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Editor’s Notes

Articles

The Evolution of Regulation: Twentieth Century Lessons and Twenty-First Century Opportunities
by John W. Mayo

This article identifies lessons from the past fifty years to develop a foundation for twenty-first century regulatory policy formation. It finds that while the trend toward deregulatory policies over the last half-century was nominally motivated by a push toward economic efficiency, policymakers were also attracted to deregulatory policies by deep-seated ideological desires to protect individual freedoms deemed to be infringed by regulation. Such ideological drivers are ill-suited as a basis for twenty-first century regulation. Nonetheless, when stripped of ideological drivers, it is possible to glean from the historical evolution of regulation a sound basis for twenty-first century regulatory policy. The article specifically describes a set of more subtle regulatory developments and explains how they have generated the most sound regulatory decisions over the past fifty years. Drawing on these developments, the article proposes a regulatory policy framework based upon a set of “results-based principles” that hold the potential to underlie a new, economic welfare-enhancing regulatory framework.

Uncreative Destruction: The Misguided War on Vertical Integration in the Information Economy
by Brent Skorup & Adam Thierer

Are information sectors sufficiently different from other sectors of the economy such that more stringent antitrust standards should be applied to them preemptively? Columbia Law School professor Tim Wu responds in the affirmative in his book The Master Switch: The Rise and Fall of Information Empires. Wu proposes preventing vertical mergers in the information economy and the mandatory divestiture of vertically integrated companies. To implement this, Wu proposes a Separations Principle for the information economy, which would segregate information providers into three buckets, which we have labeled information creators, information distributors, and hardware makers.

This article outlines Wu’s separations proposal, explains why his fears regarding vertical relationships should be rejected by regulatory and antitrust policymakers, and illustrates the legal and practical problems his Separations Principle poses. Wu justifies his Separations Principle by citing monopolies and market power in the information economy. He also advocates using U.S. antitrust authorities to enforce his Principle.

We argue that the antitrust harms he fears are not present, and we highlight scholarship on the accepted benefits of vertically integrated firms. We show that Wu’s remedies are policy preferences wrapped in the language of competition law. In fact, the information economy is largely competitive and does not warrant interventionist regulatory enforcement. Since much of American economic vitality flows from the information economy and technology, policymakers should reject a radical antitrust remedy like Wu’s preemptive Separations Principle.

Notes

A New Way to Compromise: An Analysis of the FCC, CTIA and Consumers Union Bill Shock Compromise and its Application to Cramming
by Matthew Friedman

In October 2011, the Federal Communications Commission (FCC), CTIA –The Wireless Association, and Consumers Union reached a compromise solution to the issue of “bill shock.” The compromise, which the FCC hailed as a win for consumers, requires the wireless industry to provide free alerts to customers approaching their monthly data, text and minute allotments in exchange for the FCC’s promise to halt its rulemaking proceeding. However, this paper argues that the compromise is bad policy because the FCC’s authority to implement the rules proposed in the Bill Shock NPRM is questionable and the compromise is unnecessarily paternalistic, improperly allocates the costs of compliance, will ultimately lead to increased costs for wireless consumers, and inadequately addresses the harms occurring to some wireless consumers. Instead, the FCC should have adopted policies aimed at working with the wireless industry to increase consumer choice and access to information, and narrowly tailored its solutions to demonstrated harms. Finally, this paper contemplates the use of a similar Commission-industry compromise to resolve the issue of wireless “cramming” and advocates such an approach.

Data Caps: How ISPs Are Stunting the Growth of Online Video Distributors and What Regulators Can Do About It
by Jacob Minne

Many high-speed Internet service providers (ISPs) have begun limiting the aggregate data usage of subscribers. These limits, or “data caps,” have received relatively little regulatory, legislative, or media attention compared to net neutrality issues, which have been described by some commentators as setting a “speed limit” for Internet users. But if net neutrality principles will decide the Internet’s speed limit, data caps will determine the end user’s mileage.

Comcast and other ISPs have attempted to justify data cap programs on two grounds: first, that limiting data usage is necessary for a fair allocation of costs; and second, that limiting data usage will help limit network congestion. However, neither of these justifications survives scrutiny. Not all uses of an ISP’s network cost the ISP the same amount. In particular, video providers like Netflix, which make up a plurality of the data received by end-users, create profit centers for many ISPs because Netflix and others pay for the privilege of connecting more directly to customers through “paid peering” arrangements. On the second point, there is no evidence that data caps will ease congestion, and Comcast’s own engineers admit that data caps will not affect network congestion.

Instead, the primary benefit of data caps to ISPs is that they allow ISPs to cling to a model of video service subscription that is based on traditional cable- or satellite-based providers. With data caps in place, customers are more likely to only augment, but not to replace, their cable viewing with services like Netflix and Hulu. This unfair use of market power suggests substantial antitrust liability for cable ISPs, and potential liability, under recent FCC regulations, as an unreasonable “network management” practice. Regulators should take action against ISP imposition of data caps, not only for the sake of consumers, but to ensure the continued exponential growth of online communication.