"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.

The Supreme Court is considering whether it was unreasonable for police to hide a GPS tracing device on a vehicle belonging to a suspected drug dealer. The Bill of Rights protects each of us against unreasonable searches and seizures. According to the Fourth Amendment,

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Sometimes the requirement to obtain a warrant may be problematic. For example, Judge Richard A. Posner, among others, has argued that the warrant requirement makes it too difficult for police to prevent terrorism.

The administration is right to point out that [Foreign Intelligence Surveillance Act], enacted in 1978 -- long before the danger of global terrorism was recognized and electronic surveillance was transformed by the digital revolution -- is dangerously obsolete. It retains value as a framework for monitoring the communications of known terrorists, but it is hopeless as a framework for detecting terrorists. It requires that surveillance be conducted pursuant to warrants based on probable cause to believe that the target of surveillance is a terrorist, when the desperate need is to find out who is a terrorist.

Crovitz offers the quaint example of cameras to remind us that at one time, way back when, it was considered an invasion of privacy to take a photo of someone else in a public setting without their permission. "What was unreasonable before may be reasonable now," he concludes. What Crovitz overlooks is that it may take decades for the public's reasonable privacy expectations to change, as it certainly did with respect to photography in public spaces. Should judges be guided by the privacy expectations we have today, or should they try to predict how privacy expectations will evolve so they can impose new norms? Isn't the latter a dangerous form of judicial activism?

The real problem here, as Justice Stephen G. Breyer warns, is that if the government wins the Jones case, "then there is nothing to prevent the police or the government from monitoring 24 hours a day the public movement of every citizen of the United States." The police have always had the right to tail a suspect, and they can still do that. They have never had sufficient resources to potentially surveil the entire population.

No one is suggesting that the police should not be free to take advantage of the opportunities that new technologies offer. The requirement to obtain a warrant hardly prevents them from doing that. But it does force the police to focus on the people who are reasonably suspected of committing particular crimes, and not on the rest of us. The Fourth Amendment protects us from harassment and intimidation just because we express, or are even suspected of holding, unfavorable views about the people in power. Protecting the Fourth Amendment is vital for protecting our liberty.

Since there is no reason why police cannot obtain a warrant before they hide a GPS tracking device on a suspected criminal's vehicle, there is no novel conflict with the Fourth Amendment. Jones, therefore would seem to present a fairly straightforward question between whether we want to live in a police state or not.

GPS tracking devices have no intrinsic "power to rewrite constitutional protections." We do not have to relinquish our fundamental liberties so long as we remain vigilant patriots determined to keep them.

If the Senate adopts the resolution, the President will use his veto to block the will of the people as expressed through their Congressional representatives, according to reports.

According to the sponsor of the proposal, House Judiciary Chairman Lamar Smith (R-TX), there is an urgent need to protect American innovators from foreign theft via the Internet.

Rogue websites that steal and sell American innovations have operated with impunity. The online thieves who run these foreign websites are out of the reach of U.S. law enforcement agencies and profit from selling pirated goods without any legal consequences. According to estimates, IP theft costs the U.S. economy more than $100 billion annually and results in the loss of thousands of American jobs.

The Stop Online Piracy Act helps stop the flow of revenue to rogue websites and ensures that the profits from American innovations go to American innovators. The bill prevents online thieves from selling counterfeit goods in the U.S., expands international protections for intellectual property, and protects American consumers from dangerous counterfeit products.

American IP industries provide 19 million high-paying jobs to the U.S. economy and account for more than 60% of U.S. exports. It's time to stop online piracy and start protecting American jobs and innovations.

EFF makes some potentially useful points about the drafting of the bill. In lawmaking, as a general matter, the first draft of a bill sometimes uses language that is perhaps overly broad. Sometimes consequences for reckless, negligent or malicious enforcement, litigation or prosecution should be added to ensure fairness. To the extent that these are legitimate issues, they are normally resolved during a properly-functioning legislative process.

Presumably we can all agree that theft is bad, and that we would all like to prevent theft to the extent possible. Opponents such as EFF can provide a valuable service by making specific recommendations; unfortunately, EFF is not playing ball. "This bill cannot be fixed," according to EFF, "it must be killed."

