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Commissioner McDowell Statement, Hearing on Broadband Spectrum Law

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Released: December 12, 2012

STATEMENT

OF

COMMISSIONER ROBERT M. MCDOWELL

FEDERAL COMMUNICATIONS COMMISSION

BEFORE THE

UNITED STATES HOUSE OF REPRESENTATIVES

COMMITTEE ON ENERGY AND COMMERCE

SUBCOMMITTEE ON

COMMUNICATIONS AND TECHNOLOGY

OVERSIGHT

OF THE

FEDERAL COMMUNICATIONS COMMISSION

Keeping the New Broadband Spectrum Law on Track


DECEMBER 12, 2012


Thank you Chairman Walden, Ranking Member Eshoo, and Members of the
Subcommittee for inviting us to appear before you today. I share your goals of putting
greater amounts of spectrum into the hands of America’s mobile consumers and setting
aside some of the auction proceeds for constructing a nationwide broadband public safety
network. I am pleased to accept your invitation to discuss ideas on how to keep the new
broadband spectrum law1 on track.
As set forth below, I will discuss ideas on what the Commission should do to
advance these goals, as well as avenues the Commission should avoid. The overarching
goals of the law are to auction all reclaimed spectrum to offer consumers more
opportunities to harness wireless broadband, while raising badly needed funds for the
U.S. Treasury and attempt to fund a nationwide, interoperable, mobile broadband public
safety network.
Specifically, the Commission must: (1) ensure that the rulemaking and auction
processes are transparent and the final rules intuitive so that all stakeholders – no matter
their technology preference or size – have a meaningful opportunity to understand and
participate; (2) avoid imposing anything that functions as a spectrum cap; (3) refrain, for
now, from reserving new airwaves to create a “nationwide unlicensed spectrum band”
within the new 600 MHz Band; (4) pragmatically balance the tension between flexible-
use spectrum policies and adequate interference protections to account for the
technological improvements that will undoubtedly develop while the proceeding is
underway and after the rules are implemented; and (5) steer clear of encumbrances that
scare away bidders and lead directly to unintended harmful consequences.


1 Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. No. 112-96, §§ 6402-6404, 126 Stat. 156,
224-230 (2012) (broadband spectrum law).

Next, I will highlight recent Commission actions on media ownership and special
access. Finally, I will briefly discuss ideas regarding an overhaul of America’s outdated
communications laws and the peril of increasing attempts by a growing number of
countries to establish international regulations over the Internet.

Implementing the Broadband Spectrum Law

Transparency and simplicity. As required by statute, the Commission launched a
comprehensive notice of proposed rulemaking regarding incentive auctions in
September.2 Comments on the Incentive Auction Notice are due on January 25, 2013.
At the outset, I acknowledge and thank Chairman Genachowski for his willingness to
accommodate edits and suggestions to improve the document. We agree that working
together is especially important given the unique characteristics and complexities of the
project. We will have to cull through a plethora of proposals and new questions. At this
early stage, some ideas appear to be better than others. Nonetheless, I’m pleased that we
included questions designed to capture comments regarding all concepts and practicable
ideas.
As we are discussing an open proceeding, I must reserve final judgment until at
least the time that the comment period closes in the spring and more likely until final
rules issue. That said, learning from my experience with the AWS-1 and 700 MHz
auctions, the general thoughts that I have offered for some time now merit repeating
today: Quite simply, the incentive auctions will be the most complex in world history
and the entire process may take the greater part of a decade. I urge the Commission to
work in a deliberate and transparent manner, with an eye toward simplicity, humility and


2 See Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions, WT
Docket No. 12-268, Notice of Proposed Rulemaking, 27 FCC Rcd 12357 (2012) (Incentive Auction
Notice).
2

restraint. The agency’s historic light touch regulatory policy for mobile technologies has
enabled the U.S. wireless sector to flourish and consistently lead the world. I am hopeful
that the Commission will not put America’s positive momentum in the wireless area at
risk as we explore the myriad options related to the incentive auctions.
History teaches us that past regulatory efforts to micromanage the wireless
market, despite presumed good intentions, have resulted in harmful unintended
consequences. Problems resulting from bad decisions always return to the Commission
and ultimately harm consumers. Similarly, Members of Congress must spend valuable
time dealing with such regulatory failures. As a result, uncertainty lingers over markets
and inhibits investment while spectrum lies fallow. For these reasons and more, we must
avoid the temptation to design rules that may be fashionable-at-the-moment, but fail to
attract new entrants. When it comes to spectrum policy, simplicity works best.
Avoid imposing the functional equivalent of a spectrum cap. Auction rules should
present realistic opportunities for small, medium and large entities – no matter their
preferred technology – to bid for and secure licenses without excluding any interested
participant. While the broadband spectrum law explicitly prevents the Commission from
excluding entities that meet the prospective auction rules, as well as the long-standing
technical, financial, character and citizenship requirements,3 the law also clarifies that the
Commission may adopt and enforce new rules concerning spectrum aggregation.4
Consequently, some may be tempted to adopt the functional equivalent of a spectrum
cap, which, assuredly, would be given a different name.


