AMERICAN.COM

My friend Sonia Arrison has a worthwhile piece about what might limit the revolution in cloud computing. She says:

The market will grow at five times the rate of traditional IT products, IDC has predicted, estimating it will be worth US$55.5 billion by 2014. While the future should be rosy, some policy groups are warning that without proper protections, the sector could stumble hard.

The problem is a law—the Electronic Communications Privacy Act (ECPA)—that hasn’t been updated to reflect new technological realities. Enacted in 1986, before the advent of email, blogs, and social networking, the law doesn’t protect the users of cloud computing services from unwarranted government access.

I keep coming back to Arnold Kling’s idea that we need a constitution of surveillance. I do not have the hands-and-eyes-off-at-all-costs approach that some of my more libertarian friends do when it comes to government surveillance. But Sonia is right that our laws haven’t kept pace with new and evolving technological realities. It’s too bad concerns about net neutrality get so much media and policy attention. Net neut violations are largely a phantom problem and one not in need of government action at the moment. The need to update our technology and telecom regs for an age when Islamic radicals are waging war on the United States and its allies, however, is real and pressing.

Image by Constitutional Convention.

The announcement that the attorney general of Texas has opened an anti-trust investigation of Google for search engine bias was met with widespread derision in the blogosphere. Most of the critics focused on the alleged ties of the complainants to Microsoft. That is interesting so far as it goes, which isn’t very far. Google is at the center of the Internet ecosystem and is undeniably important to much online commercial activity. As such, it is unsurprising complaints are brought against it, regardless of who is behind them. It’s safe to say more complaints will be brought against it and other vital Internet firms in the future. This is something Jim DeLong alluded to in these pages when he wrote “Avoiding a Tech Train Wreck.” Not much is known yet about the details of the investigation, which will be important. It would be wise for policy makers to think through what obligations, if any, firms at the center of digital commerce have to those who are dependent on them. It remains to be seen if the office of the attorney general in Texas has done that. If it hasn’t, it will be a real shame and a waste of time and resources.

Image by Brian Romig.

The WaPo’s Rob Pegeraro asks why his own paper’s editorial on the Google-Verizon deal “does not mention the biggest loophole in the Google-Verizon proposal—the idea that net-neutrality rules need not cover wireless access.” The newspaper’s editors understand that wireless capacity is greatly constrained and demand is rapidly increasing. Wireless already blocks P2P applications—in other words, it’s not “net neutral” and never has been. This is one reason it’s not a good idea to impose regulations to preserve “net neutrality” over wireless when it has never existed.

Image by Marc Lostracco.

To understand the weakness of the argument for strong, government-imposed net neutrality rules (which are a form of price controls), consider Tim Wu’s latest article in Slate, taking aim at Google and Verizon for their recent agreement. He spills over 1,200 words of cheap shots and ad hominems and not once does he discuss the future of wireless broadband in terms of how it will be built and developed, who will pay for it, and so on—all of the issues at the heart of the Google-Verizon protocol. It is increasingly impossible to take the advocates of strong net neutrality regs seriously until they wrestle with some minimum business, economic, and technological realities (something Breaking Views did very well here). Even Google is now having a hard time taking these people seriously anymore, and they were the biggest corporate backer of net neutrality rules.

James Kwak offers up an interesting diatribe on telecom. He is complaining about his DSL service and some changes he’s been trying to make. He’s hardly the first and certainly won’t be the last to do that (I can relate as I was without cable for several days after last week’s storm and couldn’t get a person on the phone to find out what was happening). But it’s worth commenting on one of the substantive charges he makes in his post:

oligopolies are bad for customers

Now, this is a common refrain heard by critics of large firms and scale-economy industries. But it’s not really true. And without realizing it, James refutes his own argument later in the post—we’ll get to that in a moment.

The roots of this hostility to big firms goes back at least to the beginning days of the industrial revolution. Louis Brandeis was an early and vociferous critic and thought large, oligopolistic enterprises unnatural. He spoke of “the curse of bigness.” It’s interesting to see progressives trying to resurrect Brandeis as a model to be followed today (see TNR’s recent “Why Brandeis Matters“).

