What should the role of law be in Facebook’s digitally connected world?

The Eye Catcher …

Is it important to human existence that seven billion human beings be digitally connected? Facebook seems to think so.  According to its mission statement, Facebook’s mission is:

” … to give people the power to build community and bring the world closer together.  Our top priority is to build useful and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, and other surfaces.  We also help people discover and learn about what’s going on in the world around them, enable people to share their opinions, ideas, photos and videos, and other activities with audiences ranging from their closest friends to the public at large, and stay connected everywhere by accessing our products.”

Facebook’s view of the world seems to have gone beyond making sure they provide a platform upon which we can find our seemingly long-lost high school crushes.  Now the company wants to facilitate our abilities to make friends and form more connections by introducing emotion-detecting robotics. Just imagine walking down 7th Avenue in Manhattan, your head hung low.  You feel a tap on your shoulder. You turn, and there is Robby the Robot asking if you need a friend.

Just what should the role of law be in an instance where data is being collected first hand on a public street in any American city? First, what is the role of law?

What is the role of law in the digital age?

In a society where data is being collected sometimes without permission or pursuant to some term and condition that has not been read by a subscriber to digital services, what should be the role of law? In other words, to what extent should the State promulgate a body of rules to regulate the behavior of firms that collect by digital means behavioral data from the State’s citizens?

To answer this question I believe we first have to analyze the State’s role in this political economy.  Then, we need to take a look at the relationship between the State and the business firm in general and the data collecting digital firm in particular. After this analysis, we can provide a more accurate picture of the role of law with the added benefit obtaining some insight on the philosophy underlying the State and the laws it promulgates.

The state as ultimate manager of all resources …

To assess the State’s role in this political economy, I place myself in the role of the original “strong man.” I see land and determine to occupy it and control all its resources for my benefit.  Paraphrasing Murray N. Rothbard from his work, Anatomy of the State, I systemize all my political means of acquisition and control, i.e. law, military to create a mechanism for taking the land, whether occupied or unoccupied and convert it to my property to distribute, again for my benefit, at some point in the future.

At this point of acquisition and conquest I have to decide what is the best method for me to optimize the benefits derived from my new territory. Do I and my small band of conquerors do the work ourselves or do we retain labor to do the job?

Entrepreneurs, privateers, and private firms/trading companies step in, petition for charters giving them license to mine and extract resources which they package in return for a fee from me.  These private “going concerns” may also obtain a license from me, the State, allowing them purchase land and extract and package resources, and convert the resources into goods and services for distribution while making a profit along the way.

In my model of a political economy, I have decided that, while I own and maintain the public rights-of-way through which transportation, energy, and communications networks are deployed, commercial trade, the movement of goods and services, will be managed by the privateers.  As long as the privateers serve the “public interest”, they will be allowed to chase profits.

The definition of “public interest” has always been less than clear, but coming from the perspective of the State, as long as the privateer’s activity creates a taxable event and does not erode the public rights-of-way to the point of maintenance costs exceeding benefit, then the privateer keeps her license and is allowed to continue extracting resources and pursuing a profit.

Is the extraction of digital information in the State’s interest? Yes …

Information is a primary resource. It services all endeavors, from manufacturing, mining, farming, public policy decision-making, baking apple pie, etc.  The State has an interest in how it flows.  In a political economy that rides on a corporate-capitalism platform, the State has an interest in allowing information to flow under the least restrictive conditions so that, like other forms of capital, information can move to its next best use. In the case of digital platforms such as Facebook, the State has made a determination, as manifested in its charter to Facebook, that Facebook meets the public interest by creating a taxable event that involves the efficient and profitable extraction of information.  With over 2 billion users and its dominant position in digital advertising, Facebook is demonstrating that it is meeting the State’s public interest.

So, as to the State’s role in a digital economy, the extent to which the State is expected to promulgate a body of rules to regulate the behavior of firms that collect by digital means behavioral data from citizens should be a minimal one; an extent to where the digital firm can leverage its technology to optimize data collected and the revenue obtained from digital services, while the State maximizes collection of taxes from the digital platform.

So what role should law play in a digital economy?