3 See broadband spectrum law § 6404.
4 See id.
3

Indeed, a proposal to cap spectrum holdings is discussed at length not only in the
Incentive Auction Notice, but in a companion Spectrum Aggregation Notice5 adopted on
the same September day. I am concerned that reviving the concept of a spectrum cap
under any moniker could create harmful uncertainty and may reduce the pool of auction
participants. Until now, spectrum caps were a dead and buried 20th century industrial
policy relic. Let’s not exhume them.
By way of brief background, in 2001, the Commission adopted the current case-
by-case analytical process after determining that spectrum aggregation limits were no
longer necessary due to meaningful competition among providers of telecommunications
services. Since that time, the Commission has analyzed commercial wireless spectrum
holdings on the basis of the transaction as a whole, oftentimes in close consultation with
the Department of Justice. The current approach was created to result in narrowly-
tailored, transaction-specific spectrum remedies that safeguard against anticompetitive
behavior, encourage increased investment, and spur the creation of innovative consumer
offerings.
I voted to concur on the substance of the Spectrum Cap Notice because I cannot
agree with the view that the Commission’s current flexible approach, which examines
spectrum holdings on a case-by-case basis and within the unique context of each auction
or proposed transaction, is broken at its foundation. Further, I question whether the
proposals discussed in the Spectrum Cap Notice are compatible with the goal of the
broadband spectrum law: to make spectrum more abundant in the mobile marketplace by


5 See Policies Regarding Mobile Spectrum Holdings, WT Docket No. 12-269, Notice of Proposed
Rulemaking, 27 FCC Rcd 11710 (2012) (Spectrum Cap Notice).
4

allowing it to flow to its highest and best use as quickly as possible. As the new law
makes clear, spectrum, which ultimately ends up in the hands of our nation’s wireless
broadband consumers, is the path to some of the best innovations that boost broadband
adoption and economic growth. Adopting a one-size-fits-all cap, or some functional
equivalent, will reduce auction proceeds, therefore undermining efforts to build the
nationwide broadband public safety network mandated by Congress.
Refrain, for now, from reserving a new spectrum band for unlicensed use. I
have long been an ardent supporter of unlicensed uses of the television white spaces.6
That said, I respectfully disagree with calls to create within the new 600 MHz Band the
world’s first nationwide unlicensed spectrum band suitable for robust wireless broadband
on contiguous low-band frequencies.7 As a preliminary matter, any action in this regard
would be premature. I wholeheartedly agree that unlicensed spectrum, no matter where it
exists, plays a critical role in the context of mobile broadband services. Nonetheless, at
this early stage in the incentive auction process, it is not apparent that we should stop the
progress well underway in the TV white spaces arena to create a solution for a problem –
an alleged shortage of unlicensed spectrum in lower spectrum bands – that may never
exist. The timeline for identifying, auctioning and ultimately clearing additional licensed
spectrum within this new band is unclear, let alone the timeline for setting aside and
reserving a given amount of channels for unlicensed use. In any event, over-the-air


6 See e.g., Unlicensed Operation in the TV Broadcast Bands, ET Docket No. 04-186, Additional Spectrum
for Unlicensed Devices Below 900 MHz and in the 3 GHz Band
, ET Docket No. 02-380, Second
Memorandum Opinion and Order, 25 FCC Rcd 18661 (2010); Unlicensed Operation in the TV Broadcast
Bands, ET Docket No. 04-186, Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3
GHz Band
, ET Docket No. 02-380, Second Report and Order and Memorandum Opinion and Order, 23
FCC Rcd 16807 (2008).
7 FCC Launches First-in-the-World Incentive Auction to Repurpose Broadcast Television Spectrum for
Mobile Broadband; Auction Set to Unleash Wave of Economic & Innovation Opportunities for U.S.
, FCC
News Release (rel. Sept. 28, 2012).
5

television broadcasting, and its associated white spaces, will still be with us in a post-
incentive auction world giving consumers approximately the same amount of white
spaces that were available prior to the passage of the incentive auction legislation.
More importantly, reserving a large unlicensed slice of spectrum would go
directly against the Commission’s goal in the TV white spaces effort – to maximize
efficiency and gain consumer benefits from an undefined and under-used resource. Put
another way, a contiguous swath of spectrum would be clearly defined, exclusive and
easily transferable – everything the white spaces are not. Given today’s unprecedented
budget deficits and the consumer benefits of exclusive-use licenses, I question whether
the U.S. can afford not to auction any and all spectrum recovered in this band. Would
reserving a large swath of unlicensed spectrum frustrate Congress’s express directive that
the Commission attempt to raise at least $7 billion for a nationwide, interoperable public
safety network?
Carefully balance flexible-use with interference protections. Similarly, I question
whether the proposed five megahertz channel blocks discussed in the Incentive Auction
Notice would result in a band plan that reserves too much spectrum for unlicensed use,
contrary to Congress’s explicit intent. Or, would auctioning spectrum in six megahertz
channels, that is, on a broadcast channel-by-channel basis, be more intuitive and thus lead
to a more efficient and fruitful auction? I am eager to learn from all interested
stakeholders during the public comment process.
I also wonder whether the proposed six megahertz guard bands are in fact “no
larger than technically reasonable to prevent harmful interference between licensed
6

