Progress Snapshot

Release 4.12 June 2008

What's Worse Than Rigged Auctions & Internet Censorship?

How About Both in One Package!

Progress Snapshot
Release 4.12 June 2008

by Adam Thierer and Berin Szoka *

The big spectrum policy debate in town these days continues to be the fight
about how to redo the botched D block auction. As we all know, FCC Chairman Kevin
Martin's previous effort to micro-manage that auction failed miserably. 1 Sadly, the
follow-up plan isn't much better, as the Wall Street Journal notes in an editorial today:

You'd think Chairman Martin would have learned from this experience. It's not the
role of regulators to pick winners and losers to achieve their preferred social
outcomes. Private competition and the price mechanism can most fairly and
efficiently find the best use for scarce spectrum. The FCC's clumsy attempt at
social engineering resulted in a failed auction that has prevented otherwise
desirable spectrum from being put to commercial use.

Alas, Mr. Martin has now proposed another wireless auction for a separate piece
of spectrum. And this time he wants to require the winner to offer free Internet
access that filters out pornography – conditions that obviously would decrease
the value of the license and turn off potential bidders. It just so happens that Mr.
Martin's proposed auction seems tailor-made for the business plan put forward
by M2Z, another politically connected Silicon Valley start-up looking to enter the
wireless broadband telecom market. 2

The declared goal of the new plan is to provide "free" broadband to the masses
while also satisfying public safety spectrum needs (though little is understood about how
the propose service will support public safety). Supporting legislation introduced by

*
Adam Thierer is a senior fellow and director of the Center for Digital Media Freedom at The Progress &
Freedom Foundation (PFF). Berin Szoka is a Visiting Fellow with PFF. The views expressed here are
his own, and are not necessarily the views of the PFF board, fellows or staff.
1
Jerry Brito, “Public Safety Spectrum, Here We Go Again,” Technology Liberation Front blog, March 31,
2008, http://techliberation.com/2008/03/31/public-safety-spectrum-here-we-go-again/.
2
"The Political Spectrum," The Wall Street Journal, June 6, 2008,
http://online.wsj.com/article/SB121270792982850259.html?mod=opinion_main_review_and_outlooks.

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Rep. Anna Eshoo (D-CA), H.R. 5846, the "Wireless Internet Nationwide for Families Act
of 2008," 3 would require the winning bidder to:

offer, at a minimum, always-on wireless broadband services within 2 years from

the date of receipt of the license, and complete the construction of such wireless
network with a signal covering at least 95 percent of the population of the United
States and its territories within 10 years from the initial operation of the network;
[and] a data service that is faster than 200 kilobits per second one way for free to
consumers and authorized public safety users without subscription, airtime,
usage, or other charges.

Good luck getting anyone to bid much on that plan! It's not really clear why
anyone would think that a 200 kbps public utility service—even at zero cost—will have
all that much appeal to the masses. Today, through server-side data compression, any
of us can already squeeze 300 kbps 4 out of our old dial-up lines—a service now free
from companies like NetZero and generally costing less than $10/month. Even most
existing wireless data plans today provide greater bandwidth. How many people are
really going to want to use a "free" wireless network that pumps out far less? After all,
you're not going to be able to download many videos or big files or do anything very
data-intensive on the proposed network. While a certain segment of basic smart phone
users might be satisfied with such sluggish speeds for rudimentary web uses such as
email, blog-reading, calendars and basic locational searches, existing equipment would
not be able to connect to the proposed network because of the bands used. 5 So, while
such PDA users might seize the opportunity to use slow-but-free municipal wi-fi
networks, they could not use the proposed network: an entirely new generation of
wireless technologies would have to be equipped to support yet another wireless
standard.

So why would any company pony up serious money at an auction to win the right
to provide such a lackluster service to a minimum of 95% of the nation, including costly-
to-serve low density areas, within two years? You don't need to be a Harvard Business
School grad to see why that plan doesn’t make much sense for most investors. (Never
mind the fact that the auction of this much valuable spectrum with so many regulatory
encumbrances will yield far less at auction to the U.S. Treasury.)

