It would be a mistake to regard this as a defeat for the companies. Their decision to file an appeal at this point was a precautionary move taken because of the complex procedural tangle that surrounds issues of finality and appealability.  [For the details, see Which Court Gets to Hear the Net Neutrality Appeal? (Jan. 21); More on the Verizon Appeal of the Net Neutrality Regulation (Jan. 24); Update: Appeals of the FCC Net Neutrality Rule (Feb. 3).]

Had the companies failed to file, they would have left the door open for the FCC to argue later that they should have filed earlier, and that their failure to do so had forfeited the chance to argue that the appeal must be heard in the DC Circuit because it involves licensing. Now, that possible attack is barred, and the court’s opinion explicitly left undecided the issue whether the DC Circuit is the only appropriate forum for the appeal. The crucial language in the opinion is: “Regardless of whether the order is reviewable by way of a petition for review, 47 U.S.C. § 402(a), or a notice of appeal, 47 U.S.C. § 402(b), the prematurity is incurable.”

So the appellants are well-satisfied. They would have preferred an immediate and total win, of course, but that was never a likely or expected result.

The U.S. rail model is of “vertical integration,” in which a railroad generally both owns the track and operates trains over that track. The efficient U.S. model has resulted in huge productivity gains, sharply lower average rail rates, and massive reinvestment by railroads back into their systems.

• In fact, from 1980 through 2009, U.S. freight railroads reinvested more than $460 billion — more than 40 cents out of every revenue dollar — back into their networks.

• The main alternative to the vertical integration model is the “open access” model, in which multiple railroads operate over tracks they do not own. The right-of-way is owned by the government or a government-approved manager.

• When Argentina and Mexico restructured their rail industries, an “open access” regime was initially considered but met with an overwhelmingly negative response from potential investors who were not interested in committing funds to railroads if competitors could appear at any time and capture the economic benefits of those investments. Investors realized that in a capital-intensive industry like railroading, “open access” simply entails too much risk for private investment.

• Investors also recognized that “open access” would make it more difficult to operate a railroad efficiently and profitably due to government interference and a lack of coordination between infrastructure investment decisions and operational goals.

• Where open access has been implemented, additional rail-to-rail competition has been slow to develop and problems have abounded. As Mercer Management Consulting, a firm deeply involved in rail restructurings all over the world, testified at a U.S. Senate hearing, “No country has been successful in implementing [open] access without providing significant and, in some cases, unexpected government subsidy of rail service.”

It may seem that transporting bits is a lot different from transporting coal and machinery, but there are many commonalities among different types of networks, and one of the failures of the net neutrality movement is its lack of interest in learning from experience in other areas.

Abandoned railroad tracks from scmikeburton’s photostream.

The contention that the two authors share on Facebook is that they see it taking over everything that we as content consumers/producers do online in one giant all encompassing box.  Facebook has transitioned from a site that simply allowed friends to connect, share pictures, and send messages to something entirely different, something that is very reminiscent of America Online.

In the mid to late 90′s AOL was king of the hill offering entrants into the online world a virtual sandbox of things to do and try.  The service is often referred to as a gateway to the Internet.  Personally I think that notion is incorrect.  AOL was simply a gateway to AOL.  In fact it wasn’t until years into the life cycle of the product that the company even provided a browser within the software to allow users to venture out into the wilderness of the “real” Internet.  The notion always reminds me of that conversation Morpheus has with Neo about reality in the first Matrix film.

For those of us using AOL in those days the “real” Internet held this reputation of being the Wild Wild West.  It was dangerous and mysterious.  It’s possible that it was not safe.  What if you were caught out there and were stranded?  How would you get back to the safety and security that AOL had built.  Within those walls you had everything you needed anyway, right?  It was so beautiful inside, almost botanic.  Why would anyone ever need to leave and go anywhere else?

What transpired was that we all (well, mostly, I’m still trying to break my mom free) figured out that we could get all of that stuff we were paying for free somewhere else. Email? Check. Chat? Check. Games, social content, message boards, research, shopping, and so on all cropped up for free on the “real” Internet.