services outside the guard bands.”8 Are six megahertz guard bands truly necessary to
prevent harmful interference given the technological improvements that may come over
the horizon after we adopt rules? As technology advances, smaller guard bands could
end up being more practical not to mention more spectrally efficient. We certainly would
not want to prevent such a beneficial byproduct from coming forth tomorrow as an
unintended consequence of our actions today.
Likewise, I will work to ensure that, consistent with the statute’s explicit call for
“flexible-use” spectrum allotments,9 the new licensing rules are intuitive, appropriately
minimal and “future proof,” which will draw bidder interest and, ultimately, more easily
lead innovators to develop and design devices and services that we cannot imagine today.
We must keep in mind that technology and user preferences evolve quickly. For
example, no one had heard of the iPhone, e-readers, wireless tablets, or SmartTV just six
short years ago when I first joined the Commission. Yet these devices are part of
everyday life today.
While we may collectively acknowledge the scientific tension between flexible-
use licensing and the appropriate size of guard bands, all policymakers have an obligation
to provide entrepreneurs the freedom to run with their imaginations and bring new
experiments to the marketplace. I am hopeful that we will proceed with humility and
invest the necessary time and energy to think carefully and thoughtfully before we act.
As none of us can predict the next disruptive technology, or where its spectrum home will
be, I caution against inadvertently preventing further innovation and stifling future uses
of spectrum based on trends, including: labeling certain spectrum as “prime” (i.e., that


8 broadband spectrum law § 6407(b).
9 See e.g., id. §§ 6401(b)(1)(B), 6402.
7

located below 1 GHz); classifying other bands as “junk;” or prejudging the “value” of
spectrum bands that have yet to be auctioned. History shows us that today’s “junk” is
often tomorrow’s “prime.”10
No encumbrances. Many of us recall the 700 MHz auction that concluded in
early 2008, which raised a record amount of revenue, over $19 billion. The auction also
succeeded in reallocating this valuable slice of the airwaves to licensees who have since
been rolling out new and exciting “fourth generation” wireless broadband services, such
as “Long Term Evolution” (LTE). Nonetheless, two important objectives of the auction
were not met. First, the Commission failed to entice a winning bidder to build a state-of-
the-art nationwide, interoperable network for America’s public safety personnel. Second,
even after satisfying the demands of potential new entrants by imposing an “open access”
condition on a 22 megahertz swath known as the “C” Block, the Commission failed in its
quest to attract a new national broadband provider. Now four years later, today’s
discussion gives us an opportunity to recall and reanalyze the lessons learned.
With respect to the public safety partnership, the FCC’s order included a plan to
spark a public/private partnership by allocating 10 megahertz of spectrum for public
safety use, known as the “D Block.” The Commission created this framework after
working closely with the public safety community, and I supported it. Hopes were high
that this additional spectrum would provide an incentive for a private entity to construct a


10 Relinquished by the federal government and commonly known as a “junk band,” the FCC allocated the
2.4 GHz band for unlicensed use in 1995. Among other ubiquitous devices such as digital cordless
telephones, utility metering devices, fire and security alarm systems, wireless bar code readers, wireless
local area networks and baby monitors, entrepreneurs deployed “wireless fidelity” or “Wi-Fi” in the 2.4
GHz band. In 2011, more than 37% of all U.S. Internet traffic flows over unlicensed Wi-Fi at some point.
See CISCO, VNI FORECAST HIGHLIGHTS,
http://www.cisco.com/web/solutions/sp/vni/vni_forecast_highlights/index.html#~Country (last visited Dec.
11, 2012) (filter using United States and Network Connections).
8

nationwide, interoperable, broadband public safety network all of us have been
discussing since at least the attacks of September 11, 2001. We did this to try to create an
incentive for the private side of the public/private partnership to invest risk capital to
build a nationwide public safety network suitable for 21st century challenges. In the
aftermath of the auction, we learned that potential bidders were deterred by onerous
build-out and service rules that would have required the eventual licensee to incur
massive costs in an atmosphere of extreme uncertainty regarding how many, if any,
public safety entities might actually sign up as paying customers.
Of course, Congress has given new life to the D Block and we are grateful for
your leadership. Based on this experience, the lesson learned is that encumbrances on
spectrum and prescriptive rules tend to scare off bidders.
With respect to the “open access” requirements for the “C” Block, I cast the only
dissent because the evidence in the record told me that the market was already headed
toward open access through natural evolution. I also did not think that the plan would
achieve the advertised goal of attracting new broadband competition. Additionally, as I
pointed out in my dissent, I was concerned that larger carriers would avoid the
encumbered C Block and outbid smaller players in the smaller, less-regulated spectrum
blocks. Sadly, all of my fears proved to be correct.
Here again, I am hopeful that the Commission will keep these lessons in mind as
we develop new auction and licensing rules for spectrum located in the 600 MHz Band.
The “open access” encumbrance was unnecessary and, ultimately, harmful. Wireless
“openness” is prevalent today – consumers have a choice of no fewer than three operating
9

systems, plus unlicensed Wi-Fi. Yet, we must wonder whether that condition led to a
lack of interoperability within the 700 MHz band.
We should all remember that we are at the beginning of what will surely be a
lengthy and complicated process. All of the hard decisions lie ahead. I am eager to
contribute to the Commission’s ongoing effort and will greatly appreciate the thoughts
and insights of the members of this subcommittee and all involved.

