Volume 61 | June, 2009 | Number 3
ARTICLES
Adaptive Policymaking: Evolving and Applying Emergent Solutions for U.S. Communications Policy
By Richard S. Whitt...................................................................................................................................................................................483
This Article presents some specific ways that U.S. policymakers should use teachings from the latest thinking in economics to create a conceptual framework in order to grapple with current controversies in communications law and regulation. First, it provides a brief overview of Emergence Economics, with an emphasis on the "rough formula" of emergence and the unique role of technological change in creating and furthering innovation and economic growth. Second, this paper explicates the general concept of "Adaptive Policymaking" by governments and includes some proposed guiding principles, an outline of the public policy design space, and an adaptive toolkit to be used by policymakers. Third, this Article discusses devising a policy design space specifically for communications policy, with an emphasis on the institutional and organizational challenges facing the FCC as it seeks to fulfill the suggested goal of furthering More Good Ideas. Finally, this paper explores the conceptual framework for the fitness landscape, including a searching critique of the notion of "enabling without dictating" evolutionary forces in the marketplace.
Trustworthiness as a Limitation on Network Neutrality
By Aaron J. Burstein & Fred B. Schneider............................................................................................................................................591
The policy debate over how to govern access to broadband networks has largely ignored the objective of network trustworthiness—a set of properties (including security, survivability, and safety) that guarantee expected behavior. Instead, the terms of the network access debate have focused on whether imposing a nondiscrimination or “network neutrality” obligation on network providers is justified by the condition of competition among last-mile providers. Rules proposed by scholars and policymakers would allow network providers to deviate from network neutrality to protect network trustworthiness, but none of these proposals has explored the implications of such exceptions for either neutrality or trustworthiness.
This Article examines the relationship between network trustworthiness and network neutrality and finds that providing a trustworthiness exception is a viable way to accommodate trustworthiness within a network neutrality rule. Network providers need leeway to block or degrade traffic within their own subnets, and trustworthiness exceptions can provide them with sufficient flexibility to do so. But, the Article argues, defining the scope of a trustworthiness exception is critically important to the network neutrality rule as a whole: an unduly narrow exception could thwart innovative network defenses, while a broad exception could allow trustworthiness to become a pretext that protects a wide range of discrimination that network neutrality advocates seek to prevent. Furthermore, monitoring network providers’ use of a trustworthiness exception is necessary to ensure that it remains an exception, rather than becoming a rule. The Article therefore proposes that network providers be required to disclose data regarding their use of a trustworthiness exception . It also offers a general structure for managing these disclosures.
Restraining False Light: Constitutional and Common Law Limits on a “Troublesome Tort”
By James B. Lake......................................................................................................................................................................................625
The defamation tort is the common law’s established remedy for false speech that causes reputational and emotional injury. That tort is subject to intricate constitutional, legislative, and common law rules that have evolved over decades. The false light invasion of privacy tort also provides a potential cause of action in response to injurious falsehood. False light, however, has been subject to much less judicial and legislative scrutiny than defamation. As a result, courts often are uncertain about the proper limits on false light and, in some cases, have countenanced false light claims that would have failed if filed as defamation claims. Allowing such claims conflicts with two important legal principles: (1) the common law principle disfavoring novel causes of action that duplicate established torts, and (2) the constitutional rule of Hustler Magazine v. Falwell. These important legal principles require that courts reject false light claims that challenge defamatory speech but fail to meet defamation law’s standards.
COMMENTS
Viewpoint Diversity and Media Ownership
By C. Edwin Baker.......................................................................................................................................................................................651
A recent technically sophisticated study of the impact of media mergers on viewpoint diversity that found the impact is contextually variable should be entirely irrelevant to proper policy debates about regulation of media ownership. This Article examines the real reasons to oppose concentrated ownership and considers how the recent study went wrong.
