This can be considered an installment of my media influence series. It isn’t over. I just got busy and distracted.
The American people just seem unable to learn the folly of allowing the administrative state to control anything in our lives.
When I was in college (early 1980s) there was a fierce debate underway about the unfairness of the Fairness Doctrine.
For those who are unfamiliar with the Fairness Doctrine, it was based on a 1949 Federal Communications Commission regulaion that requried broadcasters to “afford reasonable opportunity for the discussion of conflicting views of pulbic importantce.” It was overturned by the FCC in 1987 because, contrary to its purpose, it failed to encourage discussion of more controversial issues. It also violated the First Amendment, but who cares about that old piece of paper anyway, right?
The Fairness Doctrine was predicated on the idea that the airwaves were scarce and to assure that broadcasters did not stomp on one another’s signal, the government had to regulate access. From that came the idea that it could also regulate content. The FCC claimed that the only way to assure fair and balanced news and opinion was to mandate it.
In practice, controversial speech was silenced as the threat of random investigations and warnings discouraged broadcasters from airing what FCC bureaucrats might refer to as “unbalanced views.” Rather than encouraging debate, it stifled it. But it also skewed the news.
Those of us old enough to remember the late-1960s remember the “Silent Majority” – a vast number of ordinary Americans who never seemed to make waves. While protests swept college campuses and sucked up all the media attention, they were largely silent. But were they, really? We now know that as the media focused glowing attention on the affects of progressivism in the America a large groundswell of conservatives were forming that would eventually bring Ronald Reagan to the presidency, followed a few years later by the Contract with America. If you go back and look at broadcasts from that era, you don’t see any evidence of that groundswell. You have to go to print media to find it. There were a handful of local radio stations that allowed citizens to call in and espress opinions, but if the discussion skewed too far to the conservative end of the wading pool, the radio station management was likely to receive a call from the FCC telling them to balance their content.
I’m not saying there was a vast progressive conspiracy to keep conservative ideology off the airwaves. I’m saying that government is more likely to be staffed by progressives. It makes sense. If you feel that government should be small and limited, you’re less likely to seek employment with government. If you are a progressive, you are more likely to view progressive ideas as being more truthful and valid than conservative ideas. You are also going to get into a lather when the local radio station allows “unbalanced” views and you can do something about it. So the FCC became a watchdog and bulwark against conservative ideology creeping onto the airwaves.
In 1984, the Supreme Court concluded that the scarcity rationale underlying the doctrine was flawed and that the doctrine “inescapably dampens the vigor and limits the variety of public debate”. When the Fairness Doctrine was set aside in 1986, conservative talk radio exploded onto the scene. It didn’t need to build an audience because that previously Silenced Majority were thrilled to finally hear their own beliefs in public.
Of course, progressives don’t like that and there have been occasional attempts to bring back the Fairness Doctrine, especially to enshrine it in Congression law. Reagan vetoed one attempt in 1987 and later attempts have failed to pass Congress. As an independent regulatory agency (which ought to scare the hell out of all intelligent Americans), the FCC has the power to reimpose the doctrine without Congressional or Executive action.
Supporters of reviving the un-Fairness Doctrine base their argument on the same three faulty premises that the FCC used originally.
The broadcast spectrum is limited, supporters say, so they should be policed by federal bureaucrats to ensure that all viewpoints are heard. And yet there are thousands of radio and television stations nationwide as well as cable and satellite channgels and the Internet (more on that in a later post). There is little prospect for a information monopoly simply because of the incredible diversity of media.
Federal policing is needed to guarantee fair access to the airwaves for a diversity of viewpoints. This is assuming that FCC bureaucrats have the ability to discern what is “fair”. The way the Fairness Doctrine was administered, each broadcaster had to offer air time to anyone with a controversial viewpoint. FCC regulators would arbitrarily determine what “fair access” was and who was entitled to it through selective enforcement. PBS in Fairbanks Alaska was a progressive wonderland with no FCC warnings in its jacket. KFAR in the same market would receive regular FCC warnings for listerners calling in and expressing their personal opinion. Gotta balance that! Both the Kennedy and Nixon administrations used the Fairness Doctrine to keep unfavorable reporting off the airs. What is “fair”? It all depends on your viewpoint, I guess.