Liberating Federal Spectrum for Auction

Finally, the Executive Branch must do more to relinquish spectrum occupied by
the federal government and send it to auction for exclusive use licenses. The federal
government occupies a majority of the most useful spectrum. Without a doubt, much of
it is used for important purposes such as national defense, air traffic control and law
enforcement. But does anyone believe that all federal spectrum is being used efficiently?
We don’t have clear answers to these questions because the process can be opaque and
the incentives encourage inefficiencies.
History teaches us that exclusive use licenses are the best vehicle to promote the
most efficient development of spectrum. Although policies regarding spectrum sharing,
the cornerstone of the Administration’s federal spectrum policy, could offer a few
benefits, they are anemic when compared with the strengths of exclusive use licenses
allocated through auction. Accordingly, Congress, the Executive Branch and the FCC
should all work together to implement policies that would give federal users of spectrum
an incentive to relinquish it for auction. This scenario could be a win-win-win for the
government, the economy and consumers alike. With progress in spectrum policy all too
often measured in decades, however, we should implement constructive new ideas will
10

all deliberate speed. America’s mobile broadband marketplace, and especially its
consumers, cannot afford to wait.

Special Access

During both my career in the private sector and my six and a half years at the
Commission, I have spent countless hours working on public policy concerning “special
access” services and facilities. I have digested competing, and often conflicting
arguments, hypotheses and scenarios. During this time, I have maintained that the only
way to conduct a proper assessment of the current rules is to first conduct a
comprehensive and granular data collection followed by a bona fide market analysis.
Ideally, we should have before us a current and detailed building-by-building, cell-site-
by-cell-site map of the variety of facilities and services available and their price.
Furthermore, we should know what new facilities and services may have arrived in the
market that may be substitutable for what was dubbed “special access” in the late 20th
century. Although such a large data collection may seem daunting, the Department of
Justice was able to gather such valuable information during its review of the SBC/AT&T
and Verizon/MCI mergers in the last decade. If this information was necessary for
transaction reviews then, it is surely needed for potential important rule changes now.
Unfortunately, none of the FCC's previous voluntary data collections yielded
enough data to build an adequate evidentiary record.11 The FCC admitted as much in a


11 See Parties Asked to Comment on Analytical Framework Necessary to Resolve Issues in the Special
Access NPRM
, WC Docket No. 05-25, RM-10593, Public Notice, 24 FCC Rcd 13638 (2009); Data
Requested in Special Access NPRM,
WC Docket No. 05-25, RM-10593, Public Notice, 25 FCC Rcd 15146
(2010); see also Clarification of Data Requested in Special Access NPRM, WC Docket No. 05-25, RM-
10593, Public Notice, 25 FCC Rcd 17693 (2010); Competition Data Requested in Special Access NPRM,
WC Docket No. 05-25, RM-10593, Public Notice, 26 FCC Rcd 14000 (2011).
11

court filing last year.12 Despite this incomplete record, in August, the Commission
"temporarily" suspended – in other words, changed – its special access rules.13 Precisely
because the Commission changed a substantive rule before building a sufficient
evidentiary record to support such a pivot, I dissented from that order and continued my
call for a comprehensive data collection.
The Commission is now in the process of finalizing and releasing a
comprehensive data collection. Since the order has not yet been released to the public, I
am prevented from providing details. Nevertheless, I am pleased that the order is
mandatory and will be conducted largely on a nationwide basis.
This important exercise will require the cooperation of all the players in what I
hypothesize to be a complex special access market. Accordingly, it is my hope that the
Commission will work with all affected parties to ensure that the burdens of this data
collection are as minimal as possible. I am also supportive of the Commission's efforts to
protect confidential and sensitive data. Our work should help ensure that any additional
rule changes are legally sustainable.
In the meantime, I thank Chairman Genachowski, and all of my colleagues, for
their willingness to incorporate many of my numerous edits along the way.

Modernizing the Commission’s Media Ownership Rules

I am hopeful that the Commission will conclude the quadrennial media ownership
proceeding as soon as possible. As is required by Section 202(h) of the Communications


12 Opposition of the Fed. Commc’ns Comm’n to Petition for Writ of Mandamus at 1, In re COMPTEL, et
al
., No. 11-1262 (D.C. Cir. filed Oct. 6, 2011).
13 Special Access for Price Cap Local Exchange Carriers; AT&T Corporation Petition for Rulemaking to
Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services
, WC
Docket No. 05-25, RM-10593, Report and Order, 27 FCC Rcd 10557 (2012).
12

Act, the FCC must modernize its media ownership rules to reflect the current economic
realities of the marketplace and eliminate any and all unnecessary mandates.14 Because
of today’s competitive media landscape, the Commission should resist proposals that
would result in new and unnecessary regulation, such restricting broadcasters from
entering into some forms of contracts that could provide efficiencies ultimately benefiting
consumers.
Evidence continues to mount that the 1975 newspaper-broadcast cross-ownership
ban should be largely eliminated. Although the Commission proposed a relaxation of the
ban on newspaper-television ownership for the largest markets and considered
eliminating restrictions on newspaper-radio combinations, these proposals are anemic and
do not reflect marketplace realities. Over the past decade, broadcast stations and daily
newspapers have grappled with falling audience and circulation numbers, diminishing
advertising revenues and resulting staff reductions,15 as online sources gain in