By Daniel E. Ho & Kevin M. Quinn...............................................................................................................................................................673
We thank Professor Baker for a stimulating response to an Article in which we offered empirical evidence of editorial viewpoint diversity in the face of media consolidation. We appreciate his praise of the Article as “apply[ing] innovative statistical techniques” and as “far superior methodologically to most empirical studies” he has seen. At the same time, Baker “denies the policy relevance” to our Article because empirical evidence is “entirely irrelevant” to the field of media regulation under his preferred normative theory. Baker argues sweepingly that the legal academy’s increased willingness to consider the perspectives of quantitative empiricists and positive theorists is “malignant,” and that law is best confined to normative theory and “value-based inquiries”—to the exclusion of positive investigation. Because of the provocative nature of the specific critiques of our Article and the general across-the-board indictment of positive scholarship and empirical legal studies, we respond.
NOTES
Unlocking the Wireless Safe: Opening Up the Wireless World for Consumers
By Adam Clay...................................................................................................................................................................................................715
Facing resistance to the use of its Voice-over-Internet Protocol application on mobile phones, in February 2007, Skype Communications filed a petition with the FCC asking for application of the Carterfone standards to the wireless phone industry. This Note discusses Carterfone and the merits of Skype’s petition in light of the recent auction of the C Block, which carries open network requirements, and developments in wireless technology. This Note argues that the FCC should require carriers to provide technical standards for access to their networks, whereby individuals will be able to connect any approved device and application of their choosing.
WHO NEEDS TICKETS? Examining Problems in the Growing Online Ticket Resale Industry
By Clark P. Kirkman........................................................................................................................................................................................739
The Internet has dramatically changed the methods by which people purchase tickets to events. In the past decade, the secondary ticket market has grown exponentially, and today the online ticket resale industry is valued at approximately $4 billion. Although there are consumer benefits to this industry growth, some of the industry practices have precipitated a consumer backlash. This was typified in 2007 when many parents, hoping to purchase tickets to the Hannah Montana “Best of Both Worlds Tour,” watched as tickets sold out online in only a few minutes or less. Coupled with this episode was the Ticketmaster v. RMG Technologies case, which dealt with brokers who were using software to aid in purchasing large quantities of tickets to high-profile events. Congress has finally started to pay attention in 2009. This Note argues that the time for national regulation of this growing market is now.
The Never-Ending Limits of § 230: Extending ISP Immunity to the Sexual Exploitation of Children
By Katy Noeth.....................................................................................................................................................................................................765
In 2006, the U.S. District Court for the Eastern District of Texas extended civil liability to Yahoo! under § 230 of the Communications Decency Act so that it could not be sued for knowingly profiting from a Web site where members exchanged sexually explicit pictures of minors. The court found that the reasoning of the seminal § 230 case, Zeran v. AOL, was analogous and that policy considerations mandated its holding.
This Note argues that a multifaceted approach is needed to prevent future courts from following that decision, including an amendment to § 230 that would impose civil liability upon ISPs that knowingly allow the sexual exploitation of children on their Web sites. In the meantime, however, future courts should distinguish Zeran and refuse to apply its defamation rationale to child sexual exploitation claims. Future courts should also refuse to extend the immunity to child sexual exploitation claims because doing so does not further the congressional intent behind § 230. Courts should recognize an exception to immunity under § 230(e)(1) in order to protect minors on the Internet.
Volume 61 | March, 2009 | Number 2
ARTICLES
Beyond Content Neutrality: Understanding Content-Based Promotion of Democratic Speech
By Marvin Ammori...................................................................................................................................................................................273
Scholars and judges generally assume that the cornerstone of free speech doctrine is the distinction between content-based and content-neutral laws. Despite the distinctions wide acceptance, the distinction lacks any precedential or normative basis unless it also accounts for an equally important distinction. The scholars conventional view of content-analysis overlooks the difference between government banning a book or recommending it. Content-based laws that suppress specific content, like banning a television show, should be problematic, but content-based laws that promote specific content, such as promoting educational and political shows, should not be.