Over the next almost half decade we all went running a muck across the free market of ideas in the Internet space.  Some ideas were amazing, some were terrible.  Some succeeded and some failed.  Some really great ideas also failed, and some really bad ideas still exist.  That’s just the reality of the market.  But for the most part the best ideas rose to the surface and not all of these exist simply in a traditional computer experience.

iTunes, Netflix, Xbox Live, Facebook, Kindle, and app stores; all of these in some way are walled gardens.  We helped to build them.  We drove business toward them.  And these ideas are not alone.  The thing is that we are using them more, not less.  They are getting more popular, not less popular.

In Tim Wu’s, The Master Switch, Wu argues that the Internet is headed toward this “app store” type environment that will create walled gardens and move away from the magical land of fairies and unicorns that he paints as the “open Internet”.  This is generally part of his Net Neutrality barking and along with this usually comes blame for big business and infrastructure corporations.  But the reality is that it is the content creators that develop these models on the net, not infrastructure.

Not only did content creators build the modern net as walled gardens, but we the consumer encouraged it.  When we ask Facebook to give us easier ways to communicate and they add chat, and then messaging, and then email, and then we ask for things to do with friends and they give us games, and other forms of interaction we helped to create AOL all over again.  Is that truly a terrible thing as Biddle and Dvorak decree?  Not if that’s what people want.  Facebook or any other popular website or platform is not fool proof.  And if something better comes along it can be stopped.

Take one of those non-computer specific models for example.  7 years ago Sony dominated the gaming space and were leaps and bounds in front of the competition with their move into online gaming with the Playstation 2.  Over the next half decade Microsoft learned from its earlier mistakes, innovated, developed a walled garden for gaming, music, movies, and communication with their Xbox Live product and left Sony scratching their heads.

If we face the truth, walled gardens attract users because they are easy to use, they have lots of integration, lots of options for what people do online are in one place, and frankly if user numbers are the indicator of success, then some of the top preforming online websites, applications, communities, and platforms are walled gardens.  The fact simply must be faced, we love them, they work, and they are successful.  In the near future we will begin to hear about how these models like the iTunes app store and maybe even Facebook need to be opened up.  But we simply can’t regulate a winner.  That’s a market decision, and the market is asking for pretty flowers and a guard gate.

Half of that spectrum in broadcast TV is wasted on older MPEG-2 video compression technology, and the former head of the National Broadband Plan Blair Levin has advocated a migration to MPEG-4 AVC (AKA H.264) so that broadcasters can send the same amount of video with the same perceptible quality using half the radio spectrum.

In addition to the compression optimizations, we can again double our spectral efficiency if we got rid of the whitespace waste stemming from an inefficient radio architecture.  Whitespaces can be eliminated if we switched to a single frequency network where all the broadcast towers use the same frequency, but the current ATSC standard used by American broadcast TV uses 8VSB modulation which is not optimized for single frequency networks (SFN).  We would need to switch to OFDM radio modulation (like the international DVB-T standard) to use SFN architecture.  That would require changing out transmitter and receiver equipment, but we can do this when we upgrade to MPEG-4 AVC so that we only need a single transition.

We can go further and eliminate guard band waste if we consolidated the broadcast stations to a single 40 MHz channel.  Consolidating the transmit towers and other equipment can save on upgrade and facilities costs which can be paid for through spectrum auctions.  40 MHz of spectrum without even using aggressive encoding techniques can yield 120 Mbps of usable payload capacity, and more aggressive encoding along with multi-radio solutions that use MIMO could double or quadruple usable bandwidth.  But even with “only” 120 Mbps of capacity, that would allow for 12 HD 1080P channels each consuming 5 Mbps, and another 60 standard definition 480P channels each consuming 1 Mbps.

By comparison, Hulu.com only allocates 0.5 Mbps for their 480P video streams.  If these bitrates are good enough for the Internet – a service people pay for – it is more than generous for free over-the-air broadcasts.  If we matched Hulu in quality, we could broadcast 120 standard definition channels using 60 Mbsps of capacity in addition to the 12 HD 1080P channels or we could do the following breakdown:

• 12 1080P channels – 5 Mbps
• 20 720P channels – 1.5 Mbps
• 60 480P channels – 0.5 Mbps

The programs that garner the highest ratings and most viewers should be allocated the most broadcasting capacity because it fairly allocates capacity in response to demand.  This is more than enough to divvy up between the TV broadcasters and the broadcasters will remain “broadcasters” so that they can sustain their “must carry” status which is their financial bread and butter.