14 Section 202(h) of the Telecommunications Act of 1996 states that:
The Commission shall review its rules adopted pursuant to this section
and all of its ownership rules quadrennially . . . and shall determine
whether any of such rules are necessary in the public interest as the
result of competition. The Commission shall repeal or modify any
regulation it determines to be no longer in the public interest.
Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, 111-12 § 202(h) (1996); Consolidated
Appropriations Act, 2004, Pub. L. No. 108-199, § 629, 118 Stat. 3, 99-100 (2004) (amending Section
202(h) of the 1996 Act). I concurred in the December 2011 notice of proposed rulemaking, because the
Commission appears to be prepared to accept a regulatory status quo while I think major changes are
necessary and required by Section 202(h).
15 Although some sectors of the news industry have experienced a slight resurgence, newspapers continue
to face decline with both advertising and circulation revenues continuing on a downward path. In 2011,
network and local news viewership increased for the first time in years; however, local TV station
advertising revenues still experienced a decline. See PEW RESEARCH CTR’S PROJECT FOR EXCELLENCE IN
JOURNALISM, THE STATE OF THE NEWS MEDIA 2012, KEY FINDINGS,
http://stateofthemedia.org/2012/overview-4/key-findings/ (last visited Mat 14, 2012) (“THE STATE OF THE
NEWS MEDIA 2012”); THE STATE OF THE NEWS MEDIA 2012, LOCAL TV,
http://stateofthemedia.org/2012/overview-4/key-findings/ (explaining that some of this loss is due to a
reduction of political and automotive advertising from 2010 and that these revenues will rebound during a
busy election cycle.
13

popularity.16 This trend has led many prominent daily newspapers to declare bankruptcy,
while others have faced more dire circumstances. In fact, over the past five years, an
average of 15 daily papers, or about one percent of the industry, have shuttered their
doors each year.17
Regardless of any rule changes we may implement, traditional media owners are
now choosing to invest in new, unregulated digital outlets rather than acquire more
heavily-regulated traditional media assets. Many dailies are experimenting with new
business models, such as reducing the number days that the newspaper is printed,18
moving to online-only formats19 or partnering with online distributors.20 These rules are
truly remnants of a bygone era. Once again, the marketplace has moved quickly past
obsolete communications laws.


16 In fact, the White House’s Council of Economic Advisors has found that newspapers are one of
America’s fastest-shrinking industries losing approximately 28.4 percent of its workforce between 2007
and 2011. Online publishing job growth, on the other hand, increased by more that 20 percent in the same
time period. See, e.g., ECONOMIC REPORT OF THE PRESIDENT TOGETHER WITH THE ANNUAL REPORT OF
THE COUNCIL OF ECONOMIC ADVISORS 188 (February 2012) (citing a LinkedIn study), available at
http://www.whitehouse.gov/sites/default/files/docs/erp_2012_complete.pdf; Matt Rosoff, Newspapers Are
The Fastest Shrinking Industry In The U.S.
, BUSINESS INSIDER (Mar. 8, 2012),
http://articles.businessinsider.com/2012-03-08/tech/31135175_1_linkedin-job-growth-
newspapers#ixzz1us0z9Urf.
17 THE STATE OF THE NEWS MEDIA 2012, MAJOR TRENDS, http://stateofthemedia.org/2012/overview-
4/major-trends/.
18 For instance, the 175-year-old daily New Orleans Times-Picayune is now printed only three times per
week. See, e.g., Maya Rodriguez, Former and Current Times-Picayune Staffers Bid Farewell to Daily
Paper,
WWLTV.COM, http://www.wwltv.com/news/local/Former-and-Current-Times-Picayune-staffers-
bid-farewell-to-daily-newspaper-171955991.html (Sept. 30, 2012).
19 Currently, 172 newspapers have launched online subscription plans or placed content behind a paywall.
This represents a 15 percent increase since January alone and more papers are expected to follow suit in the
coming months. Papers with Digital Subscriber Plans/Paywalls, NEWS & TECH (May 10, 2012),
http://www.newsandtech.com/stats/article_22ac1efa-2466-11e1-9c29-0019bb2963f4.html (last visited May
14, 2012); THE STATE OF THE NEWS MEDIA 2012, NEWSPAPERS,
http://stateofthemedia.org/2012/newspapers-building-digital-revenues-proves-painfully-slow/ (stating that
roughly 150 newspapers have instituted a “metered model”).
20 THE STATE OF THE NEWS MEDIA 2012, OVERVIEW, http://stateofthemedia.org/2012/overview-4/ (stating
that Reuters is producing original news shows for YouTube; Facebook has entered into partnerships with
The Washington Post, The Wall Street Journal and The Guardian; and Yahoo! paired with ABC News to
be its sole provider of news video).
14