In the dawn of industrial-scale enterprise, its critics could be forgiven for not fully understanding some of the benefits of bigness and oligopoly, focusing only on its harms. But over time we’ve come to better understand and appreciate the forces at work that make oligopolistic competition beneficial. Simply put, certain technological and industrial advances aren’t possible without oligopolies—including advances that benefit consumers.

And this is where James undermines his own argument.

Since the 1980s, we’ve had cable TV, cell phones, the Internet, satellite . . . and no significant increase in telecom competition. What’s wrong with this picture?

What’s wrong with this picture is that all of these advances in media, technology, and communications he mentions would not have been possible without oligopoly. Will Baumol talks at length about this in his latest book:

In today’s economy, many oligopolistic firms wield innovation as their main battle weapon, using it to wage both offensive and defensive campaigns against competitors. The result is precisely analogous to an arms race, in which two countries, each fearing an attack from the other, feel it is necessary to match the other country’s military spending. Similarly, two competing firms, each fearing the other will outspend it in acquiring the battle weapons of its industry, are driven to conclude that … their very existence depends on matching their rival’s effort and spending on the innovation process. Because these giant warring firms do not dare to relax their innovation activities, a constant stream of innovations can be expected to appear in the economies in which they operate.

Baumol goes on to note “how little the recessions of the postwar period held back the growth in real expenditures on the innovation process … large enterprises account for the bulk of this private R&D spending.” This is particularly important to keep in mind as policy makers ponder how to get the economy out of its present ditch.

On one level, James’s frustration is understandable. And I’m as much a champion of the small entrepreneur as you can find. But the knee-jerk hostility to oligopoly undergirds a lot of bad policy prescription and advocacy, and so it’s worth setting the record straight about oligopoly and consumer welfare.

Image by Daniel Catt.

RIM, the maker of Blackberry, is facing a number of challenges around the globe as governments are increasingly interested in accessing its metadata for surveillance (or, perhaps, other) purposes. I was on a CBC program this morning talking about India’s insistence that the Canadian firm hand over gobs of user metadata. Civil libertarians are up in arms that RIM is cooperating with the Indian government. But they should cut RIM some slack. The Canadian and U.S. governments work with RIM in their anti-terror efforts while protecting customers’ rights and interests. India could certainly do the same. The Indian government set a hard deadline of the end of this month for RIM to hand over user information. The pressure was designed to get RIM to jump. But the Indians would be prudent to consult with their North American counterparts and determine best practices and protocols for working with telecommunications firms who operate within their borders. (My colleague Gary Schmitt touches on a lot of these issues in his excellent new book, Safety, Liberty and Islamist Terrorism: American and European Approaches to Domestic Counterterrorism.)  Until free nations develop what Arnold Kling calls a “Constitution of Surveillance,” open democracies will always be wrestling clumsily with the tension between liberty and security endemic to modern communications and technology networks.

Image by Enrique Dans.

Apparently Senator Jim DeMint is proposing a bill that will rein in the Federal Communications Commission a little bit. Stay tuned.

The Federal Communications Commission set benchmark requirements for access to wireless spectrum when it approved Harbinger’s acquisition of SkyTerra and its licenses in March. According to one condition, Harbinger must build out its network to provide coverage to at least 100 million people in the U.S. by the end of 2012, 145 million people by the end of 2013, and 260 million people by the end of 2015.

… another condition requires Harbinger to seek approval from the FCC in order to make spectrum available to the two largest providers of U.S. commercial mobile radio services, AT&T Inc. and Verizon Communications Inc.

That’s from a WSJ story about Phillip Falcone’s entrepreneurial efforts to build out a high-speed wireless network. The efforts are complicated by rules and regulations from the FCC. There was never any guarantee Falcone would succeed in the marketplace. But if Falcone fails due to these regulatory obstacles, it is not clear that the intended beneficiaries (those without wireless service in rural areas, for example) are any better off. It is worth asking the FCC if the harm done by regulations outweighs benefits that never materialize.

Image by Gavin St. Ours

It’s a car… it’s a plane… it’s a car-plane.