With all due respect to EFF, the numbers cited by Chairman Smith are staggering. Foreigners are robbing American innovators blind. And their losses are ultimately our losses. It is time for us to come together and search for new approaches for combating intellectual property theft.

No one wants to strangle "Twitter, Tumblr, and the next innovative social network, cloud computing, or web hosting service that some smart kid is designing in her garage right now," to use EFF's colorful example. But let's be real, innovation is about creating, not stealing. Pirated content is not primarily responsible for the success of Twitter, Tumblr, Facebook, iTunes or YouTube. Although piracy may provide some limited help for imitators, it is not necessary for creators, and it does not promote innovation.

So, if there is a better approach for combating foreign piracy than SOPA, let's hear it.

According to Kristi E. Swartz, writing in the Atlanta Journal-Constitution in August,

The Public Service Commission held two days of hearings this week on three requests of more than $1 million each. Opponents took particular aim at executive and owner compensation.

Ringgold Telephone, which serves northeast Georgia, paid five executives more than $950,000, according to testimony and documents filed with the PSC. Public Service Telephone, which operates in Middle Georgia, doled out $2 million in dividends to its three private owners, according to testimony and documents filed with the PSC.

We are talking about government-mandated subsidies, which force urban and suburban telecom consumers in Georgia, without regard to individual economic circumstances, to pay inflated prices for wireline telephone service for the purpose of subsidizing telephone service in rural communities. Will rural consumers really be cut off from the rest of the World without these subsidies, or do the subsidies mainly benefit richly compensated executives and owners of legally-privileged telecom service providers? It is hard to tell. "Because the rural companies are private," notes Swartz, "much of their financial information is undisclosed."

Last year, the Georgia legislature passed legislation (House Bill 168 (2010)) providing that the PSC "shall require any local exchange company seeking reimbursement from the fund ... to file the information reasonably necessary to determine the actual and reasonable costs of providing basic local exchange services."

A report by Maggie Lee in the Macon Telegraph notes that "an audit from before 2010 shows abuses like fancy trips and property bought by some of the subsidized small companies."

The available evidence and the law in Georgia would seem to compel the PSC to conduct a full and thorough investigation of every application for subsidies from Georgia's Universal Access Fund.

The PSC is in a unique position to eliminate some of the waste, fraud and abuse which diminish public confidence in government, or prove that it does not exist.

Although Congress mandated the elimination of implicit subsidies embedded in the rates for both interstate and intrastate telecommunications services in the Telecommunications Act of 1996, it did not set a deadline. The FCC has substantially reduced interstate switched access rates in recent years, but a considerable amount of hidden subsidies remain in intrastate switched access fees.

In Florida, for example, one telecom service provider charges 5.64 cents per conversation minute for intrastate long distance versus only 1.65 cents for interstate long distance. The difference represents a hidden subsidy component that operates as a form of tax that only residents of Florida pay, since the lower interstate fees apply to calls which cross state lines.

Recently Georgia and Tennessee prohibited telecom service providers from imposing intrastate switched access charges that exceed applicable interstate rates (with a 5 year transition). (See O.C.G.A. § 46-5-166 and Tenn. Code Ann. § 65-5-302.)

Evidence shows that reductions in access charges are passed along to consumers in the form of lower prices for telecom services.

Inflated intrastate switched access rates are a vestige of the monopoly era; they are no longer sustainable as a result of competition. Consumers are making fewer long distance calls that originate and/or terminate on a wireline telephone, so intrastate access revenue is declining. The FCC reports that interstate "minutes of use" of incumbent telecom providers declined 50% between 2000 and 2009 (see Table 8.1).

Intrastate access charges can be reduced without forcing rural and residential consumers to pay higher prices for basic service. For one thing, current regulation does not create incentives for small telecom service providers to practice aggressive cost control, and there is anecdotal evidence of waste and abuse. More on that in my next blog post.

For another thing, the trend in the industry is for telecom service providers to develop other sources of revenue, such as video, wireless and broadband. The providers can also work to reap savings from the efficiencies made possible by newer technologies, such as Voice over Internet Protocol (VoIP).

Ultimately, the best way to ensure affordable voice service is to remove barriers to broadband investment. Hidden subsidies in intercarrier compensation "actually discourages investment in 21st century Internet protocol networks," according to Genachowski, "because companies fear losing the subsidies they receive for connecting calls using traditional telephone technology."

