Kelly William Cobb

The FCC Has Left the Internet Alone for...25 Years and Counting

Posted by Kelly William Cobb on Friday, April 30th, 2010, 3:22 PM PERMALINK

The organization Free Press has placed a haunting clock on their blog claiming that for the past 23 or so days the Internet has been left unregulated.  Oh, the humanity!  The problem is the clock is off by a little over 25 years.  That's when the first dot-com address was purchased and the Internet began its basically unregulated tenure.  And I think it’s fair to say the Web has done quite well for itself since that time.

Free Press is referring to the day this month that a U.S. Court of Appeals ruled the Federal Communication Commission has absolutely no authority under current law to regulate the Internet with seemingly benign “Net Neutrality” rules.  But since this was the first time the FCC tried to lay down its heavy regulatory hand, it’s not like the Commission had any authority to do it before the court ruling.  There is no change of precedent here.  For the past 23 days, the law of the land is as it’s been for the past 25 years.

Nevertheless, Neutrality proponents continue to paint this as a sudden crisis.  Free Press’s Megan Tady has proclaimed she doesn’t want to “wake up six months from now and find that the Internet has changed forever.”  Um…yeah, me either.  But this is exactly what Megan Tady, Free Press, and many other Net Neutrality supporters want: to reclassify the Internet under an antiquated regulatory scheme designed in the 1930’s for monopoly telephone service.  As we mentioned time and time again, the Internet has never been a heavily regulated entity.  In fact, this would mark the FCC’s first major change in Internet policy.

On the other hand, I do want to wake up six months from now and see Internet innovation and adoption continue.  Over the past seven years, adoption of broadband has grown from 15% to 63%, while access is available to over 90% of households.  Meanwhile, prices have dropped by 23% since 2004, while the overall consumer price index in the U.S. rose by 13%.  There are no barriers to creating or accessing any lawful content, and growth in the digital economy continues to outpace the overall economy by roughly four to one.  Yet, unnecessarily bludgeoning this innovation over the head with a heavy regulatory hammer is exactly what Free Press and other advocates want to do, and it will most assuredly have a negative impact across the entire Internet ecosphere.

So, it appears I’m the one who doesn’t want to see the Internet changed forever, and Net Neutrality/Title II regulation advocates do.  I’d recommend that Free Press reset their clock back a couple decades, and then let it run.  Or at least get their backwards rhetoric straight.

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ATR Files Comments to FCC Opposing Net Neutrality

Posted by Kelly William Cobb on Tuesday, April 27th, 2010, 2:49 PM PERMALINK

Yesterday, ATR filed comments with the Federal Communications Commission strongly opposing government regulation of the Internet under proposed Net Neutrality rules.  We focused on many aspects, including Net Neutrality’s negative impact on competition, investment, and employment.  However, the bulk of the comments are directed at why the FCC’s latest attempt to treat Internet service like 1930’s era telephone service is so incredibly ill-conceived.  In the process, we also took aim a number of false, hypothetical and at times completely contradictory claims made by proponents of Net Neutrality.  For example, the idea manufactured for political mileage that the Bush administration deregulated the Internet, despite the fact that the Internet has never been a regulated service.

Official federal rulemaking comments may not be the most exciting things to read, but in the fight to keep the federal government’s hands off the Internet – another 1/6th of the economy – they can be pretty important.  ATR was pleased to join 47,000 opposing comments from individuals supporting the Internet Freedom Coalition.

To read ATR’s comments opposing Net Neutrality, click here.

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New E-Commerce Tax Threatens Privacy Rights

Posted by Kelly William Cobb on Thursday, April 22nd, 2010, 5:25 PM PERMALINK

The following is cross-posted from

Earlier this year, Colorado became the first state to employ a new and controversial way to force consumers to pay tax on online purchasesHouse Bill 1193 required out-of-state retailers to provide the Department of Revenue with detailed customer information on purchases made, so that the state can pursue residents who fail to pay “use tax.” Use tax is sales tax on out-of-state purchases that requires the consumer, not the retailer, to collect and pay up.