Precedent and the First Amendments' underlying normative concerns both require this distinction and support content-based laws promoting democratic content. The precedent in almost every area of First Amendment doctrine applies minimal scrutiny to content-based promotion. To reach these results, courts usually claim to apply one of several 'exceptions' to content-analysis, but these many exceptions actually add up to a rule: content-based promotion of speech does not receive heightened scrutiny. This rule serves the normative goals of the First Amendment. Exceptions to this rule - the most notable of which applies to emerging electronic media - are a judicial mistake that should be corrected.
By John R. Harrington, Ronald W. Gavillet, Matt D. Basil, and Melissa L. Dickey.....................................................................325
As part of its Intercarrier Compensation Reform Docket, the Federal Communications Commission (FCC) has received many proposals advocating for the adoption of regulations relating to tandem transit services. As transiting affects virtually every carrier in the telecommunications industry, including traditional CLECs, cable telephony providers, wireless carriers, and even traditional ILECs, the industry is sharply divided over which (if any) of those proposals should be adopted. The article provides an in-depth look at the issues dividing the industry, and the various proposals before the FCC. The Authors then hypothesize that the FCC should follow the lead of several state commissions who have addressed this exact issue and adopt a nationwide policy that would facilitate the continued growth of competition in the tandem transiting market, as this result would best serve consumers, telecommunications providers, and the industry as a whole.
Reverse Auctions and Universal Telecommunications Service: Lessons from Global Experience
By Scott Wallsten......................................................................................................................................................................................373
The United States now spends around $7 billion on universal service programs—subsidies intended to ensure that the entire country has access to telecommunications services. Most of this money supports telecommunications service in “high cost” (primarily rural) areas, and the High Cost fund is growing quickly. In response to this growth, policymakers are considering using reverse auctions, or bids for the minimum subsidy, as a way to reduce expenditures. While the U.S. has not yet distributed funds for universal service programs using reverse auctions, the method has been used widely.
First, reverse auctions are akin to standard government procurement procedures, which call for firms to bid on government contracts to keep prices down. Sending contracts out for bid is common in both simple and complex government contracting. Second, many countries around the world have used reverse auctions for distributing universal funds. This paper reviews global experiences with reverse auctions and discusses their implications for the U.S. In particular, I review reverse auctions in Australia, Chile, Colombia, India, Nepal, and Peru. Not all of the auctions were successful, but they clearly demonstrate that reverse auctions can be an effective tool for revealing information about the true cost of providing universal coverage and for reducing expenditures on subsidies.
COMMENT
A Fundamental Misunderstanding: FCC Implementation of U.S. WTO Commitments
By Laura B. Sherman..................................................................................................................................................................................395
In bilateral and multilateral trade agreements, the United States has agreed to open the market for telecommunications services to foreign service suppliers, an obligation implemented by the FCC since 1998. In contrast, the United States has made no commitments with respect to broadcasting services or broadcast licenses. This article clarifies the different treatment of telecommunications services and broadcast services in U.S. trade obligations and FCC orders.
NOTES
Paying the Price for Sports TV: Preventing the Strategic Misuse of the FCC's Carriage Regulations
By David Hutson.............................................................................................................................................................................................407
Cable companies and sports leagues have embarked upon parallel courses of vertical integration by creating and acquiring interests in cable sports networks. Cable companies carry regional sports networks (RSNs) on basic cable tiers. Some league-owned networks have sought high prices for carriage on basic tiers, causing some cable companies to balk because of the price increase that would be necessary to pass on to consumers. The 1992 Cable Act prohibits cable companies from discriminating in carriage terms between affiliated and nonaffiliated networks. Cable companies that own RSNs are, therefore, left vulnerable to discrimination complaints by league-owned networks. This Note argues that the leverage given to league-owned networks by the FCC’s carriage regulations is against the public interest and is due to an unreasonable interpretation of the 1992 Cable Act. Further, it suggests a variety of responses available to policymakers that have the potential to curtail increases in the price of cable due to the proliferation of cable sports networks.