Further, evidence before the Commission demonstrates that in-market
combinations do not negatively affect viewpoint diversity21 and may actually increase the
quantity and quality of local news and information provided by commonly-owned outlets
to benefit the American consumer.22 More than likely, the FCC ban on broadcast-
newspaper cross-ownership has hastened a decline in newsgathering across the country.
We must ensure that the heavy hand of government regulation does not continue to
distort the marketplace or limit the options of broadcasters and the newspaper community
to attract investment, increase efficiencies, and share the costs of news production.
Second, the Commission must resist calls for limiting the use of joint sales, shared
service, and local news service agreements. These agreements provide efficiencies
lowering the operation and production costs for broadcasters enabling them to deploy
economized resources to the benefit of consumers. By creating new overly-regulatory
attribution rules targeting these agreements, the FCC may cause the unintended
consequences of raising expenses and reducing the amount of local programming
provided by a broadcaster. Further, the Commission should not regulate without a full
understanding of how these agreements are used in the marketplace and whether there are


21 See, e.g., Newspaper Association of America, Comments, MB Docket No. 09-182, at 18-20 (Mar. 5,
2012) (“NAA Comments”); Adam D. Renhoff and Kenneth C. Wilbur, Local Media Ownership and
Viewpoint Diversity in Local Television News, at 3, 15 (June 12, 2011), available at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-308596A1.pdf (“[T]hese findings show that under
the proposed definition of viewpoint diversity, variation in television station co-ownership and cross-
ownership is generally found to [have] negligible effects on viewpoint diversity. However, it is important to
note that the data are limited to the degree of media co-ownership and cross-ownership currently allowed
under FCC rules.”).
22 See, e.g., 2010 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules
and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996
, MB Docket No.
09-182, Notice of Proposed Rulemaking, 26 FCC Rcd 17489, 17519 ¶ 85, n.185 (2011); NAA Comments at
15-18; Diversity and Competition Supporters, Initial Comments, MB Docket No. 09-182, at 40-43 (Mar. 5,
2012); Adam D. Renhoff and Kenneth C. Wilbur, Local Media Ownership and Media Quality, at 3, 15
(June 12, 2011), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-308504A1.pdf; Jack
Erb, Local Information Programming and the Structure of Television Markets, at 4, 27-28, 40-41 (May 20,
2011), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-308508A1.pdf.
15

systemic abuses that have limited competition and viewpoint diversity in broadcast
markets. In the face of an intensely competitive new media marketplace, placing new
rules on these agreements could violate the spirit and letter of Section 202(h).
Finally, the Commission needs to move forward soon on reviewing our policies
and rules regarding diversity in broadcasting built upon the firm foundation of new
diversity studies. As part of the FCC’s media ownership review, the Commission
requested comment on a myriad of proposals to enhance media diversity. For those
proposals aimed at expanding opportunities for minorities and women, however, we have
to be mindful that any action the Commission would undertake regarding race- and/or
gender-based regulations must satisfy the rigorous demands of the Constitution’s Equal
Protection Clause, including the strict scrutiny standard under the Supreme Court’s
Adarand23 line of cases. Although the Commission has made improvements in its
collection of minority ownership data and taken the initial steps to acquire information
regarding the information needs of communities, it should conclude badly needed studies
to assist us in supporting any new race- and/or gender-based regulations to determine the
best approaches to increase media diversity, in accordance with the Constitution. As a
matter of good government, the Commission should act quickly. We are long overdue
for such action.

Broadcast Indecency

In June, the Supreme Court held that the Commission failed to provide fair notice
regarding the application of its broadcast indecency standards to cases involving fleeting


23 Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995).
16

expletives and momentary nudity.24 When the Court ruled, the Commission had
approximately 1.5 million indecency complaints pending involving about 9,700
broadcasts. I am pleased that the dedicated staff of the Enforcement Bureau has begun to
tackle this monumental undertaking and has already reduced the backlog to
approximately a half million complaints involving about 5500 broadcasts. We owe it to
American families and the broadcast licensees involved to carry out our statutory duties
by resolving the remaining complaints with all deliberate speed. Going forward, the
Commission must ensure that its indecency standards are clear, that broadcasters have the
requisite notice and that Americans, especially parents such as myself, are secure in their
knowledge of what content is allowed to be broadcast.

Modernizing FCC Procedures and Regulations

Reform of our communications laws and FCC procedure have been an important
topic of debate for many years. Many have suggested that the Commission streamline its
procedures and ensure that unnecessary, outdated or harmful FCC rules are repealed.
Chairman Genachowski has taken notable steps in reforming various procedures at the
agency, but more can be done.
I commend your Committee for its work on FCC reform legislation which
includes many constructive ideas. For example, requiring the Commission to include in
its rulemaking process cost benefit analyses to support any future rules would result in a