Now, North Carolina has jumped on the bandwagon, though without passing any new legislation. In letters dating back last December and March of this year, the state’s Department of Revenue is demanding that retailers provide “all information” on North Carolina customer purchases dating back to 2003. This would include each consumer’s name, address, product/item code, detailed description of each purchase, and other information.
This is a flagrant violation of privacy rights and the First Amendment. A state has no authority to demand private information about individuals completely unrelated to tax collection. In fact, though Colorado passed the bill earlier this year, their State Supreme Court ruled in 2002 that the First Amendment ensures “an individual's fundamental right to purchase books anonymously, free from governmental interference.” Yes, that would include books bought online. The demand could also be a violation of the Interstate Commerce Clause of the U.S. Constitution, as in-state retailers would not be subject to the same information reporting requirements.
North Carolina and Colorado’s push to collect sales information stems from a failed effort last year to begin taxing out-of-state purchases. Last fall, North Carolina joined Rhode Island and New York in passing an “affiliate nexus tax” law, which requires online retailers to collect tax on consumers if company advertises on an in-state website. This effort too raises serious constitutional concerns, as retailers with no physical presence in a state cannot be required to collect taxes on consumers under the U.S. Supreme Court’s ruling in Quill v. North Dakota.
In North Carolina and Rhode Island, retailers subsequently stopped advertising to avoid what many – including us – regard as an unconstitutional tax collection scheme. Both states have failed to collect any additional revenue from the tax hike, which is probably why the NC Department of Revenue began its pursuit to gather private consumer information. Meanwhile, a similar consumer information reporting bill is pending in California.
It appears states will stop at nothing in pursuit of taxing online shoppers. First, with the affiliate nexus tax, states tossed aside the U.S. Constitution’s Commerce Clause and long standing legal precedent. Now their “Plan B” is to trample all over the First Amendment and privacy rights.
For more information, follow Stop eTaxes on Twitter and Facebook.


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Obama's Next Tax: The Internet

Posted by Kelly William Cobb on Thursday, April 15th, 2010, 5:28 PM PERMALINK

Since its tax day and you’ve (probably) already paid your taxes for last year, it might be worth noting one huge tax hike coming down the pike: the Internet tax. Yesterday, FCC Chairman Julius Genachowski testified before the Senate Commerce Committee about his recently proposed National Broadband Plan, which amongst other things would expand the Universal Service Fund (USF) tax on landline and cell phones to broadband Internet. You wouldn’t notice from his statement to the committee, however.  Here’s how Genachowski so eloquently described what his plan does:

"It proposes a once-in-a-generation transformation of the Universal Service Fund from
yesterday’s technology to tomorrow’s."
Well that sounds nice right?  Here's the real translation: It takes that old telephone tax and slaps it on broadband Internet to ensure tax revenue continues to go up. The Internet tax will hit at least 15.3% (the current USF tax rate).  While the plan sets a goal of capping the tax at this year’s level, this is merely an illusion of fiscal responsibility. Since Genachowski and Obama took office, they’ve pushed the USF tax rate up by 61%.
And if that wasn’t bad enough, Obama's FCC is ready to start taxing the Internet with or without Congressional attention. Genachowski has already put the tax hike at the top of his agenda for the first set of rulemakings on the National Broadband Plan beginning next week.  Presumably, this money grab would be used to expand Internet access, but perhaps they forgot the all-important axiom, “If you want to discourage something, tax it.”
Meanwhile, here’s a list of some other taxes the left wants to enact, this time to fund government funded media. I wonder what the U.S. version of Pravda will be called.

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Fact Checking for The New York Times on Internet Policy

Posted by Kelly William Cobb on Tuesday, April 13th, 2010, 12:03 PM PERMALINK

This weekend, the New York Times published an op-ed by University of Michigan professor Susan Crawford on the why the FCC should regulate the Internet.  The op-ed outlines a unique history of an industry that was deregulated, leading to higher prices and lower speeds where discrimination can run rampant.  It's unique because it's fanciful and untrue, as I alluded to in a prior post.  Here are a few clarifications and corrections that the New York Times editorial board should have caught.

Crawford: "It wouldn’t be the first time that the F.C.C. relabeled Internet access services."

