Category Archives: Competition policy

FCC’s Genachowski Not Neutral on New Net Rules

The proponents of Net neutrality say that government regulation is necessary for a free and open Internet, but history doesn’t support that argument. The Telecommunications Act of 1996, for example, was supposed to bolster competition. Instead, by compelling companies to share their infrastructures, the government’s rules reduced incentives for improvement. In the long run, it failed. In this article, I go over some of the problems with Chairman Genachowski’s speech on Net neutrality last week.

A Clarion Call for Expanding E-Commerce

America’s winemakers have won a victory for online wine sales in Kansas, but the legislative battle demonstrates the challenges that e-commerce, a key force for economic recovery, still faces from outdated thinking and entrenched political institutions.

Signed into law in April, 2009, Kansas Senate Bill 212 allows direct-to-consumer (DTC) wine shipments over the Web for state residents beginning July 1. A common-sense outcome to many, this victory was hard-fought in a state that previously banned all DTC wine shipments. The victory comes four years after the U.S. Supreme Court ruled unconstitutional those shipping rules that discriminate against out-of-state retailers.

Entrenched local wholesalers and retailers in Kansas quashed a 2006 attempt to liberalize shipping laws by financing a dubious voter survey to influence political opinions in an election year. They also pushed for onerous amendments that mandated online winery orders be shipped to retail liquor stores for pickup with a US$5 delivery tax. Shrewd political maneuvering by the brick-and-mortar distributors allowed them to retain their grip, but advocates for consumer choice are learning that the same techniques can be used to expand online economic freedom.

Read more here.

Why It’s OK for Newspapers to Die

The Seattle Post-Intelligencer ceased print publication this week to focus solely on the Web, a transition that frightened some in the publishing business, coming so shortly after the Rocky Mountain News shut down. However, as many in the tech industry are aware, this is simply a form of “creative destruction” that should boost both choice and economic activity in the longer term.

“Creative destruction,” a term coined by Joseph Schumpeter in his 1942 book Capitalism, Socialism and Democracy, means exactly what it says — the process by which a new technology or structure replaces the old and builds a new infrastructure. This is how progress happens and capitalism moves ahead. For a clear example, think back a century or so, when Henry Ford released his first prototype automobile, relegating the horse and buggy, and the buggy whip industry, to obsolescence.

Most would agree that such creative destruction resulted in a good outcome for society. Yet, not everyone is willing to let such revolutions take place without a fight. Indeed, some politicians have proposed bailing out newspapers, as the federal government has done for failing automakers.

“The media is a vitally important part of America,” said Frank Nicastro, who represents Connecticut’s 79th assembly district and advocated for a state government bailout of The Bristol Press. Likewise, House Speaker Nancy Pelosi is hinting at federal intervention to help the embattled San Francisco Chronicle.

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The Scandalous Proposal of New York’s Anti-Tech Governor

In an effort to tackle New York’s nearly US$15 billion budget deficit, Governor David Paterson has proposed taxing downloads of software, music and other content, including pornography.

This proposal comes at a time when the economy is in freefall and the so-called “stimulus” package is going to cost taxpayers much more than they expect. Gov. Paterson seems unaware that his tax proposal will have the same effect.

Just after President Barack Obama signed the mammoth stimulus package into law Tuesday, Wall Street tanked, with the Dow Jones industrials average closing less than a point above its lowest level in five-and-a-half years. This show of despair over the federal government’s big spending plans is no surprise, given that the only way to pay for the stimulus is through greater debt.

According to the Pacific Research Institute’s Jason Clemens and Adam Frey, the $787 billion dollar package will actually grow to at least $1.34 trillion over the next 10 years, due to the fact that the government will need to borrow money not only to cover the stimulus, but also the interest on that debt.

That means taxes are going to go up, and New York’s additional proposals to tax the technology sector will be a true anti-stimulus. They will not only create a disincentive to buy, but also push businesses to relocate and thus destroy jobs in New York — for years one of the unfriendliest states to private enterprise, consumer choice and the Internet.

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Read more here.

Note to Obama: The FCC Needs Transparency

This week, the House Energy and Commerce Committee released a report accusing Kevin Martin, the chairman of the Federal Communications Commission, of being deceptive and opaque in his management of the agency’s affairs. That a politician would pull such moves is no surprise, but the report should send a strong signal to the incoming Obama administration.

“Chairman Martin withheld important and relevant data from the other Commissioners during their consideration of the 13th Annual Video Competition Report in an apparent attempt to enable the Commission to regulate cable television companies,” the report states.

This finding was one of many pointing out how the Chairman wielded his power inappropriately.