24 FCC v. Fox Television Stations, Inc., No. 10-1293, slip op. (U.S. June 21, 2012). The Court also denied
certiorari in FCC v. CBS Corporation, No. 11-1240, slip op. (U.S. June 29, 2012), bringing an end to the
litigation over the momentary exposure of Janet Jackson’s breast. In vacating the Commission’s order, the
Third Circuit held that the Commission’s decision was arbitrary and capricious, because the agency
departed from its policy of excusing the broadcast of fleeting moments of indecency. CBS Corp. v. FCC,
663 F.3d 122 (3rd Cir. 2011).
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smarter rulemaking process. Additionally, updating the Government in Sunshine Act25 in
a way that improves the FCC’s efficiency and ability to negotiate while preserving its
transparency is something that has also gained wide support. Also, requiring that future
regulatory proceedings start with a thorough market analysis that examines the state of
competition would be a positive change. In the absence of market failure, adopting
unnecessary regulations in the name of serving the public interest can have the perverse
effect of harming consumers by inhibiting the constructive risk-taking that produces
investment, innovation, competition, lower prices and jobs. I look forward to working
with all of you in pursuit of these worthy goals.
Regarding updating and repealing outdated regulations, the Commission should
focus on the market’s transition from telecom networks that were built for analog voice
services to state-of-the-art data networks that convey an infinite slurry of ones and zeros
(the “IP transition”). Comments filed at the FCC indicate that within at least the 22 states
where AT&T operates, 70 percent of the residential customers with access to plain old
telephone service over aging copper networks are projected to have chosen a competitive
alternative by the end of 2012.26 As in so many cases, while our statute and rules stay
firmly rooted in the 20th century, the market is whizzing past us. We are overdue for a
fresh look at how our laws may be hindering rather than helping such market evolutions.
Complex questions abound and they will need to be answered prior to the
completion of this transition. How do we encourage continued investment in the
networks supporting an IP transition? What can the Commission do to speed the


25 5 U.S.C. § 552b.
26 See Comments of AT&T, In the Matter of Connect America Fund, WC Docket No. 10-90 (February 24,
2012).
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transition along? What happens with legacy infrastructure? How can we ensure that the
Commission remains faithful to the Act and Commission precedent, both of which treat
broadband Internet access as an information service? These questions, and many more,
require careful and focused consideration by the Commission and all stakeholders.

Protecting Internet Freedom

The Commission could start with a much-needed modernization by closing the
Title II docket with no action taken.27 Closing this proceeding would send a strong signal
to investors and regulators around the world that the United States rejects the notion of
subjecting nimble Internet innovations to late 19th century industrial policy that is the
foundation of the Communications Act of 1934. We can do better. We can adopt new
policies that provide entrepreneurs the freedom to invest and innovate without fear of
suffocation from obsolete laws written for a monopoly analog voice world. If
approached intelligently, consumers would be the ultimate beneficiaries of a powerful
explosion of entrepreneurial brilliance.
Furthermore, should the FCC’s 2010 regulation of Internet network management
be overturned by the court, in lieu of resorting to the destructive option of classifying, for
the first time, broadband Internet access services as common carriage under Title II, the
FCC should revive a concept I first proposed nearly five years ago – that is to use the
tried and true multi-stakeholder model for resolution of allegations of anti-competitive
conduct by Internet service providers. A multi-stakeholder forum, where governments
can have a seat at the table, supported by the backstop of existing antitrust and consumer


27 Framework for Broadband Internet Service, GN Docket No. 10-127, Notice of Inquiry, 25 FCC Rcd
7866 (2010).
19

protection laws, could spotlight market failures and cure them more quickly – and more
effectively – than antiquated telephone laws.
If we are going to preach the virtues of the multi-stakeholder model at the pending
World Conference on International Telecommunications (WCIT) in Dubai, we should
practice what we preach. Not only would the U.S. then harmonize its foreign policy with
its domestic policy, but such a course correction would yield better results for consumers
as well.
And while I am on the important topic of the WCIT, Chairman Genachowski and
I were in Dubai last week and we can report that our delegation is working hard to
prevent an expansion of the ITU’s jurisdiction into any aspect of the Internet. The WCIT
has not yet concluded, but I welcome any questions on this topic. I have attached a
recent op-ed on the WCIT for your reference. See attachment A.
If Internet freedom survives the Dubai talks, however, we should not let our guard
down. The next conference is in May and it will lay the foundation for a more
fundamental and far-reaching negotiation on these and other matters in 2014 in Korea.
Accordingly, I strongly urge all of us to maintain our vigilance because freedom’s foes
are patient and persistent incrementalists.
Conclusion
Thank you for having us before you today, and I look forward to your questions.
20

