Preventing Network Discrimination


In the last decade, and coincident with the advent of broadband Internet technology, Internet regulation has been the subject of intense public debate over network neutrality, a legislative concept designed to provide Internet consumer/producers the right to open and non-discriminatory access to the network.  At the heart of the debate is the determination of whether the Internet constitutes a commons, and if so, whether the commons needs to be regulated to protect equal and anti-discriminatory access in what is now, a largely privatized network.  Of course, the Internet is not the first privatized network that engendered the commons debate.  Arguably, while the Internet is a unique infrastructure in many respects, it also has significant similarities to earlier networks, such as roads, railroads, the telegraph, telephone networks, radio networks, and television networks (Blondheim, 2004).  Indeed, many of these networks created positive network externalities that constituted public goods, and as such were considered commons subjected to common carriage law, a form of regulating the network infrastructure to protect the public good.  Therefore, examining the Internet network neutrality debate through the lens of common carriage, while not new, is useful insofar as it centers the discussion on the firm foundation of historical precedent, and captures the essence of what is at stake.  As such, this paper will cover a brief historical background of common carriage, describe the application of common carriage principles in the early Internet, compare and contrast proposed network neutrality legislation with common carriage principles, and conclude with a considered recommendation advocating for network neutrality legislation.

Common Carriage Background

            Common carriage is a legal principle that intends “to guarantee that no customer seeking service upon reasonable demand, willing and able to pay the established price, however set, would be denied lawful use of the service or would otherwise be discriminated against (Noam, 1994, p. 436).  The origins of common carriage law predate English law and whose precursors “go back to the Roman Empire and the legal obligations of shipowners, innkeepers and stable keepers” (Noam, 1994, p. 437).  English common law supports the notion of common carriage, beginning with the 1701 case, Lane versus Cotton, in which Justice Holt asserted “that one in the public employment can not refuse the duty incumbent upon him and that there would thus be causes of action for a postmaster refusing a letter, inn keeper refusing a guest or blacksmith refusing to shoe a horse” (Moglen, 2009, p. 1).  As such, common carriage’s core principal is that of anti-discrimination.

Common carriage was applied in the United States initially as common law, most notably to regulate the activity of the railroads, in absence of specific congressional legislation governing interstate commerce (“Western Union Telegraph Co. v. Call Pub. Co.,” 1901).  In addition, common carriage was applied to the first U.S. telecommunications infrastructure, the telegraph network, as a result of discriminatory behavior by Western Union (“Western Union Telegraph Co. v. Call Pub. Co.,” 1901).  Western Union’s discriminatory practices extended far beyond choosing winners and losers in the open market; the company went so far as to practice censorship by choosing political sides and only offering the perspectives of candidates whose policies favored Western Union (Rock, 2012; Wu, 2006a).  As a result of this and other corporate abuses of monopoly power over the telecommunications network, common carriage over telecommunications was codified into law with Title II of the 1934 Communications Act (Noam, 1994).  Since then, regulated telephone companies have been generally referred to as ‘common carriers’ and as such, have the obligation to provide non-discriminatory access to telephone service across the nation, and in exchange are not held liable for the content of traffic across the network.

The Internet and Common Carriage

            To say that the Internet was created as a result of the common carriage principle of non-discrimination is not an overstatement.  There was a time, prior to the 1980s, when consumers had to purchase their telephones from a Bell company and were not allowed to attach any other device to their phone line (Wu, 2006b).  However, a series of court decisions, including the Hush-A-Phone and Carterfone decisions, led to the FCC to enact “a strong non-discrimination rule for consumer network equipment, and even blocked the regional Bell operating companies from offering such equipment” (Wu, 2006b, p. 33).  The rule sparked a new wave of commercial innovations that saw the development of fax machines and modems, antecedents of modern networking.

Moreover, principles of non-discrimination were built into the very architecture of the Internet.  According to Lessig and Lemley (2001), the design of both the Internet and it’s predecessor ARPANET were based on the end-to-end design principle which organizes the placement of intelligence at the ends, while making the communications protocols simple. “One consequence of this design is a principle of non-discrimination among applications” (Lessig & Lemley, 2001, p. 927).  In essence, the network is a highly sophisticated set of dumb pipes, in the sense that any network or device can interconnect to the Internet by following the basic communication protocols.  Of course, the last thing that cable and DSL providers want to be are ‘dumb pipes’ and therefore, many use a variety of strategies, including discrimination, to avoid becoming a commodity (Knowledge@Wharton, 2009).  Indeed, there is little to prevent broadband providers from using their monopoly power over the network to introduce discriminatory behaviors that favor their commercial interests.