Florida is not unique in not having fully tackled this problem. Earlier this year, Florida updated its telecom laws (see House Bill 1231 (2011)). But ultimately Florida and many other states must address this issue.

Genachowski is absolutely correct about the need for reforming universal service and intercarrier compensation. Unfortunately, his determination to reform telephone subsidies is not for the purpose of generating consumer savings, but about redirecting resources currently at his disposal for the purpose of gaining some measure of control over unregulated broadband networks. Though cleverly disguised, this is actually a third major attempt to (slowly) impose public utility regulation on broadband service providers.

[The Universal Service Fund] is wasteful and inefficient. The fund pays some companies almost $2,000 a month - that's more than $20,000 a year - for a single home phone line.

In many areas it subsidizes companies even though there is a competing provider-- typically a cable company--providing voice and broadband service without a dollar of government support.

In some places the program funds three or four overlapping networks.

Like USF, the current [intercarrier compensation (ICC)] system is unfair to American consumers: It forces hundreds of millions of consumers across the country to pay higher bills to subsidize monthly local telephone bills as low as $8 for other consumers.

The current ICC system is also creating substantial uncertainty and widespread disputes--which are being fought in courthouses and state commissions throughout the country--about the proper treatment of Voice over IP traffic for ICC purposes.

One wonders, how could the FCC have let things get so bad? Perhaps it is not easy for a government agency to resist the various reliance interests who thrive on waste and inefficiency.

Designed for the monopoly era, telephone subsidies are anticompetitive and unsustainable in today's marketplace. Try as the FCC and state public utility commissions might to protect USF and ICC by eliminating opportunities for arbitrage, enterprising vendors find ways to undercut artificially high prices mandated by regulators, providing relief to those consumers who pay higher bills to subsidize someone else's low monthly local telephone bill.

For example, in 2006 the FCC considered whether two types of "enhanced" prepaid calling card services should subsidize local wireline telephone service. In paragraph 1 of a confusing declaratory ruling, the commission says "we will treat certain prepaid calling card service providers as telecommunications service providers" (emphasis added). In paragraph 10 of the same ruling, it says that "all prepaid calling card providers will now be treated as telecommunications service providers" (emphasis added). Paragraph 27 seems to impose the ICC subsidy obligation only on the two particular prepaid calling card services that gave rise to the declaratory ruling. A court in Texas is struggling to determine how to resolve this mess. (The case is Southwestern Bell Telephone Company et al. v. IDT Telecom, Inc., et al.)

For one thing, telephone subsidies, which require the urban poor to help subsidize telephone service for vacation homes in remote areas, are highly regressive. This is one reason why there is significant bipartisan recognition that USF and ICC are in urgent need of reform.

The prepaid calling cards at issue in the Texas litigation currently provide one means of escape, because they are not now contributing fully to a wasteful and inefficient system of telephone subsidies. And why should they? Prepaid calling cards have played a "vital role in providing telecommunications services to low-income consumers and members of the armed services," as the FCC acknowledges in paragraph 8 of the declaratory ruling. The cards are available without regard to credit history and give consumers unparalleled opportunity to control their expenditures for telecom services. Why, for example, should a person who has been downsized out of a job, is struggling to find in work in this awful recession and who relies on a prepaid calling card service to communicate with potential employers be forced to contribute to telephone subsidy mechanisms which the chairman of the FCC concedes are "wasteful and inefficient"?

Genachowski is on the right track in attempting to reform USF and the ICC system. However, he has failed to articulate why we should create a similar program (albeit with some refinements) for broadband. Why should we assume the FCC can design and administer a subsidy program for broadband that eliminates waste and inefficiency, or that will not discriminate against the urban poor?

Grand Design

Genachowski expressed his view (in the third paragraph of his remarks) that, "[h]arnessing the power of broadband Internet to benefit every American is at the core of this agency's mission." This debatable presumption is highly revealing of the chairman's true purpose.

Previous attempts to harness (i.e., regulate) broadband have not succeeded so far. The first attempt was rejected by the Supreme Court in NCTA v. Brand X Internet Services (2005). The second attempt was dealt a severe blow by the Court of Appeals for the D.C. Circuit in Comcast v. FCC (2010) and is also the subject of Verizon v. FCC (pending). The FCC's final network neutrality rules (see the press release and the order) are under review in Verizon v. FCC, and their fate is highly uncertain.