All of this of course requires another transition similar to the DTV transition we just completed in 2009, but it must be done if we want the smooth deployment of the national broadband plan.  If we need to issue another 3 million coupons to low-income households to ease the transition, it’s a very small cost compared to the revenues raised by the spectrum auctions.  The solutions proposed here aren’t entirely painless, but we must avoid half-way solutions that don’t free up much spectrum and require more costly transitions soon after.  Real solutions call for some real changes.

When Hulu CEO Jason Kilar blogged his “thoughts about the future of TV” on the Hulu website, the reaction was strong:  “Is Jason Kilar Trying to Get Fired?” headlined a piece the next day on the WSJ’s All Things Digital site, noting that “some . . . believe Kilar wrote it so that his bosses–executives at News Corp.’s Fox, Disney’s ABC, and Comcast’s NBCU–will give him the hook.”

They same “some” also thought the piece “smart and well-written,” as indeed it is, so there seems to be a disconnect here – if he had written something stupid and turgid, there would be no problem? (The answer, probably, is “yes,” I fear, based on my long experience with organizations.)  Hollywood Reporter said he “just might be right about the industry’s future,” but placed no bets on his survival.

So what did Kilar say that aroused the furies? His message had two parts, an appraisal of the business, and a pitch for Hulu.

His appraisal made the point that three basic forces will shape the future of TV:

• TV has too many ads, and consumers will go to great lengths to avoid them, by moving to DVRs and on-demand viewing;
• Consumer want to view TV on their own schedules and on a variety of devices, so the idea of show-it-once is dead;
• Consumers react quickly to shows and movies and can tank them immediately.

Whether the industry likes these developments is irrelevant; they are facts, and “History has shown that incumbents tend to fight trends that challenge established ways and, in the process, lose focus on what matters most: customers. Hulu is not burdened by that legacy.”

Kilar added two more factors to the stew:

• Advertisers are increasingly restive. For 60 years, they had to rely on a show’s projected audience as a “blunt proxy for a certain target audience,” which resulted in “wasted impressions and an often irrelevant experience for consumers.” They are very interested in better targeting.
• Content providers want to make a fair return, and they will give their product to “those distributors that pay the most on a per-user, per-month basis.”  It is going to be a dog eat dog world of in which “rapid innovation, low margins, and customer obsession will define the winners in pay TV distribution.”

From these premises he went on to discuss Hulu’s plans and business models, arguing that it is doing fine on ad revenue, averaging more per viewer per half hour than cable or broadcast/DVR, and not far behind bare broadcast. Add in the subscription payments, and Kilar likes his chances. “Hulu will pay content owners and creators more per-user per-month than anyone else. At the same time, we will be able to price our services for consumers lower than anyone else offering the same body of content, given our market-leading ad service and our tolerance for low margins.”

The predictions of Kilar’s departure centered on the truth of his basic observations – for example, imagine telling executives that their business model of stuffing ads is broken! Lese Majeste! My initial reaction to this was “don’t the execs already know that TV is utterly unwatchable? 20 minutes of ads in every hour, capped by five solid minutes before a show’s three minute climactic scene?” My sample of viewers (which is moi) will not watch anything when it is broadcast. It is all DVR or online. Nor will I risk watching a show that is not reasonably available on line for fear I might like it.

The answer is that the execs might well not know. I would bet heavily that they see programs in screening rooms so they don’t have to sit through the commercials. One cause of the downfall of Detroit was that the auto-owning experience of the executives was entirely different from that of their customers. The execs had new cars, perfectly maintained  at no inconvenience to them. They had no idea of the fury of their consumers, waiting for tow trucks while sitting in their shoddy, overpriced products.  (I once bought a new GM car that broke down on its way home from the dealer and had to be towed back – that was only the beginning of my travail,  so 30 years and I still hold a grudge, and buy Japanese.)