I know Tesla and other favored “green” transportation technologies are getting tons of government money, but entrepreneur-led personal aviation is really a whole lot more interesting.

The Mobile Boom Could be a Unique Economic Catalyst if:

The boom in mobile devices and applications is reminiscent of the mid 80s when we had software developers and applications popping up left and right. Faster processors and regular operating system improvements created the same vibrant software ecosystem back then that we are seeing right now (Windows is to Mac in 1985 as Android Apps is to IPhone/IPad Apps in 2010). Which in turn created new jobs and even new industries. Now is the time to encourage more of the same.

That’s from the Blog Maverick, who has some sensible ideas on how to get more of the same. We’ll get more of the same if we don’t screw it up on the regulatory front. Regular readers know I spend a lot of time blogging about regulation of the content, wireless, and broadband industries. Now you know why—there’s huge potential for growth in this sector to get the broader economy chugging again. Net or search neutrality regulations, restrictions on business model experimentation, and other regulatory intrusions from the FCC, FTC, or other agencies are more likely to impede this boom.

Markets + Competition + Technology + Venturesome Consumption =

The FCC’s recent wireless competition report is one of those non-event events in Washington—a seemingly trivial bit of table-setting that gets little media coverage, but may actually be quite important for what it means down the road. In this case, ambitious FCC officials may be trying to set the stage for further regulation of the nation’s wireless industry. The rationale, based on the report, will be that the industry is insufficiently competitive.

But is the industry uncompetitive? No. I mentioned some useful metrics here the other day to give perspective. Here’s more: Michael Turk reminds me that the United States is one of only two countries in the world “with five or more cellular providers.” Of course, the United States is, like the country music duo, both Big ‘n’ Rich—much larger than most countries and much wealthier than most (and bigger than most rich nations, e.g. in Europe). So it would make sense that it should have more providers, with some large players and some smaller players. Still, given the data it is hard to argue convincingly that wireless isn’t competitive (even with greater industry consolidation it would be tough to argue it’s not competitive).

Image by MelvinSchlubman.

Approximately 273 million people, 95.8 percent of the population, are served by at least three mobile voice providers.

What’s more, the percentage of the country served by three or more mobile broadband providers increased from just half the population a year ago to over three-quarters; that served by at least two is almost 90 percent.

Despite this, many people are arguing that this report, which you can find at the FCC website, demonstrates the wireless industry is not competitive and thus needs greater regulation. This is difficult to believe given the data and the transformation that will come in the wireless world over the next five years with the rollout of 4G networks.

Bret Swanson has an excellent piece describing the regulatory threats to a more robust multimedia Web that come in the form of strong net neutrality rules. He notes efforts to ban “volume discounts and package deals [that] are so prominent in every industry.”

It is amazing how little some advocates of regulation seem have learned over the years. Way back when he was an economic policy advisor to Woodrow Wilson, Louis Brandeis thundered against the use of volume discounts, calling them “fraught with very great evil.” Brandeis predicted bulk discounts would be outlawed no matter how beneficial they were for consumers.

Of course, Brandeis had an excuse—he was trying to make sense of the rise of large industrial concerns that emerged in the late 19th and early 20th centuries and he didn’t understand scale economies very well. But what’s the excuse for our would-be regulators today?

Having done programming years ago for a major relational database management firm, this story is particularly hilarious.

A letter that Rep. Jay Inslee, D-Wash., is circulating on Capitol Hill expressing gushing support for FCC Chairman Julius Genachowski’s controversial proposal to subject broadband to tougher regulation wasn’t written by the congressman.

How do we know? Digital fingerprints left by the author, Ben Scott, policy director of Free Press, a media watchdog.

It’s common knowledge that advocacy groups and corporations routinely craft letters and even legislation for lawmakers. But it’s not every day they leave behind a trail of evidence confirming the link. Such is the case with Scott, who forgot to scrub the so-called “metadata”—yeah, I’d never heard of this either—listing him as the author of the correspondence making the rounds on the Hill.

There’s an old saying in Washington that if you want to understand what’s going on, don’t pay attention to the text; concentrate on the subtext. Maybe we need to amend it for the digital age: don’t focus on the data; it’s the metadata that matters.