ATTACHMENT A

Staring down Internet freedom's foes

By: Robert M. McDowell
November 30, 2012
On Monday, representatives from 193 countries are convening in Dubai in the United Arab
Emirates, to renegotiate a treaty that could give an arm of the United Nations new powers
over the Internet. Despite increased scrutiny of these talks, many countries seem more
determined than ever to turn the supremely bad idea of establishing international
regulation of the Net into reality. American diplomats will have to navigate a torrent of
formal proposals that would curtail Internet freedom, limit consumers’ choices and
increase costs for all Net users. How the negotiations end will shape the future of the Net,
as well as the prospects for global freedom and prosperity.
The purpose of the Dubai talks, known as the World Conference on International
Telecommunications, is to re-examine a 1988 treaty that loosened rules covering
telephone and computer communications. The regulatory framework adopted in 1988 took
a “hands off” approach to emerging technologies, such as what later became the Internet.
As a result, the Internet is now the greatest deregulatory success story of all time. For
instance, in 1995, shortly after it was privatized, only 16 million people used the Net. That
number has spiked to more than 2.5 billion today with upward of a half million people
becoming first-time Internet users each day. If, however, some key regimes have their
way, such soaring positive trend lines will flatten.
For a decade, countries such as Russia and China, plus dozens of others from Arab and
African regions, have pushed with increasing intensity for the International
Telecommunication Union, a treaty-based organization operating under the U.N., to
expand its authority over the Internet. In fact, Russian Prime Minister Vladimir Putin
candidly revealed last year in a meeting with the ITU secretary general that he has a goal
to establish “international control over the Internet” through new ITU rules. Net users
everywhere should take Putin and his allies quite seriously.
Months ago, chatter intensified that some countries were going to propose expanding the
ITU’s rules to cover many corners of the complex Internet ecosystem. Yet many of these
same countries, and ITU leaders, continue to issue vehement denials of an ITU Internet
power grab. In recent days, however, the truth has been revealed in irrefutable, black and
white diplomatic proposals to regulate key aspects of the Net. Stranger than fiction, here
are just a few of the most recent submissions:
• Changing the treaty’s definitions of terms so the ITU and its member states can regulate
the Internet economy like an ancient telephone monopoly;
• Eliminating anonymity for Internet consumers through new international “registration
records” (in the name of “privacy”) allowing government monitoring of consumers’ Net
activity;

• Replacing existing nonprofit private-sector groups that keep the Net working with global
government agencies that would regulate vital Web naming, numbering, addressing and
identification functions that allow every Web-connected device (such as mobile phones,
tablets and personal computers) to work; and
• Creating global rules so foreign phone companies or governments could charge fees to
consumers’ favorite websites (costs ultimately passed on to consumers), perhaps on a
“per click” basis.
Increasingly, pro-regulation forces are shrouding their proposals in seemingly innocuous
sales pitches, such as the need for better cybersecurity, more stable markets or
ubiquitous Internet access. ITU leadership and some member states have even brazenly
argued that the 1988 rules already give the ITU jurisdiction over the Net and give
legitimacy to censorship. If these aggressive regulatory expansionists are conspiring today
to trash long-standing international consensus to insulate the Net from regulation by
conjuring limitless ITU authority where plainly none exists in current treaty text, think of
how they would contort a new pact that gave them even the tiniest hook into the Internet’s
affairs.
If new regulatory ideas gain steam, the ensuing uncertainty is likely to inhibit Net
entrepreneurs’ constructive risk taking, investment and innovation because engineering
and business decisions would become politicized within intergovernmental bodies.
Consequently, consumer costs would rise and fewer Net-powered products and services
would emerge. Furthermore, the Net could become divided between countries opting for
the ITU regulatory structure versus those that choose to stick with the current hands-off
approach. In addition to creating an engineering nightmare for the Net, a borderless and
global network of networks, the result would be a lower-quality and more expensive
Internet for everybody. Each Internet consumer in the world would suffer the effects of the
ensuing confusion.
Ironically, some of the most energetic proponents of expanded ITU powers hail from the
developing world, which would be hurt the most by increased costs resulting from more
Net regulation. Several independent studies, including a World Bank report, show that an
open and freedom-enhancing Web grows developing world economies faster than those
of industrialized nations, all while giving individuals an information gateway to escape
poverty and oppression. Preserving an unfettered Net is the best way to continue this
positive trend. Yet whether hoping new rules would steer cash from popular websites into
their treasuries or whether a new paradigm could provide insidious ways to track and
crack down on political rivals, authoritarian regimes resent an unregulated Net.
Some rays of hope have crested the horizon, however. Our diplomats’ efforts are fueled
by a rare unwavering consensus emanating from Washington. Recently, both houses of a
divided Congress unanimously passed bipartisan resolutions championing Internet
freedom and directing our diplomats to oppose even the smallest expansion of ITU
authority. Our negotiators should avoid at all costs agreeing to seemingly minor, technical
or harmless treaty “tweaks” that most likely would be used later to undermine Net
2

freedom.
Slightly encouraging are a few recent statements from ITU leadership asserting that
changes to the rules will emerge only if they are “agreed upon by all participants through
consensus,” and “[the WCIT] cannot empower governments to exercise greater regulation
of the Internet.” Curiously, however, ITU leaders take a giant step backward when they
also claim, “there have not been any proposals calling for a change from the bottom-up
multi-stakeholder model of Internet governance to an ITU-controlled model.” The explicit
language of several proposals on file at the ITU, as well as in official ITU documents,
contradict this misleading assertion — leaving observers wringing their hands over
leadership’s ultimate designs.
A successful WCIT would produce a treaty that not only eschews expanded regulation of
any aspect of the Internet but also commits to free markets, freedom of speech,
competition and deregulation. The people of every nation, but especially tomorrow’s first-
time Net users in the developing world, deserve no less.
After the December WCIT, new talks commence in May. Defenders of Internet freedom
should never let their guard down, for freedom’s foes are patient and persistent
incrementalists. To be continued …
Robert M. McDowell is a commissioner of the Federal Communications Commission and
a member of the U.S. delegation to the WCIT.

© 2012 POLITICO LLC
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