The TV execs may well be unaware of how irritating their product has become, and the other points may be equally valid but equally unpleasant to hear. An old business aphorism says that the larger an organization the higher the probabilities that its top management lives in a totally imaginary world, and Kilar’s owners are pretty big.  So Kilar may well have told them some things they need to know, and did not know, always a risky proposition.

However, the Kilar-is-toast meme died quickly, and he remains in charge, six weeks later. The latest news is that Hulu may reduce the size of its Board, “which would give the chief executive of the popular online video website, Jason Kilar, more latitude to run the business.”  The Board at present has nine members – three each from Disney, Fox, and Providence Equity.  (The government required NBC to drop off the Board as part of the Comcast merger.)  In the cut, Disney and Fox would each give up a seat. The corporate power dynamic of this tidy-up is not large. It is hard to imagine the representatives of any company splitting their votes, so the entertainment directors as a body remain in control, as before.  Of course, there may be internal disputes within companies, so one or another faction may have won out in this change; it is hard to tell from the outside.

But the question that is not getting asked is “who is threatening to fire whom?”  Kilar’s memo could be read as saying, “Hulu has a viable business model that will appeal to both content creators and customers. What have you got, and do I really need you? Why shouldn’t content creators start dealing directly with Hulu? Go read your Clayton Christensen on disruptive innovation, and think hard.”

Kilar photo from rsepulvedas photostream.

For most broadband subscribers, it may be difficult to correlate GBs to what they actually want to do on the Internet.  For the vast majority of people, video download or streaming are the main applications that could trigger an overage charge.  The following tables illustrate what broadband subscribers can do with a 250 GB usage, and it’s a lot.  Much of Netflix’s content isn’t available at the higher bitrates and probably average below 2 Mbps.  Even at the highest quality levels, users can use Netflix an average of 4.6 hours every day.

Despite the fact that these usage caps only apply to some extremely heavy users and have plenty of warning notifications, Karl Bode is still concerned for the future and said:

“the heavy user of today is inevitably the standard user of tomorrow”

There’s no doubt that future broadband subscribers will use a lot more GBs, but what makes Mr. Bode so sure that future usage caps will remain stagnant as usage patterns go up?  If the goal of these usage caps is to manage the heaviest 2% of users, it won’t affect the majority today or tomorrow.

Sorting out the confusion requires some history.

First, it should be noted that existing Executive Office of the President requirements that agencies engage in regulatory analysis do not govern independent regulatory agencies, such as the FCC, so any compliance by the agency is voluntary. However, the Administration certainly encourages regulatory analysis by independent agencies, as embodied in a recent OMB memo which said:

[Requirements of] Executive Order 13563 do[] not apply to independent agencies, but such agencies are encouraged to give consideration to all of its provisions, consistent with their legal authority. In particular, such agencies are encouraged to consider undertaking, on a voluntary basis, retrospective analysis of existing rules.

Politically, it is difficult for even an independent agency to assert that the independence shields it from any need to analyze the consequences of its regulations, so agencies usually take the stance that “we do it, but we do not have to run our analysis past OMB, and OMB cannot hold up our rules.”

For almost half a century now, the Executive Office of the President has been pushing Federal agencies to engage in cost-benefit analysis of their activities. (The first such presidential directive was in August 1965.)  In the 1970s, the focus turned to analysis of regulatory proposals, as Ford required economic impact statements (Executive Orders 11821 & 11949), and Carter, in conjunction with his drive for deregulation, issued Executive Order 12044, Improving Government Regulations (March 23, 1978), which required in general  terms a formal and public regulatory analysis for all rules having an impact of $100 million.

In 1980, the Office of Information & Regulatory Affairs (OIRA) was created as a part of OMB to provide a center for the analytic effort. The process was formalized in 1981 with EO 12291, Federal Regulation (Feb. 17, 1981), which added an explicit requirement that costs and benefits be calculated to the general framework of EO 12044.