By Kellen Myers...............................................................................................................................................................................................431
Emerging webcasting technology is playing an increasing role in modern society. The ease of use of webcast technology has brought about an increased user base as well as an increased viability for small webcasting businesses. However, the mix-tape genre of independent Internet radio has been financially and legislatively abused as a forerunner of rapidly advancing digital technology and concerns over protecting copyright royalties. This note argues for a revision of the DMCA to provide a middle ground between protecting copyrighted works and allowing the continued existence of Internet radio.
Business Solutions to the Alien Ownership Restriction
By Greg Snodgrass........................................................................................................................................................................................457
The alien ownership restriction on broadcast licenses has had a profound effect on the entertainment industry over the past few decades. While the origins of the restriction were based on national security fears that no longer apply, the restriction is unlikely to be repealed without significant lobbying. Given the unlikelihood of repeal, this Note concludes that entertainment conglomerates should apply a two-pronged approach to overcome the barrier imposed by the ownership restriction. First, conglomerates should build powerful non-broadcast superstations. Second, conglomerates should push the FCC to gradually loosen its application of the restriction. While this is not a perfect solution, it does provide a business with alternatives to achieve synergies in the entertainment industry.
Volume 61 | December, 2008 | Number 1
INTRODUCTION
The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective
By Christopher S. Yoo..............................................................................................1
ARTICLES
The Decline and Fall of AT&T: A Personal Recollection
By Hon. Richard A. Posner........................................................................................11
In his luncheon talk at the conference, presented here in slightly revised form, Judge Posner discusses his personal involvement with the events that led up the Justice Department's major antitrust suit against AT&T that culminated in the breakup of the telephone monopoly. The stages of his involvement included participation in the work of President Johnson's Task Force on Communications Policy, consulting for AT&T in the lawsuit itself, and his negative advice to the chairman of AT&T on the latter's plans to enter the computer industry.
The Bell System Divestiture: Background, Implementation, and Outcome
By Joseph H. Weber.....................................................................................................21
By 1982, the Bell System had operated an integrated telecommunications network connecting almost everyone in the United States for almost 100 years. That system had been designed and operated as a monopoly, but by the 1960s, new technologies were being developed which led to pressure to allow competitive entry. After many incremental changes, the Bell System divestiture—complete separation of long-distance service and manufacturing from local service provision—was finally adopted as a way of implementing this transition. Divestiture was complex and costly. Although service levels were largely maintained, much litigation ensued as competitors jockeyed for market position. In the end, additional new technologies finally allowed competitive markets to develop.
An Oligopoly Analysis of AT&T's Performance in the Wireline Long-Distance Markets After Divestiture
By Paul W. MacAvoy......................................................................................................31
The antitrust law books promise competition from breaking up the monopoly firm in a Sherman Act case remedy. Not in this case; the question is what “kind” of oligopoly.
By Gerald R. Faulhaber....................................................................................................37
The FCC is transitioning from a rate regulation regime to an access regime. A rate regulation regime gives all customers full access to network facilities (common carrier) at regulated rates—generally, rate base rate of return regulation. An access regime is one in which all competitors are given full access to incumbents’ networks, with little or no retail rate regulation, thereby allowing competition (over incumbents’ networks) to discipline the market. Is this a good idea? Is it likely to work? What is the evidence for this?
Toward a Unified Theory of Access to Local Telephone Networks
By Daniel F. Spulber & Christopher S. Yoo..................................................................43
Over the past several decades, regulatory authorities have imposed an increasingly broad array of access requirements on local telephone providers. In so doing, policymakers typically applied previous approaches to access regulation without fully considering whether the regulatory justifications used in favor of those previous access requirements remained valid. They also allowed each access regime to be governed by a different pricing methodology and set access prices in a way that treated each network component as if it existed in isolation. The result was a regulatory regime that was internally inconsistent and vulnerable to regulatory arbitrage. In this Article, Professors Daniel Spulber and Christopher Yoo trace the development of these access regimes and evaluate the continuing validity of the rationales traditionally invoked to justify mandating access to local telephone networks (e.g., natural monopoly, network economic effects, vertical exclusion, and ruinous competition) in a world in which competition among local telephone providers is a real possibility. They then apply a five-part framework for classifying different types of access based on the branch of mathematics known as graph theory that models the interactions among different components. This framework shows how different types of access can have a differential impact on network configuration, capacity, reliability, and cost. It also captures the extent to which networks constitute complex systems in which network components interact with one another in ways that can make network behavior quite unpredictable. In addition, the framework demonstrates how mandated access can increase transaction costs by forcing local telephone providers to externalize functions that would be more efficiently provided within the boundaries of the firm.
