical documents, it continues to evolve over time as researchers propose new modifications to the standard to address various limitations. (footnote omitted.) The question policymakers should be asking is not whether the proposed solution is compatible with the current version of DNSSEC, but how to craft policies that best take advantage of potential improvements in the DNSSEC standard.

NTCA, which represents over 570 "locally owned and controlled telecommunications cooperatives and commercial companies throughout rural and small-town America," notes, among other things, that "[p]rovisions [of the Order] mandating an ultimate price of zero for all switched access and reciprocal compensation services, imposing retroactive and dynamically changing caps on USF-supported costs and blurring the lines between regulated and nonregulated operations are inconsistent with law."

What this particular dispute is ultimately about is not whether NTCA's members are entitled to recover their reasonable costs as a matter of law (they certainly are), but whether they should continue to be allowed to shift a significant portion of those costs to the urban and suburban customers of unaffiliated communications providers that are subject to intensive competition. Implemented to ensure reasonably comparable rates throughout the nation, this arrangement has become difficult to justify for many reasons, one of which is that, in many cases, urban and suburban consumers are forced to pay rates that are much higher than the rates charged by small phone companies who receive the subsidies.

According to the Order, two carriers in Iowa and one carrier in Minnesota offer local residential rates below $5 per month (¶235), and approximately 60 percent of small company service territories studied have local residential rates that are below the 2008 national average local rate of $15.62. (¶236). "While individual consumers in those areas may benefit from such low rates," the FCC commendably acknowledges, "when a carrier uses universal service support to subsidize local rates well below those required by the Act, the carrier is spending universal service funds that could potentially be better deployed to the benefit of consumers elsewhere." (fn. 378)

The FCC, to its credit, has acted decisively in adopting a long-overdue "bill-and-keep" framework for both inter- and intrastate telecommunications. "Under bill-and-keep," the commission has explained, "carriers look first to their subscribers to cover the costs of the network, then to explicit universal service support where necessary." (¶34) In other words, providers will no longer charge originating and terminating access fees for inter-exchange (toll) traffic. Bill-and-keep is just like an Internet peering agreement. Telecommunications providers will transition to bill-and-keep within six years for larger (price cap) carriers and nine years for smaller (rate-of-return) carriers.

There are many other wonderful reforms in the Order; unfortunately, the treatment of VoIP traffic is not one of them. The FCC has hesitated for years to rule whether VoIP is a "telecommunications" service that should bear a full measure of the burden of subsidizing legacy networks throughout rural and small-town America. Almost everyone recognizes that taxing a more efficient new technology to subsidize a less efficient legacy technology does not tend to promote innovation.

The commission has imposed subsidy obligations on some VoIP services, but not others. The resulting "lack of clarity," by the FCC's own admission, has led to "significant billing disputes and litigation," including pending disputes in a number of courts and state commissions. (¶937) I recently noted one of these, the case of Southwestern Bell Telephone Company et al. v. IDT Telecom, Inc., et al., here. The FCC further acknowledges that "the current uncertainty and associated disputes are likely deterring innovation and introduction of new IP services to consumers." (¶939)

Here, the FCC has decided to subject "toll" VoIP traffic to interstate switched access fees and local VoIP traffic to lower "reciprocal compensation" fees (note: it is still up in the air whether the VoIP services at issue in IDT Telecom are toll or local; the FCC refuses to say). Although some VoIP services may not currently be fully taxed as if they are telecommunications services (which they are not, since the FCC has declined to rule), and although all traffic, including VoIP, will ultimately be subject to a bill-and-keep framework, the commission has decided to treat VoIP as a telecommunications service for billing purposes during the 6-9 year transition. Why? Politics are politics.

By declining to apply the entire preexisting intercarrier compensation regime to VoIP-PSTN traffic prospectively, we recognize the shortcomings of that regime. At the same time, we are mindful of the need for a measured transition for carriers that receive substantial revenues from intercarrier compensation. (¶935)

Since some VoIP services currently generate less taxes than others, the FCC could have lowered taxes for all VoIP services to the lowest current level (a bill-and-keep framework is the goal, after all). Nope. The commission has resolved some uncertainty (although it has not resolved the IDT Telecom issue), in favor of more interim taxation, not less. This is a politically-driven decision which attempts to generate payoffs for politically-influential "stakeholder" groups for 6-9 years. Tributes for trolls is another way of looking at this.

The FCC's treatment of VoIP services is unsatisfactory. It does not tend to promote innovation; rather, it tends to penalize innovative new approaches for promoting consumer welfare. We now face a new round of litigation. The NTCA lawsuit is the first major challenge, and there may be others.