EO 12291 governed until 1993, when Clinton issued EO 12866, Regulatory Planning and Review (Sept. 30, 1993), which was more prescriptive than the prior efforts, laying out requirements in more detail and using for the first time the concept that perhaps regulations were justified only in the event of “material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people.” The major innovation of EO 12866 was to establish a firm process of regulatory review by OIRA and to give OMB a purchase on the agencies’ regulatory processes.

EO 12866 remained in effect when Bush took over, but received a new implementation via OMB Circular A-4, Regulatory Analysis (2003), which made a serious attempt to ratchet up the quality of the required analyses. In particular, the OMB economists who captured the A-4 drafting process had strong views on the need for a showing of “market failure” as a pre-condition for regulation, and added a sermon on the subject to the Circular.

In 2007, the Bush Administration modified EO 12866 with EO 13422, Further Amendment to Executive Order 12866 on Regulatory Planning and Review (Jan. 23, 2007), which contained five major changes:

(1) a requirement that agencies identify in writing the specific market failure or problem that warrants a new regulation, (2) a requirement that each agency head designate a presidential appointee within the agency as a “regulatory policy officer” who can control upcoming rulemaking activity in that agency, (3) a requirement that agencies provide their best estimates of the cumulative regulatory costs and benefits of rules they expect to publish in the coming year, (4) an expansion of OIRA review to include significant guidance documents, and (5) a provision permitting agencies to consider whether to use more formal rulemaking procedures in certain cases.

These changes did not go well in pro-regulatory circles — the major objection was the control of the process given to the Regulatory Officer — and the Obama Administration, as soon as it took office, issued EO 13497 (Jan. 20, 2010) revoking EO 13422.

The Obama team spent two years debating other possible modifications to the system, then issued EO 13563, Improving Regulation and Regulatory Review (Jan. 18, 2011), which, per the explanatory memo issued by OIRA Director Cass Sunstein:

[I]s designed to affirm and to supplement Executive Order 12866; it adds to and amplifies the provisions of Executive Order 12866, rather than displacing or qualifying them. After the issuance of Executive Order 13563, agencies should continue to follow the principles and requirements contained in Executive Order 12866.

With respect to independent agencies, the Sunstein memo says (as quoted earlier):

Executive Order 13563 does not apply to independent agencies, but such agencies are encouraged to give consideration to all of its provisions, consistent with their legal authority. In particular, such agencies are encouraged to consider undertaking, on a voluntary basis, retrospective analysis of existing rules.

OMB Circular A-4 remains in effect, unchanged since Sept. 2003, and is linked on the OIRA website.

So if the FCC were to engage in a formal regulatory analysis, it would need to consult both EO 12866 and OMB Circular A-4. Some of the guidance it would receive is:

EO 12866:

Section 1. Statement of Regulatory Philosophy and Principles.

(a)    The Regulatory Philosophy. Federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people. In deciding whether and how to regulate, agencies should assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating. Costs and benefits shall be understood to include both quantifiable measures (to the fullest extent that these can be usefully estimated) and qualitative measures of costs and benefits that are difficult to quantify, but nevertheless essential to consider. Further, in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach.

(b)   The Principles of Regulation. To ensure that the agencies’ regulatory programs are consistent with the philosophy set forth above, agencies should adhere to the following principles, to the extent permitted by law and where applicable:

(1) Each agency shall identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem.

(2) Each agency shall examine whether existing regulations (or other law) have created, or contributed to, the problem that a new regulation is intended to correct and whether those regulations (or other law) should be modified to achieve the intended goal of regulation more effectively.

(3) Each agency shall identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

(4) In setting regulatory priorities, each agency shall consider, to the extent reasonable, the degree and nature of the risks posed by various substances or activities within its jurisdiction.

(5) When an agency determines that a regulation is the best available method of achieving the regulatory objective, it shall design its regulations in the most cost-effective manner to achieve the regulatory objective. In doing so, each agency shall consider incentives for innovation, consistency, predictability, the costs of enforcement and compliance (to the government, regulated entities, and the public), flexibility, distributive impacts, and equity.

(6) Each agency shall assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.

(7) Each agency shall base its decisions on the best reasonably obtainable scientific, technical, economic, and other information concerning the need for, and consequences of, the intended regulation.

(8) Each agency shall identify and assess alternative forms of regulation and shall, to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt.