Did AT&T Die in Vain? An Empirical Comparison of AT&T and Bell Canada
By Eli M. Noam..................................................................................................................119
Did the Divestiture of AT&T achieve its purpose? It is helpful to turn to Canada, whose telecommunications industry and regulation were similar but which did not experience a divestiture. Since AT&T was split up in 1982-4, national telecom market concentration in the U.S. has bounced back to a national duopoly structure, with an HHI concentration index of 2,986, higher than for Canada’s similar national duopoly with an HHI of 2,463. Local telecom wireline competition is greater in Canada, as are broadband and wireless penetrations. Real revenue for all of AT&T’s successor companies grew only half as much as in Canada. AT&T successors’ combined market capitalization rose only one third as much as did Bell Canada. U.S. telecom prices are more favorable to business, low-use consumers, and mobile users, but less favorable to high-use consumers, especially those making long distance calls. AT&T’s research development sector was decimated while Canada has preserved some reduced in-house research. Employment in the U.S. declined slightly after 1997, whereas in Canada it rose over 20%. Taken together, this comparison does not indicate that the AT&T divestiture created advantages relative to Canada.
Essential Facilities and Trinko: Should Antitrust and Regulation Be Combined?
By Timothy J. Brennan......................................................................................................133
The Supreme Court’s 2004 decision in Trinko represented a radical change from prior doctrine ensuring that antitrust laws applied in regulated industries. The change resulted from a failure to appreciate that regulation and antitrust can be complements. Regulation can boost the value of antitrust by creating incentives to refuse to deal in order to reap monopoly profit otherwise proscribed by regulation. Ironically, the essential facilities doctrine rejected by the Trinko court and the Trinko decision both imply that regulation and antitrust should be done by the same entity, either antitrust enforcement or a regulator. An effective essential facilities remedy entails price regulation, and the test of whether a facility is essential requires assessing whether cutting price would increase output. The clash between the pro-market culture of antitrust and the planning aspect of regulation suggests that combining both within the same institution is ill-advised, but the debate will go on.
The AT&T Consent Decree: In Praise of Interconnection Only
By Richard A. Epstein...........................................................................................................149
This article examines the consequences of the Bell consent decree of 1982. In the short run, the decree sought to end the AT&T's Corporate domination of the telecommunications network. But it did so in an overambitious way that chose to break up the basic system into constituent parts even though the preferred remedy was a more modest initiative that would have opened the network up to interconnection by rival carriers. In charting the wrong path, the consent decree set the course to the 1996 Telecommunication Act, which magnified the original error by forcing elaborate sales at below-market prices of unbundled network elements in addition to allowing for the interconnection remedy. The absence of a competitive solution for telecommunications markets makes it all the more important to design the proper set of public interventions, where once again simple rules dominate more complex remedial arrangements.
Reexamining the Legacy of Dual Regulation: Reforming Dual Merger Review by the DOJ and the FCC
By Philip J. Weiser................................................................................................................167
A central challenge for competition policy merger review is to structure the analysis of merger remedies so that the antitrust agencies play an effective and central role, with regulatory agencies complementing—as opposed to overlapping or contradicting—their judgments. At present, the U.S. system sometimes veers towards a worst-case scenario where federal antitrust authorities—the FTC and DOJ—impose regulatory remedies that overlap with regulatory policy and regulatory agencies perform duplicative merger reviews and impose remedies unrelated to the mergers themselves. Moreover, antitrust merger remedies themselves are often not developed through a transparent, consistent, or predictable process. Consequently, as developed in this Article, there is compelling need for institutional reform of antitrust merger remedies in general and in particular with respect to how the FCC oversees mergers between telecommunications companies.