On Facebook, for instance, big splashy ads appear along the border and in the middle of the pages, pushing content--and the advertising actually sold by Facebook-- further down the page. The applications can similarly interfere with search results, placing new sets of ads above the ones bought, say, by Google advertisers.

Imagine what will happen when consumers like me download similar apps from all of our favorite retailers? If retailers do not need Facebook or Google to serve targeted ads to their best customers, Facebook and Google could be up against some serious competition. This is what happens when firms become exceptionally profitable. Highly profitable industries attract new entrants, who are frequently indirect competitors. This is an example of creative destruction, which frequently tends to escape the notice of antitrust enforcers.

The companies will continue to battle the U.S. Department of Justice on behalf of their deal. They can contend with the FCC later, perhaps after the next election. The conflict with DOJ will take place in a court of law, where usually there is scrupulous regard for facts, law and procedure. By comparison, the FCC is a playground for politicians, bureaucrats and lobbyists that tends to do whatever it wants.

In an unusual move, the agency released an analysis by the staff that is critical of the merger. Although the analysis has no legal significance whatsoever, publishing it is one way the zealots hope to influence the course of events given that they may no longer be in a position to judge the merger, eventually, as a result of the 2012 election.

This is not about promoting good government; this is about ideological preferences and a determination to obtain results by hook or crook.

The staff analysis makes it painfully clear that the people in charge have learned very little from the failure of government to reboot the nation's economy. For starters, the analysis notes points out that "there will be fewer total direct jobs across the business," notwithstanding various commitments the companies have made to protect many existing jobs and add many new ones. The staff should have checked with the chairman of President Obama's jobs council, for one. CEO Jeff Immelt drives growth at GE through productivity and innovation, not by subsidizing inefficiency (see this). He realizes that when government tries to preserve wasteful methods, firms become uncompetitive and lose market share. That's a recipe for unemployment. The FCC staff analysis has got it completely backwards. When politicians set out to "create" jobs, it is often at the expense of productivity. We don't need that kind of "help" from Washington. In a wonderful column I am fond of citing, Russell Roberts recounts a story that bears repeating here.

The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren't there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman's response: "Then why not use spoons instead of shovels?"

The combined company would have the "necessary scale, scope, resources and spectrum" to deploy fourth generation wireless services to more than 97% percent of Americans (instead of 80%), according to a filing they made in April. That would make our nation more productive and improve our competitiveness, which is we want. An analysis by Ethan Pollack at the Economic Policy Institute predicts that every $1 billion invested in wireless infrastructure will create the equivalent of approximately 12,000 jobs held for one year throughout the economy, and that if the combined company's net investment were to increase by $8 billion, the total impact would be between 55,000 and 96,000 job-years. The FCC staff thinks this is an irrelevant consideration, because it might happen anyway.

Several commenters respond that even absent the proposed transaction, AT&T would likely upgrade its full footprint to LTE in response to competition from Verizon Wireless and other mobile and other mobile wireless providers * * * * Nothing in this record suggests that AT&T is likely to depart from its historical practice of footprint-wide technological upgrades with respect to LTE even absent this transaction.

What about the counter-argument that if there are fewer wireless providers, that may lead to consumer price increases down the road? We can worry about that later. Right now, we need to worry about the unemployed. Incidentally, increasing supply in wireless is very simple. The FCC can simply award additional spectrum for mobile communications. Almost everyone agrees that this is the best tool the government has to promote competition in wireless.

The FCC committed another unforgivable error when it tried to blow up this merger. This is not the first time the commission has recklessly put entire sectors of our nation's economy at risk while it conducts idealistic experiments for attaining consumer savings through rate regulation or regulatory mischief in pursuit perfectly competitive markets. The FCC's cable rate regulation experiment in the early 1990s and its local telephone competition experiment in the late 1990s were both total failures and complete disasters.

This agency could use some humility, or some adult oversight.

When Congress debated the Telecommunications Act of 1996, the section concerning Universal Service (Section 254) was somewhat controversial. Broadly speaking, there seemed to be considerable support in the House of Representatives for limiting Universal Service, and there were some influential senators who wanted to expand it (the House is somewhat more representative of urban areas that contribute subsidies, and the Senate is somewhat more representative of rural areas that receive subsidies). The result was a compromise in which Universal Service is defined (in Sec. 254(c)(1)) as "an evolving level of telecommunications services that the Commission shall establish periodically ... taking into account advances in telecommunications and information technologies and services." Notice how information services are missing in the first half of that sentence. Although the FCC is allowed to take notice of information services, Universal Service has to support telecommunications services only.