(9) Wherever feasible, agencies shall seek views of appropriate State, local, and tribal officials before imposing regulatory requirements that might significantly or uniquely affect those governmental entities. Each agency shall assess the effects of Federal regulations on State, local, and tribal governments, including specifically the availability of resources to carry out those mandates, and seek to minimize those burdens that uniquely or significantly affect such governmental entities, consistent with achieving regulatory objectives. In addition, as appropriate, agencies shall seek to harmonize Federal regulatory actions with related State, local, and tribal regulatory and other governmental functions.

(10) Each agency shall avoid regulations that are inconsistent, incompatible, or duplicative with its other regulations or those of other Federal agencies.

(11) Each agency shall tailor its regulations to impose the least burden on society, including individuals, businesses of differing sizes, and other entities (including small communities and governmental entities), consistent with obtaining the regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.

(12) Each agency shall draft its regulations to be simple and easy to understand, with the goal of minimizing the potential for uncertainty and litigation arising from such uncertainty.

And from OMB Circular A-4, additional guidance, particularly on the concept of market failure:

The major types of market failure include: externality, market power, and inadequate or asymmetric information. Correcting market failures is a reason for regulation, but it is not the only reason. Other possible justifications include improving the functioning of government, removing distributional unfairness, or promoting privacy and personal freedom.

1. Externality, common property resource and public good

An externality occurs when one party’s actions impose uncompensated benefits or costs on another party. Environmental problems are a classic case of externality. For example, the smoke from a factory may adversely affect the health of local residents while soiling the property in nearby neighborhoods. If bargaining were costless and all property rights were well defined, people would eliminate externalities through bargaining without the need for government regulation.³ From this perspective, externalities arise from high transactions costs and/or poorly defined property rights that prevent people from reaching efficient outcomes through market transactions.

Resources that may become congested or overused, such as fisheries or the broadcast spectrum, represent common property resources. Public goods, such as defense or basic scientific research, are goods where provision of the good to some individuals cannot occur without providing the same level of benefits free of charge to other individuals.

2. Market Power

Firms exercise market power when they reduce output below what would be offered in a competitive industry in order to obtain higher prices. They may exercise market power collectively or unilaterally. Government action can be a source of market power, such as when regulatory actions exclude low-cost imports. Generally, regulations that increase market power for selected entities should be avoided. However, there are some circumstances in which government may choose to validate a monopoly. If a market can be served at lowest cost only when production is limited to a single producer B local gas and electricity distribution services, for example B a natural monopoly is said to exist. In such cases, the government may choose to approve the monopoly and to regulate its prices and/or production decisions. Nevertheless, you should keep in mind that technological advances often affect economies of scale. This can, in turn, transform what was once considered a natural monopoly into a market where competition can flourish.

3. Inadequate or Asymmetric Information

Market failures may also result from inadequate or asymmetric information. Because information, like other goods, is costly to produce and disseminate, your evaluation will need to do more than demonstrate the possible existence of incomplete or asymmetric information. Even though the market may supply less than the full amount of information, the amount it does supply may be reasonably adequate and therefore not require government regulation. Sellers have an incentive to provide information through advertising that can increase sales by highlighting distinctive characteristics of their products. Buyers may also obtain reasonably adequate information about product characteristics through other channels, such as a seller offering a warranty or a third party providing information.

Even when adequate information is available, people can make mistakes by processing it poorly. Poor information-processing often occurs in cases of low probability, high-consequence events, but it is not limited to such situations. For instance, people sometimes rely on mental rules-of-thumb that produce errors. If they have a clear mental image of an incident which makes it cognitively available, they might overstate the probability that it will occur. Individuals sometimes process information in a biased manner, by being too optimistic or pessimistic, without taking sufficient account of the fact that the outcome is exceedingly unlikely to occur. When mistakes in information processing occur, markets may overreact. When it is time-consuming or costly for consumers to evaluate complex information about products or services (e.g., medical therapies), they may expect government to ensure that minimum quality standards are met. However, the mere possibility of poor information processing is not enough to justify regulation. If you think there is a problem of information processing that needs to be addressed, it should be carefully documented.