It is common knowledge that Chairman Martin personally dislikes the cable companies. This animosity seems to be what drove his reintroduction of a rule to require a 30-percent market share cap on cable companies. In 2001, the U.S. Court of Appeals struck down a similar cap; since then, competition in the video services market has skyrocketed.

When asked why Chairman Martin would reintroduce a rule already rejected by the courts, Joy Sims, a spokesperson for the National Cable and Telecommunications Association, simply said, “Look at the House report issued today.”

One man’s vendetta, the report reveals, has the ability to influence an entire industry. To those who marvel at that reality, Berin Szoka of the Progress and Freedom Foundation explains that “the FCC is one of the most unaccountable agencies. The problem is not isolated to Chairman Martin, but was probably worse under him because of his war on cable.”

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FCC Comcast decision was political failure

Last week, the Federal Communications Commission (FCC) came under fire for making a ruling that many consider outside its authority. Without levying a fine, it charged that Comcast violated federal policy when it interfered with a file-sharing application used by consumers. This new plot twist in the Net neutrality story should remind everyone that when it comes to new technologies, government failure is a bigger menace than market failure.

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The FCC is a nonprofit entity, and, therefore, criteria such as power and politics — not money — shape its motives. In a world in which telecommunications has morphed into a simple Internet application, the FCC becomes irrelevant if it doesn’t govern the Net. This gives bureaucrats from both parties incentives to make new rules in order to stay in the game, as they did with their Net neutrality “principles” in 2005.

However, incentives to stay in power are not necessarily aligned with incentives to do what’s right for consumers. That should give everyone reason to consider carefully what is likely to happen if FCC Chairman Kevin Martin is successful in intervening to control the Internet’s future.

That would be a future in which lobbyists, interest groups, and power-hungry politicians controlled what consumers could access on the Net. It would be a future that looked a lot like the regulation-heavy telecommunications past.

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Read full article here.

The Quest to Neuter the Net

What do liberal House Speaker Nancy Pelosi and the Christian Coalition have in common? No, it’s not a penchant for government-funded jet rides — it’s a misguided belief about net neutrality, proposed rules that could affect the future of Internet management.

The net neutrality debate is basically a question of whether or not broadband service providers can manage their networks for quality of service and potentially charge more money for greater bandwidth use. That’s a pretty straightforward question, but it has been twisted by those who don’t want to see the Internet “change.”

Consider what that means. No change would mean the Internet stays exactly where it is: Speeds don’t get faster, and consumers don’t get more services. That’s a silly idea, but it appeals to those who think we are in the midst of some golden age that must be preserved.

What needs to happen instead is for normal market rules to be allowed to work — when goods get scarce, businesses are given incentives through market prices to produce more.Think about downloading videos, for instance. Anyone who has ever suffered a lengthy wait for a big file to download will want better-quality service and be willing to pay the provider. That only makes sense, but net neutrality proponents — in reality, partisans of Net regulation — say that Americans should be worried about the big, bad network providers.

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Read more here.

The difference between proprietary and open source software

Over at ZDNet, Ed Burnette asks an interesting question. He wonders if Microsoft has just as many troubles with patents as everyone thinks Linux does. His answer is that they must be in the same boat, but he’s missing a key distinction that stems from the fact that Linux is open source and MS’s code is (for the most part) proprietary.

Proprietary firms like Microsoft have strong incentives to make sure their code actually belongs to them and this includes hiring lots of attorneys. Indeed, MS is known to seek out patent deals to protect its customers and the company also provides indemnification to its customers (unlike Linux). This is in contrast to the open source community where sharing is the norm and the incentives to protect the code are not quite as strong. This is not to say that there are no incentives, but just think of how many lone coders you’ve known who’ve said they would really like to copy from here or there.

Novell and MS — the market brings a new beginning

I almost choked on my morning coffee when I saw the headline last week that Novell and Microsoft announced a deal to make their software work together. As someone who once employed VMware to use Word on a machine running Linux OS, I have to say that I was both surprised and thrilled. And, as someone who closely followed the Microsoft antitrust cases in both the US and Europe, I was astounded. I wish I could call Judge Jackson right now and ask him why he thinks these two competitors who once looked to be arch enemies are now joining forces (Novell accused MS of antitrust violations and sued over WordPerfect). But of course Jackson didn’t think Microsoft had any competitors, so perhaps he wouldn’t really understand the question.

The fact that Microsoft and Novell are now teaming up to provide consumers with something they have been clamoring for (interoperability) is proof that the marketplace can deliver benefits to consumers without government help even if the two competitors have a bad history.