Every time the FCC has deliberately considered how to treat the Internet it has always found it to be a Title I, unregulated "information" service (see here, here, here, and here). So, it would be the first time.  While DSL, it is argued, existed as a Title II "telecommunications service" until 2005, this was basically by default since DSL runs through phone lines, which fall under Title II.  When the FCC first looked at how to treat DSL Internet specifically in 2005, they decided on Title I.  Meanwhile, cable, wireless, and all other types of services, which make up over 70% of the market, have always been "information services" and were never under Title II. Reclassification would be the first time all Internet access services were relabeled, a significantly more "radical" idea than keeping them unregulated in the first place.

Crawford: "But under the Bush administration the F.C.C. deregulated high-speed Internet providers."

First, you can't de-regulate something that was never really regulated (see above).  The FCC simply continued its hands off approach to regulating the Internet.  Nevertheless, it appears Net Neutrality proponents are now trying to wrap this issue in the Bush administration for some sort of political gain.  Yet opposition to Net Neutrality is not a partisan issue at all.  The Clinton administration, at least as far back as Chairman Kennard, repeatedly referred to the Internet as an information service that shouldn't be regulated.  And while Rep. Ed Markey has a bill to enact Net Neutrality (HR 3458) with 21 mostly Democratic co-sponsors, last fall 72 House Democrats sent a joint letter to the FCC opposing Net Neutrality.  When Markey gets 72 Democratic co-sponsors, we'll talk.  Until then, leave politics out of this.

Crawford: "The Bush F.C.C. hoped that deregulation would prompt greater competition in Internet access services. But a wave of mergers instead reduced it. Prices stayed high and speeds slow."

First, the number of providers increased by 22% between 2005 and 2008 (from 1,270 to 1,554), so there is certainly more competition. Second, while the consumer price index for all goods went up by 13.6% between 2004-2009, Internet access prices dropped by 22.7%.  So, prices are dropping.  Lastly, there is little consistent data on Internet speeds, but there are a couple things worth highlighting (calculated from FCC reports).  Between 2002 and 2007, the number of people connecting to high-speed Internet went from 19.9 to 121.2 million and most of them switched from dial-up service.  Furthermore, the number of people accessing speeds above 25 mbps grew by 66% between 2005 and 2007.  When cable soon rolls out new technology (called DOCSIS 3.0), speeds across the country will reach up to 100 mbps.  For a few more points and other arguments against Crawford's claim that the FCC can just classify the Internet however they want if they give "a good reason," check out this blog post by Scott Cleland.

All this "deregulation," proponents argue, means that ISPs are now able to discriminate against certain websites and therefore the Internet should be reclassified under Title II.  However, in all this history, there are only two instances of discrimination ever known to occur, and only one has served as the evidence based talking point for Net Neutrality. Most importantly, that one instance garnered so much negative attention (lasting up to at least this blog post) that no ISP since has ever dared to manage their networks in such a fashion for fear of a similar market backlash.

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Polls: Get Your Micromanaging, Moneygrubbing Hands Off The Internet

Posted by Kelly William Cobb on Monday, April 12th, 2010, 11:00 AM PERMALINK

Following last week’s major setback in the FCC’s grand plan to regulate the Internet, a couple of polls have come out showing where the public stands on the issue. Needless to say, they lean strongly for less government involvement.

First, as Adam Thierer pointed out last Friday, support for overall regulation of the Internet has plummeted over the past two years. A new poll by Rasmussen Reports found that 53% oppose regulating the Internet like they do radio and television, while only 27% support it. This is a 22 point drop in support of regulation since 2008, when 49% of Americans supported greater regulation. The poll takes aim at the argument made by Net Neutrality proponents (like this factually inaccurate New York Times op-ed by Susan Crawford) that the FCC should reclassify the Internet to Title II of the Communications Act, moving it from a relatively unregulated to heavily regulated service. It also comes as the FCC proudly last week outlined over 60 rulemakings to implement their sweeping and unnecessary National Broadband Plan.
Additionally, another Rasmussen poll has found that a mere 20% of individuals support taxing e-commerce, such as books, movies, music, and ringtones purchased online, while 61% oppose it. Given these numbers, one can only imagine what Americans think of more broadly taxing Internet access. Yet, as the FCC Commissioners gear up to their next Open Meeting on April 21, that is exactly what they will discuss. The FCC has made expanding the Universal Service Fund tax to Internet access one of the fundamental funding components of the broadband plan. They also have discussed the tax treatment of digital goods and services.
As the FCC pursues its massive agenda to regulate another 1/6th of the economy, let’s see if it at least has the decency to go to Congress for its authority, or if it will continue to hide from an overwhelmingly opposed public.