The Internet and Net Neutrality

            The advent of the Internet has ushered in new era of debate over non-discrimination on the network, partly because with the Telecommunications Act of 1996, the FCC designated cable and DSL as ‘information services’, rather than telecommunications (United States. Congress., 1996), and as such, they are not designated as common carriers.  Moreover, freed from constraint, telecommunications providers have used their network power to discriminate against perceived threats.  For example, Telus Corporation blocked subscriber access to a Union website critical of their labor practices (CBC News, 2005).  In addition, Madison River Communications, a DSL provider, blocked subscriber access to Vonage, a company with voice-over-IP technology that allows subscribers to place calls over the Internet, rather than paying for traditional phone service (Sandvig, 2007).  Finally, Comcast Corporation intentionally blocked subscriber access to Bit Torrent, a popular peer-to-peer file sharing protocol (Weiser, 2009).  Nor is the discrimination likely to end any time soon.

For example, former AT&T Chairman and CEO Whitacre (BusinessWeek, 2005) described the motivation for AT&T to discriminate against Internet upstarts like Google, Vonage, and MSN, noting:

Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes? (p. 1)

It is not surprising, that when freed from the constraint of common carrier classification, broadband providers use discriminatory practices to create and sustain competitive advantage; it is in their nature to do so.

However, the Federal Communications Commission (2010) recently passed a set of Open Internet rules to address broadband discriminatory practices.  The Open Internet rules force broadband providers to be transparent about their network management practices, prevent the blocking of legal content, applications, services, or devices, and prevent unreasonable network discrimination (Federal Communications Commission, 2010).  While the rules appear to provide a basis for the FCC to deal with discriminatory practices, there are several problems worth exploring.

First, the FCC treats fixed broadband and wireless broadband differently, providing far more leeway for cellular providers to discriminate, particularly against competing services.  Second, there remains considerable question as to whether the FCC has the legal authority to enforce such rules, particularly given the FCC’s original classification of broadband as an ‘information service’.  In fact, the DC Court of Appeals, ruling on the Comcast and BitTorrent FCC decision, recently “struck down a federal rule that required broadband providers to keep their networks open” (Puzzanghera & Guynn, 2010, p. 1).  Furthermore, Senate Republicans recently attempted to put a bill on the floor to overturn the FCC’s Open Internet rules, however the bill was narrowly rejected (Puzzanghera, 2011).   It appears likely that the FCC Open Internet rules will continue to be challenged in the legislature and the judiciary until the Internet is treated legally as a commons.

Of course, the critical issue with the Open Internet rules is the lack of legal recognition of the Internet as a commons.  Instead, the emphasis is on the Internet is as an important commercial platform for innovation and growth that must be protected with administrative rules rather than law.  While the Open Internet rules are an important step in anti-discrimination, they fall short of common carriage law insofar as they fail to treat the Internet as a legal commons that produces a public good.  Moreover, the Open Internet rules are not a legislative solution and remain dependent on the support of the FCC.  This author suggests that the anti-discrimination principles inherent in network neutrality proposals come largely from the common carriage principles of earlier legislation.  Moreover, the current Open Internet rules contain important anti-discrimination principles, but lack the force of law.  This author recognizes that despite the progress inherent in the FCC rules, net neutrality legislation is required to assure a lasting solution that recognizes the importance of the Internet to public good.

Conclusion

            From the telegraph to the Internet, each new communication technology creates a similar debate.  To what degree does the network constitute a public good and require regulation as a commons?  In the past, common carriage laws have been used to assure that corporations are unable to use their network ownership to discriminate.  However, the recent net neutrality rules enacted by the FCC, while providing an administrative basis to prevent the worst forms of discrimination, falls far short of common carriage legislation of the past, and continues to be challenged by lawmakers and the judiciary.  Therefore, this author suggests that the fight against network discrimination has only just begun, until such a time where anti-discrimination law for the Internet is a reality.

 

 

 

References

Blondheim, M. (2004). Rehearsal for media regulation: Congress versus the telegraph-news monopoly, 1866-1900. Federal Communications Law Journal, 56(2), 300-328.

