Deregulation

By far the most interesting Internet development I have seen in weeks was a New York Times piece by Noam Cohen called: "Whiting out the ads, but at what cost?"

The Washington Post's editors should have been more forthright and put a "news analysis" label on their front page story today "Japan's warp-speed ride to Internet future." If the Post had put the "news analysis label on the story, I would not be writing this critical analysis on why the story was not news but a thinly-disguised advocacy piece for net neutrality masquerading as news or straightforward unbiased reporting.

Ted Hearn of Multichannel News has a dead on post 'Copps airbrushes role in FCC dereg binge" that I suggest anyone interested in the FCC's real bipartisan role in dealing with the "net neutrality" should read.

Ted's post exposes some serious political revisionism that is going on by the senior Democrat at the FCC in pandering to one of the most liberal. take-no-prisoners bloggers, Mr. Stoller of OpenLeft.

I am very excited to be attending, and to be one of the speakers, at the Conservative Leadership Conference on "Conservatives and New Media" in Reno Nevada, October 11-13.

• This will be "the first national conference of its kind in the western United States to fully utilize the power of blogging and the internet to promote a conservative/libertarian, limited-government agenda."

The left is massively more organized and involved in new media than conservatives, so I am thrilled to help the CLC, Chuck Muth et al -- build a formidable conservative counterweight to the liberal-dominated blogosphere and new media.

I heartily encourage like-minded folks to attend, learn, and get better at promoting free-market, limited government principles over the Internet.

• The link to learn more and register is here.

As a conservative, I embrace antitrust law as both a necessary law and as a time-tested, light-touch, free-market arbiter mechanism to prevent potential monopolization in the marketplace.

I also embrace antitrust enforcement as a conservative, because it is an outstanding mechanism to preserve free market competition and protect it from the natural inclination of Big Government to over-reach with its heavy hand of regulation.

Greg Sidak of Georgetown University and Hal Singer of Criterion Economics have produced an outstanding editorial in the Washington Times on this subject concerning the proposed XM-Sirius merger. I recommend that every conservative who cares about limited government should read it.

• In one sentence, Greg and Hal bring tremendous clarity of thought to this important marketplace distinction:
• "...conservatives should also reject the idea of taking two unregulated competitors and creating in their place a brand-new regulated monopoly through the merger approval process."
• In other words, soft antitrust enforcement is raw meat bait for the ravenous regulatory appetite of those who favor Big Government.

This explains why as a conservative, I have been so focused philosophically on highlighting the anti-competitive effects of the Google-DoubleClick merger and why I believe the FTC will ultimately block that transaction.

Kudos to Steve Pociask of the American Consumer Institute for another outstanding piece of analysis that debunks the notion that the US wireless market is not competitive and requires net neutrality/open access regulation.

• I urge you to read ACI's "Comparison of structure, conduct and performance: US vs. Europe's wireless markets."

The powerfully straightforward conclusions are:

• The US has more choice and less concentration in wireless than Europe;
• Americans use their wireless almost four times as much as Europe;
• US wireless prices are the lowest in the world save for Hong Kong.

What's wrong with that picture?

I wanted to commend and spotlight a critically important and completely under-reported/under-appreciated part of the FCC Chairman's statement on the 700 MHz auction released yesterday:

• "We must continue to encourage the critical investment needed to build the next generation wireless network.  Since I have been Chairman, I have advocated strongly that applying network neutrality obligations, unbundling, or mandatory wholesale requirements to networks can undermine investment incentives.  I do not support such regulations.  The Order we adopt today does not apply these regulations to this block or any other block." [bold added for emphasis]

This is very important, welcome, commendable, and strong affirmation of the FCC's broad deregulation policy -- that was completely lost in the gaggle of press coverage.

There are so many problems with the FCC's new 700 MHz auction rules that create a more regulated open access/net neutrality license -- its hard to know where to start.

• Be confident that I will get to them all over time.

Yesterday I highlighted the dirty little secret that there is very substantial risk that this will become known as the "do over auction" because it may not raise enough money to satisfy the rules and because the FCC likely overstepped its legal authority and will be overturned  in court.

Let's raise another dirty little secret behind the new rules that will increase regulatory uncertainty for broadband deployment.

A much under-reported part of the high drama behind the FCC's current 700 MHz auction rules is that there is a very substantial risk that this becomes known as the "do over" FCC auction.

First, to any outside observer, the FCC's highly-tailored auction rules appear to have a pretty obvious "set aside" for the Google camp and its proposed net neutrality/open access business model for a third of the 700 MHz spectrum.

• The FCC reportedly is "hedging its bets" on the Google set aside license -- worried that its policy experiment may fail to raise the revenue for the US Treasury that is estimated in the US Budget -- so it is imposing a "reserve price" -- in English, a price floor for this new set aside spectrum open license -- to supposedly guarantee the taxpayer 70% of what an "open" auction would deliver.
• Some could characterize this FCC-signaled minimum acceptable price for the "Google-set-aside license" as a fixed 30% discount from the price paid at the AWS auction price. However, the real discount is much larger than 30% because the AWS spectrum is no where near as robust or valuable than the 700 MHz spectrum.
• There are a lot of reasons that Google or others will not bid billions for open access spectrum.
• First, it is likely not worth it.
• It's an untested and unproven business model that offers little opportunity to earn a return on the roughly $10b it would take to build and operate such a national network.
• Most professional and independent investors will ask the blunt and pointed question: how does the 700 MHz set-aside-licensee expect to make money building a highly-capital-intensive wireless-facility model that has dramatically less business and operating flexibility than the other seven existing broadband competitors that have many years head start, and when the cost of acquiring just one new customer could easily be in the $200-400 range on average?
• What's wrong with that investment and business pitch?
• It's a money pit.
• It's dotcom bubble pixie dust.
• It's a loser.
• Net neutrality/open access, while cloaked in consumer terms, is basically an old-style industrial policy and corporate wealth transfer scheme from the risk-taking capital-intensive builders of wireless facilities to high-profit tech applications companies like Google, eBay and Amazon, companies who seek for consumers to pay for the bandwidth that they would profit the most from.
• Second Google is not getting the wholesale resale and unbundling mandates they requested, so their highly-publicized offer to bid $4.6b is moot.
• Third and most important, why would Google want to become a facilities-based, capital intensive wireless provider?
• Such a move would change their business model and virtually none of Google's existing growth shareholders would want the dilution and huge capital and operating cost spikes required for Google to become a wireless carrier.
• It's not going to happen.
• Google's promise to bid will probably go down in FCC history as one of the best "head fakes" of all time.
• In short, the FCC has chosen a new policy path that has substantial risk of not generating the revenue expected -- requiring a "do over" of the auction.

Second, there is substantial legal risk that the FCC does not have the authority to condition these licenses in a way that limits an "open" auction and substantially reduces the revenue for the US Treasury.

 It is clear that "open access" is not a true "principle" for eBay-Skype, but a self-serving scheme by eBay to cloak their obvious "private interest" behind the greater "public interest."

• If "open access" was a true "principle" to eBay-skype,they would abide by it in their own business, and lead by example, but alas they don't.
• They hypocritically do the exact opposite.

Open access to eBay-Skype is a blatant double standard where eBay wants government to regulate their competitors to eBay-Skype's commercial advantage, but do not want the principle applied to eBay-Skype.