I see the role of law in a digital political economy as three-fold. First, its role is to “apologize” for the State’s role in exercising jurisdiction over the resource called information.  Second, the role of law is to ensure that information flows freely to its best use by licensing the firms that are best at moving information to its next best use.  Lastly, the role of law is to ensure collection of taxes from entities charted to mine, package, and distribute information while allowing these firms to maximize profits.

 

 

 

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Elizabeth Warren’s anti-trust approach to internet companies disregards the autonomy of making a market

Last March, U.S. Senator Elizabeth Warren, Democrat of Massachusetts, made an argument for dismantling three of the internet’s biggest portal companies: Amazon, Facebook, and Google. Ms. Warren asserts that these companies have too much power over the private lives of Americans as well as over the economy.  Through their economic and political behavior, Amazon, Facebook, and Google have, according to Ms. Warren, have stifled the ability of smaller players to enter and innovate in the internet markets.

Elizabeth Warren’s Argument

Ms. Warren asserts that Amazon, Facebook, and Google use two strategies to create dominance on the internet.  The first strategy is the use of mergers by large internet portals to effectively eliminate competition.  Under this strategy, Amazon, Facebook, and Google buy out their competition, at times, according to Ms. Warren, at a discounted price.

The second strategy used by internet portals is to create proprietary marketplaces to limit or eliminate competition.  Under this scenario, a portal like Amazon creates a competitive product for sale on its website and uses its scale to price out a competitive product that is also offered for sale on Amazon’s website.

Ms. Warren believes this dominance can be addressed by by taking two steps.  First, portals such as Amazon, Facebook, and Google would be designated as platform utilities.  This means that Facebook would have to divest itself of a service provider that competes with other service providers that use Facebook’s platform to connect to its consumers.

The Problem with Ms Warren’s Approach

Ms. Warren’s approach is similar to the regulatory approach used in the 1990s where local telephone companies that wanted to provide toll services beyond their local areas had to set up separate subsidiaries.  The two differences between the telecom scenario of the 1990s and Ms. Warren’s platform utility model is that telecoms didn’t have to divest these companies, but operated them separately.

More important, these telecom companies were still utilities exercising monopoly control of local service areas.  Until 1996, their local rates were still regulated and they still needed permission to add certain local services.  Their monopoly power resulted from the inefficiencies that would occur from multiple firms trying to provide the same telecommunications services in limited geographic space. Monopoly power granted by the state to these firms was the response by the State to the problems occurring from congestion.

The Open Internet Eliminates Monopoly Power

Amazon, Facebook, and Google, for all their dominance in the e-commerce space operate in the open internet.  In the open internet, any firm or other association of individuals with the right search algorithms, expert technical knowledge, and adequate capital, can set up servers almost anywhere in the world, and start a competing service or carve out a niche portal service.  The internet’s technical openness is rivaled only by its global nature.  Amazon, Facebook, Google may be dominant in the American e-commerce market, but constant regulatory threats by the European Union and hostility to them from China reduces their perceived dominance.  Ms. Warren has not shown how these firms can dominate a global network of 100,000 interconnected computers that operate on an open architecture.

Internet Portals are Not Utilities

It should also be mentioned that the internet itself is not a utility.  In 2015, Federal Communications Commission member Michael O’Rielly made this point during a speech.  Mr. O’Rielly said the following:

“It is important to note that Internet access is not a necessity in the day-to-day lives of Americans and doesn’t even come close to the threshold to be considered a basic human right. … People do a disservice by overstating its relevancy or stature in people’s lives. People can and do live without Internet access, and many lead very successful lives.  It is even more ludicrous to compare Internet access to a basic human right. In fact, it is quite demeaning to do so in my opinion.”

When we think of utilities, we think of monopolies that, due to their efficient delivery of vital services such as water and energy, are granted an exclusive market within which to provide those services.  As alluded to earlier, because of the open nature of the internet and its global reach, it is near impossible for one firm to have an exclusive market, unless a government decides to grant it, and that move would be irrational because government exclusivity would block the very cross-border data flows facilitated by an open internet.

Acquisition of Apps and Brick and Mortar Stores by an Internet Portal Does Not Create Monopolies

The second step Ms. Warren would take to squelch internet portal dominance would be to designate regulators that would prevent Amazon, Facebook, or Google from merging with other firms and thus eliminating competition.  She provides a couple examples: Facebook and WhatsApp; Google and Waze; Amazon and Whole Foods.  There are two problems with her examples and the conclusion that these “mergers” are not competitive.