BusinessWeek, B. (2005). Online Extra: At SBC, It’s All About “Scale and Scope”, from http://www.businessweek.com/stories/2005-11-06/online-extra-at-sbc-its-all-about-scale-and-scope

CBC News. (2005, July 24). Telus cuts subscriber access to pro-union website, from http://www.cbc.ca/news/canada/story/2005/07/24/telus-sites050724.html

Federal Communications Commission. (2010). Report and Order: In the Matter of Preserving the Open Internet Broadband Indusrty Practices.  Washington, DC: FCC, Retrieved from http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-10-201A1_Rcd.pdf.

Knowledge@Wharton. (2009, December 9). Comcast-NBC Universal: Will the Marriage of Cable and Content Work?  , from http://knowledge.wharton.upenn.edu/article.cfm?articleid=2401

Lessig, L., & Lemley, M. (2001). The end of end-to-end: Preserving the architecture of the Internet in the broadband era. UCLA Law Review, 48, 925-987.

Moglen, E. (2009, February 2). Lane v. Cotton, from http://moglen.law.columbia.edu/twiki/bin/view/EngLegalHist/LanevCotton

Noam, E. M. (1994). Beyond liberalization II: The impending doom of common carriage. Telecommunications Policy, 18(6), 435-452.

Puzzanghera, J. (2011). Senate rejects attempt to overturn FCC’s net neutrality, from http://latimesblogs.latimes.com/technology/2011/11/senate-net-neutrality-vote-.html

Puzzanghera, J., & Guynn, J. (2010). Appeals court overturns FCC rule on net neutrality, from http://articles.latimes.com/2010/apr/07/business/la-fi-fcc-comcast7-2010apr07

Rock, R. (2012). What Hath God Wrought: Commonality Between the Telegraph and the Internet [1-6]. Essay Retrieved from https://journey24pointoh.com/2012/09/05/what-hath-god-wrought-commonality-between-the-telegraph-and-the-internet/

Sandvig, C. (2007). Network neutrality is the new common carriage. info, 9(2/3), 136-147.

United States. Congress. (1996). Telecommunications Act of 1996. (0160534887). Washington DC: U.S. G.P.O. : For sale by the U.S. G.P.O., Supt. of Docs., Congressional Sales Office Retrieved from http://transition.fcc.gov/Reports/tcom1996.pdf.

Weiser, P. J. (2009). The future of Internet regulation. University of California, Davis Law Review, 43, 529-590.

Western Union Telegraph Co. v. Call Pub. Co., No. 181 U.S. 92  (U.S. Supreme Court 1901).

Network neutrality: Competition, innovation, and nondiscriminatory access, United States Congress 1-7 (2006a).

Wu, T. (2006b). Why have telecommunications law? Anti-discrimination norms in communications. Journal on Telecom and High Tech, 5(7), 15-46.

 

 

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Agency and Structure at Work in Municipal Wireless Broadband Adoption


Community owned and operated wireless broadband is one of the fronts in a widespread battle over the future what Benkler (2006) considers the ‘institutional ecology’ of the Internet, or all of the social, political, and economic constitutive choices faced by society as it grapples with the implications of the network.  In essence, the series of choices and decisions will determine the extent of agency and constraint, as described by Croteau, Hoynes, and Milan (2012), provided or imposed over various public and private stakeholders in institutional ecology of the network.  The future of municipal wireless broadband represents one such choice faced by society with important implications for the future of network access.

According to the FCC (2011), “broadband is a foundation
for economic growth, job creation, global competitiveness and a better way of life” (p. xi).  Yet, the FCC (2011) also notes that more than 100 million Americans lack broadband access at home, roughly a third of the country.  Benkler (2006) describes the problem as a last mile problem, meaning the last mile to the home is often the most expensive mile for infrastructure providers, particularly in rural areas, or urban areas that lack an economically attractive demographic for private industry.  Moreover, Benkler (2006) advocates the buildout of municipal wireless broadband because of the positive externalities that municipalities have to gain, such as increased economic growth, improved healthcare, or lower unemployment.  Indeed, Ferree (2011), investigated the impact of broadband adoption on employment rates and unemployment, finding that  “broadband adoption has a positive impact on a county’s employment growth rate and a negative impact on a county’s unemployment rate” (p. 34).  In addition, Kolko (2006) found significant evidence of a persistent digital divide, particularly in low-income urban areas.  Moreover, Kolko’s (2006) study suggested strong evidence that increased urban broadband use translated to users seeking healthcare information online.  Thus, municipal wireless broadband can be a particularly attractive solution for both urban and rural areas suffering from the digital divide, and can create positive externalities for municipalities seeking to improve their communities.  What stands in the way?