4. Other Social Purposes

There are justifications for regulations in addition to correcting market failures. A regulation may be appropriate when you have a clearly identified measure that can make government operate more efficiently. In addition, Congress establishes some regulatory programs to redistribute resources to select groups. Such regulations should be examined to ensure that they are both effective and cost-effective. Congress also authorizes some regulations to prohibit discrimination that conflicts with generally accepted norms within our society. Rulemaking may also be appropriate to protect privacy, permit more personal freedom or promote other democratic aspirations.

When we get down to it, Kent German is upset that the CTIA decided to take its convention business away from San Francisco and into San Diego after the city passed a law requiring “radiation” labels on cell phones that list the Specific Absorption Rates (SAR).  German defends the San Francisco law by arguing that it made no “scientific claims” about cell phone safety and is only meant to stir up debate, but the mere use of the term “radiation levels” in casual retail settings suggests something extremely dangerous.  We know as a scientific fact that wireless radio “radiation” is nothing like the danger of sunlight which is known to be very carcinogenic (especially between 10AM and 2PM) on human skin.

On the other hand, the published maximum SAR values are largely meaningless in real-world usage because they indicate the maximum power level of a cell phone.  The further (or more obstructed) a cell phone is to a cell tower, the more radio transmit power the cell phone needs to reach the cell tower.  If towers are closer, the cell phones are required to transmit at lower powers so as to avoid overloading the cell tower (equivalent of why it is bad to yell in someone’s ears).  What this means is that at a given operating range, two cell phones will probably have more similar SAR values but the phone with the higher maximum/published SAR can operate at a longer range.  If you’re out in the middle of nowhere stuck in a snowstorm without winter survival gear, you’ll probably want the phone with higher SAR.  But using that same high maximum SAR cell phone in the city (where cell towers are dense) won’t necessarily expose you to higher SAR values and higher transmit powers from your cell phone because it doesn’t need to operate at maximum power.

Based on existing scientific knowledge, we can’t build a low power cell phone that is also long range.  Engineers don’t design higher power cell phones just for the heck of it and they would rather have the lowest transmit power possible to increase battery life, but it is ironic that the same cell phone radiation fear mongers also obstruct more cell towers and I wouldn’t be surprised if many of those same people also complain about poor wireless coverage.  The only way to reduce the operational SAR of a cell phone by being closer to a cell tower which means denser cell tower deployments.  And because the physics of radio propagation dictate that cell towers are thousands to millions of times weaker than cell phones by the time it reaches a person, anyone seeking lower cell phone exposure will want to live closer to a cell tower and not further.

The city of San Francisco goes out of its way to block new cell tower deployments but also make it difficult to sell higher powered cell phones with the radiation labels they force on cell phone manufacturers.  Many of the same parents that oppose cell towers near schools have no problem with Wi-Fi in the home and school when Wi-Fi radiation is easily 10 to 100 times stronger than cell towers and operate on similar frequencies.  The same people protesting a 10 watt cell tower don’t seem to be as alarmed by TV towers broadcasting at over a million watt in the exact same VHF and UHF frequencies.  Ultimately, the cell tower protesters simply force all of us to live with inferior phone and data coverage and force us to have higher transmit power in our cell phones.

Another irony is when Kent German says: “I’m not a scientist, so I’m not about to interpret the findings of this or any study”.  Anytime someone leads a sentence with “I’m not a scientist”, I can almost feel an imminent dose of pseudoscience coming my way masquerading as real science.  True to form, German follows his “not a scientist” statement by proving it when he says that we don’t know if cell phone use causes DNA mutation.  But even a novice connoisseur of science knows that cellular signals are of the non-ionizing variety which don’t cause DNA mutation.  The concerns over cell phones is that there might be some other very long term harmful biological effect that we have yet to identify, but all the massive scale multi-decade studies have proven these fears to be wrong, and even the studies on children have been found to be safe.  More informed debate and more scientific studies are good, but paralysis of wireless infrastructure and health fear mongering based on pseudoscience is counter productive.