By Jerry A. Hausman, J. Gregory Sidak, and Timothy J. Tardiff....................................199
Around the world, since 1996, regulators have mandated that incumbent local exchange carriers (ILECs) offer competitors access to their network at regulated prices that reflect forward-looking cost. Regulated prices for unbundled network elements are based on total element long-run incremental cost (TELRIC), which in turn is calculated using engineering models that estimate the costs of a hypothetical carrier employing the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the ILEC’s actual wire centers. These cost models require detailed estimates of the equipment and installation prices of the numerous components that are used in a telecommunications network. When there is uncertainty about how these prices will change over the period for which costs and prices are required, the resulting cost estimates used for setting the regulated prices of unbundled network elements can be very inaccurate. Similarly, when regulators in other jurisdictions are considering such rates as “benchmarks,” it is necessary to make adjustments to account for such large differences in critical input prices, so that the benchmark rates will be representative of the costs that actually will be incurred by efficient carriers offering unbundled elements in those jurisdictions. The precipitous rise in the price of copper since 2003 exemplifies this need to reevaluate the inputs used by regulators in their cost model, as well as the inferences drawn from those models. These increases differ from the type of constant annual expected input price growth (or decline) situation that some cost models used outside the United States have accommodated with “tilted annuity” methods. Rather than a gradual anticipated price increase, copper prices escalated rapidly and are likely to remain well above the levels that regulators used to set existing loop rates. Accounting for such evidence would change the forward-looking costs of a hypothetically efficient ILEC network that one of the most prominent U.S. state regulatory commissions—the California Public Utilities Commission (CPUC)—established in 2006. Similarly, in 2007, the Commerce Commission in New Zealand employed a benchmarking methodology for the pricing of unbundled loops that failed to account for the increased price of copper. A global trend may be emerging among telecommunications regulators to ignore the input requirements of their own forward-looking cost models. Such a trend would be consistent with a version of regulatory opportunism in which regulators are forward-looking only when doing so produces lower regulated prices over time. The risk of regulatory opportunism and the high price of copper together create a strong incentive for an ILEC to replace its copper loops with optical fiber. Although some CLECS could be adversely affected by such a decommissioning of copper loops, an ILEC has no duty under U.S. antitrust or telecommunications law to keep copper loops in service for the benefit of its competitors.
NOTES
By Dave E. Hutchinson..................................................................................................................229
On November 4, 2008, the Supreme Court heard arguments in FCC v. Fox Television Stations, which centers on whether or the FCC’s policy allowing fleeting expletives to be found actionably indecent is arbitrary and capricious. The Second Circuit found that the fleeting expletives policy is arbitrary and capricious as a matter of administrative law. The Supreme Court decision will provide much needed guidance for what constitutes a reasoned basis in the indecency regime’s contextual approach. This Note argues that—despite the FCC’s recognition that time and context changes the meaning of language—the FCC’s indecency regime is at loggerheads with broadcasters because it fails to base the words targeted for indecency on some factual basis. This Note reviews the doctrine of arbitrary and capricious review, and places the arguments from FCC v. Fox in that light. Notably, the FCC apparently misconceives of arbitrary and capricious review—construing it as a reasonableness review rather than a hard look review. Finally, it suggests that a responsible arbitrary and capricious review should affirm the Second Circuit, and require an indecency policy predicated on facts, which would serve to strengthen the basis for the FCC’s indecency determinations and would provide clearer guidance to broadcasters.
By Andrew L. Sullivant....................................................................................................................251
In 2004, the Tenth Circuit held that although the newly enacted do-not-call registry restricted commercial speech, the restriction was narrowly tailored and thus fell within the bounds of the Constitution. Since that decision, the Federal Trade Commission has amended the do-not-call registry to abolish the provision that required individuals to re-register every five years, and in 2008, Congress passed the amendment. This Note argues that the five-year re-registration requirement is a substantial factor in the registry’s narrow tailoring. By removing the requirement, questions as to the restriction's constitutionality reemerge.
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