Of course, the winning bidder will likely have the right to "up-sell" customers to a
higher-speed paid service. But we have no idea how well that plan will work out and,
even if it did, it would call into question the logic of rigging this auction in the first place:
Is the purpose truly to provide free universal broadband access, or just to hand
someone a chunk of somewhat cheaper spectrum to let them up-sell customers to
higher-speed, paid plans? If it's the latter, the plan seems a little unfair to the private

3
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h5846ih.txt.pdf.
4
See http://en.wikipedia.org/wiki/Dial-up#Using_compression_to_exceed_56k.
5
See “FCC Looks to Auction “AWS III” Spectrum This Year Likely with Mandate for Free, Family-Friendly
Service,” Washington Telecom, Media & Tech Insider, May 30, 2008, p. 3.

2
carriers who are already aggressively competing in the market today, having paid top-
dollar for their spectrum and invested heavily in wireless data networks.

Or will the lucky auction winner be expected to rely in part on advertising

revenues to pay for the up-front costs of winning the auction, building out the network
and providing service—much as M2Z originally planned to do? 6 If so, the provider
would doubtless prefer to offer more profitable behaviorally targeted advertising
customized for each user. The Federal Trade Commission has wisely chosen not to
regulate such advertising, given its complexities and ongoing evolution, and to rely
instead on enforcement of existing unfair and deceptive trade laws, while issuing
voluntary guidelines for industry. But of course, the FCC would have jurisdiction over
the proposed service and would likely face enormous political pressure to include its
own regulatory regime for online behavioral advertising while drafting service rules. The
controversy over such rules could delay the deployment of the proposed service, while
any FCC regulations would inject the FCC into the ongoing debate over how to govern a
practice that provides the revenue stream necessary to support a variety of content and
services.

But this new spectrum-rigging plan is troubling for an entirely different reason: It
demands Internet censorship. The original M2Z plan included a promise to sanitize this
little patch of spectrum to make sure it was "kid-friendly." What better way to win a spot
in the heart of legislators and regulators than to promise network-wide Net filtering!
After all, many lawmakers have long considered this the Holy Grail of Internet policy.
Eshoo's bill would mandate such filtering by requiring that the licensee "offer such free
data service with a technology protection measure or measures that protect underage
users from accessing obscene or indecent material through such service."

It's surprising that so few people are discussing the dangers of this portion of the
proposal. After all, what we are talking about here is a blueprint for widespread,
government-mandated censorship of the Internet. Many folks, including the Wall Street
Journal in today's editorial, seem to be under the impression that the mandate is strictly
directed at "pornography"—and nothing more. But Rep. Eshoo’s bill clearly requires
filtering of "obscene or indecent material." Defining obscenity is difficult enough. But
including "indecent" content will open up a Pandora's Box of regulatory shenanigans.
One need do nothing more than read a few pages of broadcast regulatory history to
appreciate the practical challenge that awaits both providers and regulators as they
attempt to monitor the network to ensure that everything is “decent” for the masses.
(Moreover, is that really what the Internet that the masses want?)

Regardless, the important question is not what will be censored, but how it will be
censored—a critical detail that neither Chairman Martin nor Rep. Eshoo have spelled
out. But, in all likelihood, we're talking about something more that just downloadable
filters for consumers to install themselves if they so chose—leaving the decision to
individuals and parents, where it belongs in a free society. Instead, it seems clear that

6
John Dunbar, “FCC Chief's Free Broadband Plan Delayed,” Associated Press, June 6, 2008,
http://www.wtop.com/?nid=108&sid=1416507.

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we are talking about server-side, network-wide filtering that will essentially be forced on
all users of the network. Such a technological solution will greatly slow down the
already primitive network being proposed under this plan. But, more importantly, we
have to wonder what sort of precedent is being established here for other broadband
networks and the rest of the Net.

Of course, policymakers will respond by saying that the plan is simply another
regulatory quid pro quo: We rig the auctions to drive down the cost, and you, the
winning carrier, clean up the Net for us. That's all easier said than done, and it raises a
host of constitutional issues in the process. There are many better ways to protect
kids, 7 and there are certainly better ways to run a spectrum auction.

7
Adam Thierer, Parental Controls and Online Child Protection: A Survey of Tools and Methods, Progress
& Freedom Foundation Special Report, Version 3.0, Spring 2008, www.pff.org/parentalcontrols