A serious source of current woe over production of content is the difference between pay-to-experience and advertising-supported business models. In ad-supported, the product is the viewers’ eyeballs, which are sold to the marketer. Thus the amount of money available for content production is limited to the value the eyeballs have to advertiser, which may be less than the value which the viewer as a consumer would be willing to pay for the experience.

Pay-to-experience is limited by the problems of free-riding (a.k.a. piracy) plus the standard tricky problems of assessing the market for a product, especially when success will automatically make it a prime target for free riding.

Another possible model, of course, is patronage, in which groups of art lovers get together to subsidize the content. This involves many issues of coordination, in that A is willing to commit only if B, C, and D do so, and they might agree only if A and E are already on board, and so on. (This is why salespeople and entrepreneurs get the big bucks, and are worth it.)

GroupOn addresses the commitment problem by the mechanism of contingency; a deal is offered, but it is contingent on having a specified number of takers sign up. You commit, and if the specified number of others do likewise, the deal is on. If not, not. So the offeror is guaranteed the necessary scale and the customer runs no risk.

Now, fans of the 2002 sci-fi series Firefly are adapting this collective action approach to bringing back their show. It started when the Science channel announced a showing of the 12-episode series, starting in March, and escalated when leading actor Nathan Fillion opined that he would love to pick up the role of Captain Malcolm Reynolds again and that if he had the money he would buy the rights and put the on the Internet. Others involved in the show chimed in with their support.

That triggered the fans, who started a website HelpNathanBuyFirely, plus a Facebook page, which in a few days has collected 65,000+ “Likes”, including me. No money is yet changing hands, or even being promised, and no real commitments from the participants has been obtained. (One problem – Fillion currently stars in the current successful show Castle.)  However, the anonymous promoters hope to generate interest, and perhaps move things forward.

The movement presents both opportunities and problems for Fox, which owns the rights.  One approach would be to partner with the enterprise, and tell the entrepreneurs that if they get a sufficient level of fan commitment, then Fox will make the series. Another would be to assume that the level of support is impressive enough to demonstrate the existence of a viable market and just go ahead. Hollywood is famous for its complicated and innovative dealmaking, so surely something is possible.

But there are two things that Fox cannot do – block the whole thing or do nothing.

If there is serious fan interest in a property, and the owner does not pick it up, then the possibility that some other entrepreneur in some far off place such as China will take advantage becomes acute. And at that point, Fox’s property rights claims begin to shred – how does a studio say “yes, fans want it and are willing to commit money, and we don’t care; we will neither do it nor let anyone else to it.”  Its legal right to do this clear, but at that point even a property-rights hawk such as moi jumps the ship and buys the Chinese DVD.  It was the record companies failure to respond to the increased efficiencies of the Internet that opened up the space for Napster and P2P, and the continuing difficulty of getting old material via legitimate channels is a problem for defenders of property rights.

Property law profs are fond of confounding us hawks with a hypothetical in which some billionaire buys a Van Gogh for $100 million and then declares his intention to have it cremated with him. In the hypo, the student is the State AG – what, if any, action does he/she take? The point is that property rights are embedded in a set of assumptions about the productive use of the property and that the owner does get to be a total dog in the manger. (This issue will come up eventually in the context of all the environmental easements that have taken property out of use, largely for tax scam reasons, but that is tomorrow’s legal question rather than today’s.)

From the standpoint of defending intellectual property rights, there is a good side, though. It seems fair to guess that the people who sign on with Captain Mal and his crew (“Browncoats”) are largely techie types who are prone to support such anti-IP organizations as the Free Press and EFF. But the chance the Fox will do nothing is virtually zero, unless Fox simply sees no way to get a return on the investment because of the impossibility of monetizing the result.  (And if that is the case, the Chinese entrepreneurs will give it a pass, too.)  So it is good for the techies to have some skin in the game, for them to see that a system in which the property rights in Firefly cannot be protected is one in which they, personally, will lose something they value. That will drive home the point that we are all in this together, and that protecting IP is in everyone’s interest.

As for me – as soon as HelpNathanBuyFirely opens its books I will commit to buy any resulting DVD. And I will throw in a bit extra if they promise to add Castle’s Detective Kate Beckett to the cast.

Image from Wikipedia.