Guaranteed Vigorous Debate
Supporters of the Fairness Doctrine then and now will assert that requiring broadcasters, under threat of arbitrary legal penalty, to “fairly” represent both sides of a given issue will result in more views being aired and will not affect the editorial content of a station. The reality was quite different. Under the Fairnmess Doctrine, with the threat of potential FCC retaliation for perceived lack of compliance, most broadcasters were reluctant to air their own opinions because it required them to also air alternative perpectives thatt their audiences did not want to hear. Free (regulated) speech became less free. It did not result in easier access to conversial views, but instead led to self-censorship. With the wide diversity of views available today, people seeking alternative viewpoints can simply change the channel or click on a different link.
Ah, but can they?
I see Net Neutrality as this era’s version of the Fairness Doctrine and I predict it will result in the exact same problems and with far more dire consequences.
I will start out by saying that I couldn’t care less about lost government revenue. The federal government needs to be put on a diet, so lost revenue looks like a good thing to me. My rage here has nothing to do with revenue.
This has to do with the administrative state and myriad of convoluted regulations that allowed this to happen. Some of my irritation is directed at Doyon, which may deeply impact Alaska Native corporations because of these shenanigans. As Alaska Native corporations are joint-partnered in many construction projects in Alaska, this has the potential for deeply affecting Alaskans in general.
This is what crony capitalism looks like, but it wouldn’t be possible without the Federal Communication Commission creating a monopolistic system for the airwaves. This is the same organization that has now seized control of the Internet and, if you don’t believe this sort of thing will now be commonplace in that government-created monopoly, you’re foolish.
NEW YORK TIMES
STEVEN DAVIDOFF SOLOMON
Charles W. Ergen, the billionaire who controls the satellite TV provider Dish Network, and his company are about to make a cool $3.25 billion — courtesy of the American taxpayer.
This windfall came from a recent successful auction of wireless spectrum that raised more than $40 billion for the American treasury. But it will be $3.25 billion less than it ought to be, if Mr. Ergen and his clever lawyers have their way.
The reason is that Dish Network bid for licenses through a newly formed vehicle that claimed to be a “very small business” under the Federal Communications Commission rules and was entitled to a 25 percent discount.
At this point you may be scratching your head. How can Dish, a company with a $34 billion market value, be a “very small business”? Indeed, to qualify for the discount, a very small business must have revenue not “exceeding $15 million for the preceding three years.” Dish in its last full fiscal year had almost $14 billion in revenue.
Through sleight of hand and aggressive use of partners and loopholes, Dish turned itself into that very small business, distorting reality and creating an unfair advantage.
Here is how it worked for $7.8 billion of Dish’s winning bids (it had $13 billion in winning bids in all).
A new company, Northstar Wireless, was formed to bid on the spectrum. Dish Network Corporation indirectly owns 85 percent of Northstar Wireless.
But a new company is not enough. After all, anyone could then simply form a new company and save similar billions of dollars. In its rules, the F.C.C. counts the revenue of affiliates and the controlling owners of the bidding entity for purposes of determining whether a business is a very small one.
For the first loophole, the lawyers went to Alaska.
Doyon is an Alaska Native regional corporation, created as part of a federal government settlement of native land claims back in the 1970s.
Based in Fairbanks, Alaska, Doyon has more than “19,000 shareholders, and is the largest private landowner in Alaska,” according to its website. It has at least 12 different operating companies, including one that operates seven drilling rigs on the Alaskan North Shore. It purpose is to serve the Native American community in central Alaska, and its shareholders are all Native American descendants.
Doyon owns 15 percent of Northstar, a stake it acquired for $120 million; Mr. Ergen’s Dish owns the other 85 percent. Even though Dish is the majority owner, Doyon was designated as the manager of Northstar.
Doyon’s control over Northstar is the key to the small-business discount. Dish contends that it lacks control — Doyon has all the votes — and so its own revenue is not included in calculating whether Northstar is a very small business.
Still, you may be wondering how Doyon itself can qualify as a “very small firm.” After all, being the largest landowner in Alaska and an owner of oil rigs must count for something.
And indeed, Doyon’s average annual profit over the last five years has been more than $18 million.
It comes down to what may be the most obscure exemption in the F.C.C. rules.
There are regulations specifically for the dozen or so companies organized under the Alaska Native Claims Settlement Act. For them and other Indian tribes, the agency does not count the revenue from “entities owned and controlled by such tribes or corporations” unless the revenue comes from gambling. And so only Doyon — the holding company — is counted, and it has no revenue for these purposes because all of its money was made in its other companies.