This is relevant because the FCC subsequently ruled that broadband Internet access is an information, not a telecommunications service (Order at paragraph 71). The commission also subsequently ruled that a service has to be one or the other, and that it cannot be both ("hybrid services are information services, and are not telecommunications services," ruled the FCC in a 1998 Report to Congress at paragraph #57).

Congress deliberately omitted information services from Section 254(c)(1), I believe. Admittedly, broadband did not exist at the time. If Congress wants to amend the statute, it is free to do so, of course. Agencies such as the FCC are not supposed to legislate, however.

What does the FCC have to say on this point? According to footnote #5 of the Order,

Some contend that the definition of universal service under section 254(c)(1) muddies the water because it does not include "information service." Instead, that provision states that "[u]niversal service is an evolving level of telecommunications services . . . taking into account advances in telecommunications and information technologies and services." But, it is also relevant that the term "telecommunications service" is qualified by the adjective "evolving." Even if section 254 were viewed as ambiguous, pursuant to the well established principle of Chevron deference, the courts would likely uphold the FCC's interpretation as a reasonable and permissible one. See Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

Chevron deals with reasonable agency interpretations of ambiguous statutes. Here, the statute may be obsolete, but it is not ambiguous. With all due respect to the FCC, I suspect it would require a highly sympathetic panel of randomly-assigned appellate judges to buy this argument.

Next, at paragraph #66 of the Order, the FCC claims that Section 706 of the 1996 Act confers "independent" authority for the FCC to subsidize broadband. We have been down this path before.

"On its face, section 706 appears to give the Commission plenary authority," according to the second edition of Federal Telecommunications Law (Aspen Law & Business, 1999) at page #1043. "Despite this broad language, the Commission concluded that section 706 did not 'constitute an independent grant of forbearance authority,' but merely directed the Commission to use the authority granted in other provisions [of the Communications Act of 1934, as amended by the 1996 Act]." This ruling, by the way, was handed down in 1999, when Democrats were in the majority at the FCC. Democrats cannot have it both ways.

Why does any of this matter? The power to subsidize is the power to regulate. The FCC discreetly acknowledges this point in paragraph #61 of the Order, when it observes that "[t]he principle that all Americans should have access to communications services has been at the core of the Commission's mandate since its founding ... Congress created this Commission in 1934 for [that] purpose." That resulted in a "morass of regulation," in the words of former FCC Chairman William E. Kennard (appointed by President Clinton).

The FCC never achieved ubiquitous telephone service after more than three-quarters of a century of effort (it reached 94% in 2005, whereupon it altered definitions to include new, unregulated technologies).

FCC Commissioner Robert M. McDowell recently noted that "broadband deployment skyrocketed from reaching only 15 percent of Americans in 2003, to 95 percent by the end of 2009." And that was with minimal government involvement. "The private sector continues to invest tens of billions of dollars in broadband
infrastructure each year - more than $60 billion in capital expenditures in 2010 alone," concedes FCC Chairman Julius Genachowski (at p. 90).

As long as government does not impose confiscatory taxes and onerous regulation, private investors will fund broadband expansion. Creating a new subsidy program is a step in the wrong direction. And since there is a statute governing Universal Service that imposes relevant limits on the FCC, this is a decision that ought to be made by Congress, in any event.

It would make no sense to make companies like AOL, eBay, Facebook, Google, LinkedIn, Mozilla, Twitter, Yahoo! and Zynga responsible for the content that their customers link to or post on the Web. On the other hand, it would also not make sense for these companies to remain free to ignore obvious copyright infringement. Say the owner of a copyright notifies these companies about infringing material, and the companies remove it but then it is immediately re-posted by a user? Can't a copyright owner get some help at that point? Some reasonable "best efforts" help, not strict liability. In fairness, this type of help is probably already available on a voluntary basis, to some extent.

These companies provide valuable services that are primarily used for non-infringing purposes. They do not need pirates. They support SOPA's stated goal of providing additional enforcement tools to combat foreign rogue websites that are dedicated to copyright infringement and counterfeiting, according to Oyama. These companies have awesome capabilities, but obviously they cannot single-handedly prevent their customers from violating intellectual property laws. Nor have they sought to evade any responsibility for doing so, for the most part.

But we have a real problem here, as I have discussed here and here. House Judiciary Chairman Lamar Smith (R-TX) has cited estimates that IP theft costs the U.S. economy more than $100 billion annually and results in the loss of thousands of American jobs. We have got to do something about this.

By all means let's debate the wording of the proposed Stop Online Piracy Act. Let us establish realistic and practicable obligations and liabilities. But the basic idea that all of the key players in the Internet ecosystem -- including advertising services, domain name servers, search engines, payment network providers, etc. -- have a legitimate and necessary role to play seems beyond dispute. And as technology advances, so do the reasonable capabilities of each of these players.