Genachowski's universal service remarks came on the same day the D.C. Circuit was randomly chosen to hear Verizon v. FCC. Many observers see this court as potentially one of the least sympathetic appellate forums for the FCC's net neutrality rules; indeed, net neutrality supporters worked hard though unsuccessfully to get the case heard somewhere else (see, e.g., this and this).

Genachowski made clear in his remarks (at paragraph 75) that "funding will be conditioned upon complying with rigorous obligations to serve the public and meet the goals of universal service." Therefore, if the Court of Appeals rules that the FCC does not have jurisdiction to impose net neutrality rules, subsidies for broadband provide an opportunity for the FCC to immediately control a subset of broadband providers and possibly begin to "nudge" and eventually perhaps, in effect, regulate all broadband service providers through a back door.

As Phil Kerpen notes in Democracy Denied (2011),

It is easy to envision a scenario in which the Internet, transformed into a piece of public utility infrastructure, tightly regulated, and subsidized with billions of taxpayer dollars, would be subject to content restrictions .... to make sure certain voices are heard.

This perhaps explains the sudden urgency for reforming telephone subsidies (some ideologues view the Internet as a potentially ideal political organizing vehicle).

But the FCC has failed to make a compelling case that broadband subsidies are necessary at all as a result of robust private investment and constantly-improving technology. As the FCC itself concedes, the private sector is already investing vast sums on broadband networks.

Despite the difficult economy, the private sector continues to invest tens of billions of dollars in broadband infrastructure each year - $65 billion in capital expenditures in 2010 alone - expanding capacity, increasing speeds on fixed networks and rolling out next-generation mobile services like 4G.

Lawmakers should welcome and encourage common sense reforms of wasteful and inefficient telephone subsidies, but they ought to object to Genachowski's proposals for creating a "Connect America Fund" and a "Mobility Fund" for subsidizing broadband. It is quite possible that the private sector may be able to close the gap, sooner rather than later, without assistance from the FCC.

I don't believe that what the DOJ said in any way, not even a little bit, should be viewed as we want to keep four [major telecom carriers] .... My view is [the DOJ] would look at other consolidation very differently.

What is he saying? According to another report, Hesse believes,

[Y]ou could make a very, very strong argument, I believe, that if you have two value players that, let's say, got together, that gave them more scale and a better cost structure to compete with the twin Bells, that is an advantage that outweighs having a smaller three and four.

This report notes that Sprint and T-Mobile did discuss a merger earlier this year before the AT&T deal was announced.

Does Hesse speak for the Department of Justice? Is the DOJ trying to help Sprint acquire T-Mobile at less than AT&T is willing to pay? Has Sprint bought the DOJ? What is going on here?

We know that T-Mobile faces a bleak future on its own. According to Verizon CEO Lowell McAdam,

I have taken the position that the AT&T merger with T-Mobile was kind of like gravity. It had to occur, because you had a company with a T-Mobile that had the spectrum but didn't have the capital to build it out. AT&T needed the spectrum, they didn't have it in order to take care of their customers, and so that match had to occur.

An AT&T + T-Mobile merger makes sense because both networks rely on compatible technology. Sprint utilizies an incompatible technology. You would think Sprint's management would grasp the challenges incorporating incompatible networks. After all, Sprint's merger with Nextel -- which had an incompatible network -- was a disaster. Maybe Sprint's executive team is simply desperate. Out of ideas. Willing to try anything. Bet the company on the lobbyists, why not? Maybe this is a Hail Mary pass.

Well, Sprint has a lot of potential, even if it is not currently generating increasing quarter-over-quarter returns that justify rich paydays for its executives. This is not the fault of T-Mobile of AT&T. Sprint has simply not discovered a winning business formula yet.

Maybe Sprint's executives are blind. But its Board of Directors should understand that inviting government intervention is a double-edged sword. Government intervention may be temporarily helpful if you are a struggling underdog, But it could kill you once you become successful. Who do we want to run businesses, politicians or MBAs?

Government should protect our liberties, not try to promote superior social and economic outcomes. Those efforts usually result in failure. Government usually is not the solution. Usually it is the problem.

Sprint's reliance on government indicates that the company bereft of vision. It has no clue how to compete.