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Day 2 and the Internet Still Works!

Posted by Kelly William Cobb on Wednesday, April 7th, 2010, 7:21 PM PERMALINK

Test! Test! Can you read this blog post? Yeah, that’s what I thought.

Much has happened regarding Internet policy over the past two days, but you probably haven't noticed since not much has likely changed the way you surf the Net.  It started yesterday, when a U.S. Appeals Court struck down the Federal Communication Commission’s ridiculous claim that it had the authority to regulate Internet traffic, noting the FCC was attempting to “shatter” the bounds of its legal limits.
This sent proponents of so-called Net Neutrality up in arms over their inability to unilaterally supersede longstanding legal precedent that Internet regulation is off limits for government. The organization Free Press went so far to declare: “The courts can’t take away our Internet.” But, 1) no one is trying to “take away” your Internet, including the courts, and 2) the courts can certainly and accurately rule that the FCC has no legal standing to regulate your Internet, or mine for that matter. It’s called checks and balances.
So now, these groups are arguing that the Internet should be “reclassified.” Currently, the Internet falls under Title I of the Communications Act, which means the FCC can’t really touch it (something both the FCC itself and U.S. Supreme Court have historically agreed on).  So, Net Neutrality proponents are attempting to claim that the Internet should be placed under Title II, which gives them extremely broad authority to regulate. The organization Public Knowledge proposed this back in January stating they were "uncertain" about the FCC's authority to push a heavy regulatory agenda. Even worse, these groups are somehow trying to claim that it should go back to the way it used to be, as though the courts tossed out a longstanding regulation. Take Free Press’s solution to the court ruling:
There’s an easy fix here: The FCC can change broadband back to a “communications service,” which is where it should have been in the first place.
But you can’t change something back to what it never was in the first place. And they even admit that it wasn’t when they say “should have been.” Ever since the FCC has looked at how to treat broadband Internet, they have always sided with Title I (though DSL did switch to Title I a bit later). The government has not had the ability to regulate broadband Internet, so no one should pretend this is a monumental change in policy. Reclassification, however, would be.
After yesterday’s stinging defeat in court, the FCC extended its public comment period on Net Neutrality (which was supposed to end tomorrow). This will likely give proponents some time to write up comments about how great Title II would be.  I for one can't wait until my broadband Internet is treated like a 1930's landline telephone complete with taxes, rate setting, and all sorts of other fun and unnecessary regulations - because that's exactly what Title II was designed for.
Meanwhile, here we are. Day 2 of the government…still…not regulating the Internet for over 25 years. And if you’re reading this now, the test worked. The Internet is still open and free. There is no crisis.  The courts haven’t taken anything away.  The only thing that’s happened is that the Internet can continue to expand, accelerate, and flourish exactly as it has for decades – without unnecessary government involvement.

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U.S. Court Strikes Down FCC's Internet Takeover

Posted by Kelly William Cobb on Tuesday, April 6th, 2010, 1:23 PM PERMALINK

Like a reckless child finally told to stand in the corner, the Federal Communications Commission’s attempt to regulate the Internet has been dealt a severe blow. This morning, the U.S. Court of Appeals for D.C. ruled unanimously in Comcast v. FCC that the FCC had no jurisdictional authority to enforce its long-sought Net Neutrality rules.

The FCC attempted to throw the kitchen sink at the Court, creating new interpretations of their “ancillary jurisdiction” over the Internet and tossing in a variety of federal laws and policy statements to back up their case. Yet, the court shot back at virtually every argument presented, stating "the Commission’s attempt to dictate the operation of an otherwise unregulated service...defies any plausible notion of 'ancillariness.'"
Perhaps most importantly, the Court called out the FCC for blatantly attempting to broaden their authority well beyond the legal bounds. Justices stated that if in prior court cases the FCC “strained the outer limits of even the open-ended and pervasive jurisdiction," in this attempt “it seeks to shatter them entirely.” The Justices conclude by stating:
Notwithstanding the “difficult regulatory problem of rapid technological change”…“the allowance of wide latitude in the exercise of delegated powers is not the equivalent of untrammeled freedom to regulate activities over which the statute fails to confer…Commission authority.”
So, what’s the next step for the FCC? If in this case they sought to “shatter” the bounds of their jurisdiction, prepare for FCC Chairman Genachowski to try to recreate the bounds of their jurisdiction.  As we’ve noted before, FCC has long determined the Internet is an “information service” and should be treated as such under Title I of the Communications Act (see here, here, here, and here). But this Title I “ancillary jurisdiction” is essentially what brought them down.  So, instead of appropriately seeking Congressional approval, expect them to find a way to regulate the Internet under Title II of the Communications Act. This would put the Net under an outdated regulatory scheme designed for traditional phone lines, giving them a better shot of enacting Net Neutrality, as well as regulating Internet speed, pricing, and taxes, amongst other things. After all, they already tossed the idea into their National Broadband Plan.
In the meantime, this decision finally puts the FCC and Chairman Genechowski in their place; striking at the self-aggrandizing and priestly view that they are somehow above the law.