And so, Dish has erected an edifice that it used to reap that $3.25 billion in savings.
By this point, your head may be exploding.
The rest of Dish’s winning bids — worth about $5.5 billion — were done under a partnership with John Muleta, the former chief of the F.C.C.’s wireless telecommunications bureau, and relied on similar loopholes. As a former government official, Mr. Muleta has no real revenue and so meets the test of being a “very small business.”
No doubt Dish and its lawyers are high-fiving one another and patting themselves on the back. By giving 15 percent ownership to Doyon at a discounted price, they have saved themselves billions.
Taxpayers, however, may want to ponder what those billions of dollars could have done in the coffers of the government — a new bridge or money for schools, perhaps.
And this is not a new issue. The “small firm” exemption has been known to be a problem at the F.C.C. for years. The Congressional Budget Office in 2005 wrote a report highlighting how it was used mostly by big companies instead of the small firms it was intended to benefit. Moreover, the office found that the program provided little benefit to consumers while providing a big discount to companies. In a 2006 auction, AT&T successfully used this structure with Doyon.
The latest spectrum auction — and the attention it has received — may finally push the F.C.C. to eliminate this exemption. It’s hard to see how it benefits anyone but Dish and Doyon, which both get free money for not doing much of anything.
More immediately, the agency should take a good, hard look at the structure of the arrangement.
Doyon has control over Northstar in its day-to-day operations, but the agreements also require Northstar to be managed according to a five-year business plan agreed to by Dish in advance. No deviation in any material respect can be made without Dish’s approval through a subsidiary. Not only that, but there is a multipage list of things that Northstar cannot do without approval from Dish’s subsidiary. These restrictions include spending more than $2 million, selling the company or paying any executive more than $200,000.
Given Dish’s significant control and the requirement that Doyon cannot deviate from a previously agreed business plan, Dish is having its discount but still getting effective control. Though the F.C.C. may have passed on this issue without scrutiny before, this instance would seem to provide grounds to challenge the exemption claim.
In a blog post after the auction
, Roger C. Sherman, the current chief of the F.C.C.’s wireless telecommunications bureau, wrote that the agency would “thoroughly review and scrutinize each application” to make sure it “has complied with the commission’s bidding credit rules.”
Ajit Pai, an F.C.C. commissioner, followed up by saying that Dish’s bid made a “mockery” of the exemption and called for further investigation.
Dish has been busy trying to defend itself, arguing in a presentation to the agency that this program “helps increase auction revenue” by allowing more parties to bid.
You have to laugh, because even if true, this credit was never intended to help companies like Dish bid and earn them billions.
Mr. Muleta has turned into a very rich man overnight. Doyon put up only $120 million and now owns 15 percent of an entity worth almost $8 billion. Mr. Ergen, who is worth more than $22 billion, according to Forbes, is even richer. If the F.C.C. wants to encourage more bidders, it would seem that other, fairer ways are possible.
In a statement, Doyon defended the strategy, saying its participation in the auction helped push up the prices “three times more than was expected.”
“We followed the designated entity (‘D.E.’) program rules and did what Congress intended: create competition,” Aaron M. Schutt, the president and chief executive of Doyon, said in the statement. “By any measure, the D.E. program delivers solid value for the American taxpayer.”
Mr. Muleta did not respond to an email request for comment. A representative of Dish directed me to a conference call with analysts earlier this week in which Mr. Ergen argued that Dish “went by the rules” and that by bidding, it created more value for the government.
In an era when banks and oil companies are at times publicly vilified as not being good corporate citizens, Dish’s strategy for the spectrum auction comes across as among the most brazen, least civic-minded act by a corporation in years. The involvement and enrichment of Mr. Muleta, a former government official, only makes it worse. Manipulating the system this way may win points with shareholders and lawyers, but it will serve only to fuel the public’s cynicism over large corporations and government.
Correction: February 26, 2015
The Deal Professor column on Wednesday, about Dish Network’s bidding for wireless spectrum, misidentified the company that created Northstar Wireless, an affiliate of Dish, to participate in the auction. It is Doyon, which owns 15 percent of Northstar — not Dish, which indirectly owns 85 percent.