First, these were not mergers but acquisitions. Two information portals, Facebook and Google, acquired two information assets.  Given the services these assets provide, Facebook and Google made the business judgment that adding these services to their portfolios made sense from a services and revenue perspective.  Amazon, first and foremost an online retailer, added a retail food service from which Amazon’s subscribers could purchase groceries at a discount.

Ms. Warren failed to argue how Facebook’s ownership of a messaging service keeps other firms from developing their own messaging service.  She failed to explain how Google’s acquisition of Waze keeps other technology firms from creating an app that provides drivers with directions. Ms. Warren also fails to show how Amazon is keeping, say Kroger, from creating its own grocery delivery service.

It would be one thing to say that these firms monopolized physical infrastructure to the point where other firms would see increasing costs of entry, but the internet’s openness, combined with access to technical talent and expertise and cheap capital means that the assets purchased by Amazon, Facebook, and Google are themselves subject to competition.

Conclusion: Internet Openness and its Global Nature Keeps Monopoly Power in Check

The open and global nature of the internet combined with access to expertise, talent, and cheap capital works to mitigate monopoly behavior.  As technology evolves and entrepreneurs innovate, the services rivaling WhatsApp, Waze, or even Facebook will emerge.  Given the current make-up of the Congress and the low probability of Elizabeth Warren winning the Democratic nomination, the likelihood of her proposals being enacted via law or administrative fiat is close to zero. This does not mean that internet portals concerned about this type of overreach should stay less than vigilant in preparing to push back against them.

Atlanta should avoid the net neutrality debate. It’s not good for business

Internet Innovation Alliance co-founder Bruce Mehlman posted an article yesterday discussing the positive impact relaxed regulatory requirements can have on investment in and deployment of broadband networks. According to Mr. Mehlman, investment in broadband rose by $1.5 billion to $76.3 billion.  He contrasts this to the $3.2 billion decline in investment between 2015 and 2016.

What made the difference? According to Mr. Mehlman it was the decision last year by the Federal Communications Commission to repeal their 2015 open internet order, a decision that put into regulatory code a number of net neutrality principles.  The 2015 order treated broadband access providers as telephone companies by applying consumer and telephone network management rules that were based on communications law from the 1930s.  That approach, according to Mr. Mehlman, just can’t fly in the 21st century.

Unfortunately, Washington has been embroiled in a debate over how net neutrality principles should be applied.  There is a consensus among opponents to and proponents of net neutrality principles that consumers should be able to access web content of their choice; that content providers should not have their traffic speeds throttled by broadband access providers; and that broadband access providers should be transparent about the terms and conditions of their services.  Whether a rule by a regulatory agency is the best approach to ensuring these policy goals is an issue.

Getting to yes on net neutrality may be best brought about by an action of Congress.  Defining net neutrality in the law and laying out the components of its meaning will give content providers and broadband access providers definitive guideposts that help settle any conflicts in the future.  Without a congressional action, the industry and consumers run the risk of a back and forth regulatory battle driven by changes in political power, particularly when a new presidential administration takes over and a new chairman is appointed.  That type of uncertainty every four years is not good for consumers or business.

As more people and businesses move to Atlanta, regulatory certainty becomes an asset for the person who telecommutes; for the financial technology company that needs to maintain connection to its app subscribers; to the student who relies on distance learning to complete assignments.

Treating a broadband provider facing competition from three or four more broadband providers as if they were a monopoly local telephone company in 1934 won’t contribute to Atlanta’s continued growth.

Verizon moves ahead with 5G

Verizon yesterday announced the rollout of Verizon 5G Home internet service. Verizon claims in its press release that it is the first company to introduce 5G commercially in the United States with service to be provided in parts of Houston, Indianapolis, Los Angeles, and Sacramento.

Given the lack of uniform industry standards, being first to provide 5G service means moving ahead with the service based on its own proprietary 5G standards.  According to Hans Vestberg, Verizon’s chief executive officer,  “To be first, we encouraged others in the ecosystem to move more quickly at every step. We appreciate the partnership of network equipment makers, device manufacturers, software developers and chip makers in reaching this critical milestone. The entire wireless industry gets to celebrate.”

