Bridge Span 14-11: Crony Capitalism or Just Big Government Growing Government?

If there was any one issue that candidate Barack Obama embraced and promised to pursue if he became president it was the promise of an open and transparent government. The country expressed its support of this promise by a wide margin. But a recent Wall Street Journal article, “FCC Encourages Media Companies to Provide Confidential Complaints on Time Warner Cable Purchase”, uncovers how far this Administration and the FCC have drifted from that promise. The rent seekers have come running.

In economics, “rent seeking” occurs when companies leverage government agencies to grab a portion of existing wealth rather than expending resources to create wealth. This increases government power as the government becomes the device for grabbing market share. Meanwhile virtually everything else suffers as this scheme is very poor at allocating resources and hampers the formation of capital to be invested that would generate further economic growth.

Now a new twist has been added to this already distasteful scheme. In the FCC’s new imagining of its authority, the government agency apparently actually reaches out to companies who are competitive with, or have dealings with, a company that is at the mercy of the agency as it awaits their review of a transaction. The deal is sweetened by the FCC promising that the communications will be kept secret from the public.

Companies are joining in the pact to push their concerns and argue for the government to weaken their competition. But the specifics of their concerns are irrelevant. The federal government should be open and transparent, not engaging in secret back room meetings, away from public scrutiny.

Rent seekers are bad enough but when such action is encouraged by government, the result is, to say the least, odious. This is business by government leverage. The results are a government agency providing the government favored company a better deal than it could legitimately win in the marketplace, and FCC grabbing more power than it could gain through the legislative process and the will of the public.

Secret meetings. Back room deal making. Crony capitalism. Private reports from government favored informers. Is this your government being open and transparent? Is this what the country voted for in 2008? Time to let the sun shine in!

Bridge Span 14-10: A Bright Day for the Future of the Internet?

This morning the US House of Representatives will debate H.R. 3086, the Permanent Internet Tax Freedom Act. The Act would permanently protect consumers from the increased costs in accessing and using the Internet by extending the moratorium on Internet access taxes, and would also prevent the multiple and discriminatory taxation of Internet sales.

The House legislation enjoys huge support as evidenced by the scores of co-sponsors, enough to pass the legislation easily. That is a good thing, as time to pass the measure is of the essence because the moratorium will expire on November 1 of this year. If allowed to expire, states and localities would begin to collect taxes on Internet access, or apply other discriminatory taxes that may already be in place but which have been held at bay during the moratorium. Other states would also begin passing various new tax laws that discriminate against the Internet and Internet commerce, just as a means to raise more revenue, regardless of whether it is a discriminatory action.

And the impact of such action would not go unnoticed. Scott Mackey, former chief economist for the National Conference of State Legislatures and currently a consultant to the wireless industry, has estimated that an average household’s taxes would increase by $50 to $75 a year if states decide to apply their sales or telecommunications taxes to Internet access. While that doesn’t seem like much, think of those who already struggle to pay for broadband connections, such as the 1.2 million people served by Comcast’s Internet Essentials program designed to be accessible to low income homes.

In addition to the new taxes, failure to pass the permanent moratorium will result in increased costs to broadband providers, costs that ultimately show up in broadband service bills, paid by consumers. If Congress fails to act, or otherwise plays games with the moratorium, telecommunications providers would need to prepare to collect the new taxes, raising their expenses for administration and compliance.

The Senate version of the bill has 50 co-sponsors. So, a positive vote out of the House today will hopefully lead to a positive vote from the Senate before August. With such overwhelming support there is no justifiable reason to attach extraneous ideas to this simple idea, or to do anything to slow its passage. Doing so would only demonstrate the non-serious nature of those who slowed passage or distracted from the debate about online discriminatory treatment.

Today should be a great day for the Internet, one with several more to follow.

Flyover 14-1: Aereo

As announced yesterday, Aereo, a streaming broadcast TV company, was found to be violating copyrights on programming it was providing, given that the almost live broadcasts it made available represented a public performance of the content and hence was illegal under copyright law. In plain speak, Aereo’s entire business model was to take that which didn’t belong to it and sell it. Try selling access to your neighbor’s guest room on AirBnB, or taking your neighbor’s otherwise unused car to use for your own Uber sideline, and see how things work out.

But the innovative service apparently was appealing particularly to cord cutters, suggesting that if done legally it might be a legitimate marketplace success. In recognition of not impacting innovation the Supreme Court wisely narrowly tailored its ruling where technologies are concerned even while protecting intellectual property rights. Innovation and creators both saved!

As Madery Bridge guest writer Stevan Mitchell wrote earlier this year, “There is no question that an appropriate balance must be struck to preserve incentives for creators. The easier it becomes to replicate, transmit, record and re-experience a work the more this proposition holds true. Our overarching policy preferences may be best served, and the right balances most cleanly and predictably struck, however, by analogies that more closely resemble today’s bit stream communications and how they are used. The alternative is to continue to retrofit and stretch yesterday’s physical world analogies.”

Read more from Stevan on the challenges yet to come in Bridge Span 14-5: Living in an Aereo World.