Thom Stark and I are continuing our conversation. One of the goals of this dialogue, similar to what I am doing with Becky Akers (Conversation with an Anarchist) is to show that reasonable people can disagree in a sincere and robust manner without acting like Neanderthals. Thom is what I would term a progressive and I am a conservative-libertarian-edging-toward-voluntaryist. We aren’t going to agree on many issues, although we have found areas where we agree more than we disagree. And that, my readers, is what American liberalism is all about. Lela
Let’s start with your assertions regarding Chattanooga’s fiber optic MAN, shall we?
First off, the PPIC study you cite speaks in only very general terms about the economic benefits of very-high-speed Internet access. Widely-available advances in technology create social change (automobiles, anyone?), but that change does not usually happen overnight. Sure, broadband availability does not seem to have resulted in a significant increase in work-from-home employment. However, that is most likely because management practices are inherently conservative – and managers insist on being able to physically keep an eye on their employees. (Heck, I was working from home one day a week back in the very early 1990’s, when I was employed by Wells Fargo Bank, back when dialup via 56K modems was pretty much the standard Internet access paradigm – but that was because my supervisor realized early on that no one has to crack a whip over me.) The so-called “virtual corporation” is still mostly a theoretical construct. Give it time.
The fact that the main uses private citizens have for the Internet are entertainment-oriented is not a valid reason to scorn gigabit access. Entertainment is a gigantic part of the American economy. Consumers throw billions and billions of dollars at it every year – and, the music business aside, the entertainment slice of our economic pie gets bigger in both absolute and relative terms every year. We are now at the front end of a general revolution in the way that audio-visual entertainment is delivered. That is a Good Thing. People are sick of cable companies’ anti-consumer “tiers” of service that require them to subsidize programming in which they have no interest in order to receive two or three channels they actually want to watch – and that business paradigm is on its last legs now. In ten years, that will have withered away – and it’s actual broadband access that will enable it.
Which takes us to the definition of broadband.
You cited an FCC study that determined that 85% of the American public already has access to broadband Internet connectivity. The thing is, that was under the old definition of broadband – a definition that the rest of the developed world quite rightly considered ridiculously inadequate – which was the one the cable companies and telcos the Bush administration’s version of the FCC to write into law. In the telcos’ world, 4 megabits down and 1 up equals “broadband”. Meanwhile, in Finland, where Internet access is legally considered a human right, the standard requires 100 megabit connections to qualify as broadband (and that level of service is available for the equivalent of $40/month). On January 29, the FCC raised the minimum service standard to qualify as broadband access to 25 megabits down, a move that was long, LONG overdue, and that reduces the number of Americans who have broadband connections to 72%. I would argue that even that definition remains wholly inadequate – but at least it’s less of a sad joke than the old one.
The thing that made Steve Jobs the visionary that he was is that he understood that people often don’t have any idea they need something until someone shows them what they’ve been missing. Digital music players were around before the iPod, but it took Jobs’s marketing campaign to make them ubiquitous. Virtually nobody cared about smart phones until the iPhone was released. Now everyone has one. Ditto tablet computers and the iPad. The same thing is true of broadband. Until you personally experience what it’s like to have websites load as if they’re on your own hard drive, until you experience high-definition streaming video, while downloading a DVD’s worth of patches and enhanced content for your kid’s favorite videogame – and you do both things while he’s logged into the Xbox network – you have no idea what you’re missing. Once you do experience it, you wonder how you ever got along without it. Experiencing is believing. So the argument that broadband access hasn’t created any major, direct economic benefit to consumers fails on two fronts: first, that the definition of broadband the PPIC study employed really wasn’t broadband at all, but rather the fiction of broadband foisted on the public by the telcos and cable operators, and second, that enough time has not elapsed since even most Americans had even that laughable definition of broadband access to see direct economic benefits accrue from it. Meanwhile, the indirect economic benefits are non-trivial. The rise of original programming for streaming video services has created quite a few jobs, for instance, and there are many more on the way, as the cable MSOs discover that the whole basis of their industry is eroding away, as more consumers realize that they really don’t have to simply accept the tiered-access paradigm any more.
So, now, to Chattanooga.