In The National Broadband Plan, the FCC (2011) acknowledges the challenge in municipal broadband wireless deployments as a policy issue, resolving to “clarify the congressional mandate allowing state and local entities to provide broadband in their communities and do so in ways that use public resources more effectively” (p. xii).   The congressional mandate referenced is none other than the Telecommunications Act of 1996, which states that “no State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service” (United States. Congress., 1996, Section 253).  Despite the clarity of the law, municipalities seeking to implement municipal broadband networks, have faced intense political and legal challenges from telecommunications industry actors.  The city of Abilene, Texas sought to implement a broadband network, however was prevented from doing so, given Southwestern Bell “persuaded the Texas legislature to pass a law that prohibited local governments from providing high-speed Internet access” (Benkler, 2006, p. 407).  After appeal, the Federal Appeals Court in Washington D.C. ruled that ‘any’ did not mean municipalities and the city was prevented from moving forward (Benkler, 2006).  This is but one example of the constraints faced by municipalities in seeking the derive the positive externalities of broadband by implementing their own network in the face of tension from corporate interests.

Of course, telecommunications corporations do not want to see the rise of municipal broadband because of the challenge to their oligopoly.  Therefore, there are intense efforts at lobbying underway.  Comcast Corporation, one of the largest broadband providers in the nation, is also one of the nations largest lobbying spenders, spending nearly $20M in 2011 alone (OpenSecrets.org, 2012).  Moreover, Comcast sits on the Communications and Technology Board of the American Legislative Exchange Council, a conservative, free market bill mill that produces draft bills for federal and state legislators (sourcewatch.org, 2012).  ALEC’s position on municipal broadband favors the telecommunication’s industry arguing that municipal broadband networks could negatively affect free markets and “erode consumer choice by making markets less attractive to competition because of the government’s expanded role as a service provider (ALEC, 2012, p. 1).  However, Sadowski and De Pender (2009) found that the presence of municipal broadband actually increased competition.  It appears to this author that the arguments against municipal broadband by telecommunications providers are more oriented towards preserving their interests rather than serving the public interest, which is exactly what a publicly-owned corporation should do.  In fact, the reason the digital divide exists, is because telecommunications providers have serviced the segment of the population that can afford broadband, a behavior that is expected.  However, their desire to constrain the agency of municipalities that are not being served is both self-serving and an obstruction of social and economic progress.

References

ALEC. (2012). Communications and Technology  Retrieved August 12,, 2012, from http://www.alec.org/task-forces/telecommunications-and-information-technology/

Benkler, Y. (2006). The wealth of networks : how social production transforms markets and freedom. New Haven Conn.: Yale University Press.

Croteau, D., Hoynes, W., & Milan, S. (2012). Media/society : industries, images, and audiences (4th ed.). Thousand Oaks, Calif.: SAGE.

FCC. (2011). Connecting American: The National Broadband Plan.  Washington DC: FCC Retrieved from http://download.broadband.gov/plan/national-broadband-plan.pdf.

Ferree, P. E. (2011). The effect of broadband Internet adoption on local labor markets. Master Public Policy in Public Policy, Georgetown University, Georgetown. Retrieved from https://repository.library.georgetown.edu/bitstream/handle/10822/553724/ferreePaul.pdf?sequence=1

Kolko, J. (2006). Why should cities provide wireless broadband access? Paper presented at the Telecommunications Policy Research Conference. Available at SSRN: http://ssrn.com/abstract=2104394

OpenSecrets.org. (2012). Lobbying Spending Database: Top Spenders  Retrieved August 12,, 2012, from http://www.opensecrets.org/lobby/top.php?showYear=2011&indexType=s

Sadowski, B. M., & De Pender, M. (2009). Do municipal broadband networks foster network competition?: Case study evidence from the Netherlands. Paper presented at the Telecommunications Policy Research Conference. Available at SSRN: http://ssrn.com/abstract=1999842

sourcewatch.org. (2012). Comcast Corporation – SourceWatch  Retrieved August 12,, 2012, from http://www.sourcewatch.org/index.php?title=Comcast

United States. Congress. (1996). Telecommunications Act of 1996. (0160534887). Washington DC: U.S. G.P.O. : For sale by the U.S. G.P.O., Supt. of Docs., Congressional Sales Office Retrieved from http://transition.fcc.gov/Reports/tcom1996.pdf.


