Archive for the ‘FCC’ Tag

Net Neutrality   2 comments

Looking through Facebook posts and watching the news, you might get the idea that everyone is for “Net Neutrality”.

I’m not. It just became the regulatory law of the land, but I oppose it.

I’m not a paid shill for the cable industry, I don’t even have cable television. I have zero experience with Comcast, but I occasionally grumble about GCI, an Alaska ISP. I’m skeptical of large corporations and dislike that true capitalists end up sounding like we’re supporting them, because I’m not. I’m supporting me and people like me and I’m learning from the past so I don’t repeat it.

Remember what I wrote about the Fairness Doctrine. Consider these to be companion pieces.

I have no problem with net neutrality as a principle. Unrestricted access to the Internet is a net good, but I don’t think this is a wise way to go about it – in fact, I don’t think it’s going to work at all.

Competition is a good thing. Proponents of Net Neutrality say the telecoms have too much power … and I agree. Monopolies are bad, always.

So why do we think giving a monopoly to the government is somehow going to work out well?

Think about it a moment.

The United States government built a health care website using a budget equal to Facebook’s first six years of operating costs and this website doesn’t work even after several attempts to fix it.

The federal government spends 320 times what private industry spends launching a rocket into space.

Has the involvement of the federal government improved public schools? Well, test results compared to other countries suggest not.

How about immigration?

Housing?

Bridges and highways?

The military?

The post office?

All these examples are heavily regulated or controlled by the government and all are areas mired in red tape and struggling to survive the realities of the 21st century.

On the other hand, telephone services were deregulated a few decades ago. The industry almost immediately responded with cell phones the size of bread boxes, but look where we are today?

The US government has repeatedly shown that it is ineffective at managing … well, everything. Which is as it was designed. Our Founders didn’t trust government, so they created one that is slow, inefficient and mired in gridlock. That way government is slow enough for people to protect their individual liberty from its usurpations. Well, we could if we bothered to pay attention, anyway.

It’s actually a plus that our government is slow, because it gives us time to rein it in before it eats our liberty, but the downside is that slow inefficient government cannot be relied upon to provide us with the high quality products and services we want in a timely manner.

Everything that makes the telecoms bad has to do with the federal government and the regulatory structure that links the telecoms to government. What? You didn’t know that?

Government regulations are written by large corporate interests in collussion with officials in government. The image of government being full of people on a mission to protect the little guy from predatory corporate behemoths is a Mad Man illusion fostered by politicians and corporate interests. Most government regulations are the product of crony capitalism designed to prevent small entrepreneurs from becoming real threats to large corporations.

Go on! Go research it, find out I’m right and come back for more discussion.

Remembering the Fairness Doctrine   3 comments

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.

 

Scarcity

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.

 

Fairness

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.

Duct Tape Alert   Leave a comment

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.

Lela

http://www.nytimes.com/2015/02/25/business/dealbook/how-loopholes-transformed-dish-network-into-a-very-small-business.html?_r=0

NEW YORK TIMES

DEAL PROFESSOR

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.

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.
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