Back when dinosaurs ruled the Earth, and the Apple II was the be-all and end-all of microcomputing, I labored in the vineyards of cable TV programming. I’ve seen the industry from the inside. It stinks. The business model is based on franchise agreements with municipalities that give MSOs exclusivity within the franchise service area. That means no other entity is ALLOWED to provide cable service within the franchise area. Thus, once the agreement is signed, the cable company is handed a monopoly, typically one that runs 20 years, with an automatic renewal provision that prevents the city from inviting competitors into the franchise area unless the franchisee can be proven to have broken the terms of the franchise. Effectively, that means a perpetual monopoly – and cable operators don’t hesitate to sue to enforce those monopolies. (Incidentally, that’s because, back in the late 1960’s, rural and mountain communities had to get down on their knees and beg MSOs to build CATV systems for their TV-deprived citizenry. This was decades before the cable companies discovered that they could also deliver Internet service via the same cabling system that served their customers TV shows – nearly a decade and a half before DARPAnet became the Internet, in fact.)
Comcast and its ilk are, in fact, parasites, not Atlas Shrugged-style “makers”. They fight tooth and nail to avoid investing in system upgrades that would enable their customers to enjoy higher bandwidth, because “what have you done for me this quarter?” is the Gospel of the MBAs that run them. They don’t give a damn about their customers, other than as sources of essentially free money. (Once the system is in place, there’s no real expense – other than billing – to the MSO to continue to provide Internet access for its subscribers. The only reason they raise the monthly Internet subscriber fee every year is to funnel more money into the pockets of shareholders, so the CEO can brag to his board of directors. Programming costs for TV content continue to rise – but the cost of providing Internet access do not.)
Again, Comcast was asked to build a fiber-to-premises system for Chattanooga. It declined, citing the tired old arguments of lack of demand and the cost of upgrading the system. Tom Wheeler, the Chair of the FCC has rightly (and publicly) laughed at those arguments, because they are 100% the south-end product of a north-facing bull.
As for your contention that the surrounding municipalities’ electric ratepayers will be required to provide $2 million “support” for the system’s expansion into suburban Chatanooga, that’s more cable company propaganda. The expansion requires cabling. That cabling has to go somewhere. The two choices are underground – which is VERY expensive – or on poletops. Comcast is claiming that using the electric utility’s power poles will cost the ratepayers $2 million a year in additional costs, while, in fact, the cost to maintain the fiber plant will NOT be borne by electric ratepayers. Broadband subscribers will pay that cost. (The service life of a power pole is not significantly affected by adding a fiber optic line to the burden it carries, btw. Again, as Disreali probably did not say, there are three types of lie: lies, damned lies, and statistics. Comcast LOVES to use statistical arguments.)
There are, in fact, multiple private companies that are rolling out fiber access to municipalities around the country these days. Google is in the lead in this respect, and its ISP business is designed to break even, not turn a profit.
Not really. Google realizes that the key to every profit-making venture in which it engages is Internet use. Enabling gigabit access at reasonable prices is, for Google, essentially cultivating the field in which its profits will grow.
That’s because, unlike Comcast and its shabby sisters, Google’s executives understand the concept of enlightened self interest. They know that it’s in their best interest to give the razors away, because their customers will be buying razor blades from them for the rest of their lives.
BTW – Outside of Silicon Valley and the SOMA district of San Francisco, Seattle is probably the biggest tech hub in the country. OF COURSE it has lots of competition in its ISPs. Chillicothe, Ohio, by contrast, has effectively none. There’s the incumbent telco and its DSL offerings, and Time Warner. That’s basically it, unless you count the outrageously expensive, data-limited LTE connectivity offered by wireless service providers. I don’t.
As for Alaska’s Congressional delegation, I don’t think you really have much room to complain about unequal representation. Yes, Don Young is your only Representative, in a House of 435 such reps. The thing is though, you have two senators, just like every other state in the Union. The fact that they’re both sock puppets for the oil industry (and thus unresponsive to the needs of their constituents) is the fault of your electorate, not the bicameral national legislature. All U.S. legislation (other than treaty adoption) requires the votes of both Houses, so, in reality, Alaskans have just as much power in this respect as other states do. And, as frustrating as the Senate’s use of cloture to derail lawmaking that would otherwise pass by majority vote can be, I think the founding fathers were wise to divide our lege into upper and lower houses. The current edition of the House is full of yahoos, few of whom seem to have any faint idea of the notions of compromise and negotiation, but instead devote themselves to flinging verbal feces and pounding their chests. Nowadays, that chamber is so dysfunctional it can’t get out of its own way. So, one representative, a dozen, 23? Who cares? The current House of Representatives is pretty much entirely irrelevant, politically speaking. The action that matters is all in the Senate – and there, Alaskans stand equal with every other state.