Verizon will start taking consumer orders for the service on 13 September 2018 with the service taking effect on 1 October 2018.

SDx Central, a technology content provider and research firm, estimates that the first phase of 5G standards will probably not materialize until late 2018 when industry can base concrete standards on high profile cases. However, Verizon sees no concerns with moving forward with its own proprietary standards.  Rather, it sees itself as a leader on moving the industry further along the journey to rolling out 5G. According to company spokesman John O’Malley:

“The 3GTF standard we developed actually accelerated the adoption of the international standard last December — two years earlier than most people thought it would happen. And now, device, infrastructure and other technology leaders are developing products that will run on that standard. And when those products and technologies are available, we’ll evolve our offerings as well. The entire industry is working together on this.”

Although Verizon did not mention the impact of its 5G rollout on global trade, broadband communications has been described as an important platform for international commerce, particularly for small and medium enterprises.

In 2013, the World Economic Forum determined that 95% of businesses located in countries that are part of the Organisation for Economic Co-operation and Development has an online presence. The internet in general and social media in particular allowed these businesses to market products globally and reach customers outside of their regions.

Joshua Meltzer of the Brookings Institution in a paper addressing the internet as a platform for international trade said the following:

“Significantly, the Internet is creating new opportunities for small and medium-sized enterprises (SMEs) and for businesses in developing countries to engage in international trade and become part of the global economy. By providing opportunities to access business inputs such as cheaper telecommunications, strategic information on overseas markets, legal and consulting services, and cloud computing, SMEs and developing country firms are now more than ever able to become globally competitive. With a website, these firms can now engage internationally, reaching customers and communicating with suppliers all across the world.”

Could we see further integration of the aforementioned cities into global trade as a result of this rollout?

 

FCC to vote on a 5G order designed to deploy more broadband

On 26 September 2018, the Federal Communications Commission will vote on an order that members of the Commission believe will help pave the way for deployment of the small cell technology that supports 5G technology.

5G refers to a next generation wireless technology that promises to deliver wireless communications at faster speeds with increased data capacity.  Writing for TechTarget.com, Margaret Rouse describes 5G as a technology that could provide data traffic speeds of 20 gigabits per second while enabling increases in the amount of data transmitted due to more available bandwidth and advanced antenna technology.

“In addition to improvements in speed, capacity and latency, 5G offers network management features, among them network slicing, which allows mobile operators to create multiple virtual networks within a single physical 5G network. This capability will enable wireless network connections to support specific uses or business cases and could be sold on an as-a-service basis.” — Margaret Rouse

Unlike current 4G Long Term Evolution wireless technology that relies on the deployment of large cell towers, 5G depends on the deployment of small cell antenna sites that are placed on utility poles or rooftops.  5G is designed to operate in frequencies between 30 GHz and 300 GHz allowing for greater data capacity but over shorter distances.

Commissioner Brendan Carr has been given credit for driving the development and release of this order.  Mr. Carr has been traveling the United States advocating for streamlined regulations that in turn would facilitate deployment of 5G technology.  Mr. Carr sees local and state regulations for cell tower and other facility siting as an issue and is making the argument that Sections 253 and 332(c)(7) of the Communications Act of 1934 can be leveraged to make local and state regulations less adverse to 5G deployment.

Under Section 253 of the Communications Act, the Commission may preempt any local or state statute or regulation that prohibits an entity from providing intrastate or interstate telecommunications services. States and localities can regulate telecom companies in order to preserve universal service, protect the public safety and welfare, and manage public rights-of-way.  Section 332(c)(7) maintains a state or local government’s authority over decisions regarding placement, construction, and modification of personal wireless facilities.

Mr. Carr argues that the order will generate $2 billion in cost savings for the wireless industry while generating an additional $2.4 billion in wireless investment.  Actual deployment is still nascent with expectations as to what 5G can do versus what it is actually doing.  Phones using 5G standards, according to Ms. Rouse’s article, are expected in 2019.  Cities are still constructing their blueprints for reconciling their smart city concepts and the “internet of things” with 5G expectations.  It may not be until 2030 that 5G becomes commonplace.