Connecticut Joins the eTax Fray

Posted by Kelly William Cobb on Monday, March 22nd, 2010, 6:28 PM PERMALINK

Crossposted from

Last week, Connecticut joined a growing chorus of states considering a tax on e-commerce to help shore up budgets.  The state's Joint Finance, Revenue and Bonding Committee held a hearing on Thursday where legislators hinted at eventual support for advancing the bill (HB 5481), which would require e-retailers to collect taxes on residents if they advertise through a third party based in the state.

While a fiscal note for the bill has not yet been provided, state lawmakers around the country seem more entranced with the potential revenue projections on paper that permit them to maintain current spending, rather than the real world implications of affiliate nexus tax laws. As we've argued before, e-retailers will simply sever their advertising agreements and avoid paying what is likely an unconstitutional tax increase.  This means no actual revenue increase for the state and a decrease of tax revenue from businesses who no longer profit from ad contracts. This has been evidenced in both Rhode Island and North Carolina. A fiscal impact statement on a similar bill in Virginia that, for the first time, highlighted some of these implications helped to kill that measure last month.
While the Connecticut bill is still being held in committee, lawmakers wisely decided to stall similar legislation (SB 806) last year. Connecticut residents: remind your state lawmakers why they didn’t enact an e-tax last session. CLICK HERE to take action.

Also, click here for ATR's letter to the Connecticut Joint Finance, Revenue and Bonding Committee opposing the bill.

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Washington Legislature Battles Over Which Taxes to Raise

Posted by Kelly William Cobb on Monday, March 22nd, 2010, 5:58 PM PERMALINK

Now that Washington lawmakers have done away with that pesky, voter-approved I-960 measure that required a 2/3 vote to raise taxes, the tax-and-spend spree in the Evergreen State has kicked into high gear. House and Senate democrats have been tossing tax hike proposals back and forth for a couple weeks now. As we mentioned previously, the hang-up is whether to enact a massive tax hike through numerous, targeted tax increases (economic death by a thousand cuts) or to enact a massive tax hike through a larger, broad based tax hikes (economic death by guillotine).

Over the weekend, the Washington House of Representatives – with the support of Gov. Chris Gregoire – passed a $790 million tax hike package that contains cigarette and bottled water tax increases, applies a business tax to services, and raises the current business gross receipts tax. It also contains a number of smaller tax increases on non-residents and mortgages. The action amends a plan by the Senate to raise more broad based sales and businesses taxes, though the Senate joins the House in pushing a tobacco tax hike.
Gov. Gregoire and House Democrats argue that broad based tax hikes would hurt economic growth in Washington. Ironically, though ATR would never support either of these revenue raising packages, broad based taxes are significantly less distorting than targeted taxes (mainly because they are simpler, less volatile, and don’t pick winners and losers in the marketplace). This sort of posturing stems more likely from Gov. Gregoire and the House’s political desire to triangulate and corner opposition to the tax hikes, rather than make every taxpayer in the state mad that their taxes went up.
In the meantime, if Gregoire and the legislature are so concerned about economic growth, perhaps they should stop discussing the best tax hike for Washington and start reforming their current Business & Occupation tax, which is one of the most economically distorting in the U.S. The B&O tax dramatically raises prices on consumers, is non-transparent, and stealthily results in a much larger tax base than the entire state’s GDP. Oh, and that cigarette tax hike probably won’t help much either.

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