Freedom and Constraint in Internet Regulation: A Perspective on Balance


In the last two decades, the world has arguably been in the midst of the greatest communications revolution since the development of the telegraph.  Dubbed the ‘Internet revolution’, the new communications medium has fundamentally altered how people produce and consume information, knowledge, and culture.  Like the telegraph before it, the Internet was made possible not only because of the technology, but also because of government intervention and regulatory choices that created and spurred investment in the new network.  Major constitutive choices by the government included the original research and development at DARPA, the National Academy of Sciences investment in building the backbone, the insistence on open standards, and the Clinton administrations decision to privatize (Benkler, 2006).  However, the phenomenal growth of the Internet has increased its salience to the national economy, national security, and trade relations.  Increasingly, in an effort to gain more control over the network, national and international regulatory regimes are seeking to constrain the network, raise the costs of network participation, and control the medium, potentially limiting how information, knowledge, and culture are exchanged in a free society in the process (Benkler, 2006).  Examples include the passage of DCMA, the failed SOPA/PIPA legislation, and the upcoming International Telecommunications Union conference seeking to introduce an international regulatory regime.  This author is concerned that regulatory efforts seeking to introduce government gatekeepers into a decentralized medium may stifle innovation and have negative implications for freedom of expression and participation in the networked public sphere.  The aim of this policy paper is to examine the range of policy approaches to regulation of the Internet.  Section I of the paper will define the issues surrounding Internet regulation by analyzing three different policy perspectives.  Section II will analyze various policy positions as a coherent whole, while section III will recommend a policy position that deals with the legitimate social and economic concerns of Internet regulation, while being supportive of a digital ecology that encourages innovation and freedom of expression in the networked public sphere.

I. Defining the Issue

            Government regulation is critical to the protection of the public interest (Shafritz, Russell, & Borick, 2011).   In the case of the Internet, the public interest can broadly be conceived in social, political, and economic terms to include users of the Internet, commercial entities whose businesses are either enabled or threatened by the Internet, and the government itself, that must consider Internet regulation in national security, foreign policy, and international trade terms.  The basic contours that shape the Internet regulation debate can be defined broadly as freedom versus constraint in several important dimensions, including b) freedom of expression versus copyright protection, b) innovation versus oligopoly, and c) borderless Internet versus territorial sovereignty.  Each dimension has particular arguments in the freedom versus constraint debate, and specific legislative and regulatory choices that will shape the future of communication.

Freedom of Expression Versus Copyright Protection

The Internet and computing technologies have dramatically expanded the ability of traditional consumers of mass media content to become content producers, by dramatically lowering the costs of creation and distribution to nearly zero (Shirky, 2009).  As such, a variety of new forms of information, knowledge, and culture have arisen including blogs, mashups, viral videos, animutations, and more serious work such as open-source software development and Internet documentaries, most which rely on individual creative expression in non-market models and often build on or use other works to create something entirely new.  While the Internet has enabled consumers to become producers, government regulation is beginning to place constraints on would be consumer/producers.  In October of 1998, President Clinton signed the Digital Millennium Copyright Act into law, a constitutive choice “to tilt the institutional ecology in favor of industrial production and distribution of cultural packaged goods, at the expense of commons-based relations of sharing information, knowledge, and culture” (Benkler, 2006, p. 418).  Critical elements of the law include the retroactive extension of copyright protection to material already in the public domain for the sake of international copyright harmonization, and anti-circumvention provisions that outlaw technologies that circumvent copyright protection measures put into place by copyright owners (U.S. Copyright Office, 1998).  These measures were put into place based in the idea that strengthening copyright protection in the digital realm would spur the release of content onto the Internet based on the protections afforded by the law to the media and entertainment industry, however the law also attempts to influence the non-commercial conduct of users (Sparks, 2001).

In an analysis of an early DCMA case, Universal City Studios vs. 2600.com, Sparks (2001) questions the implications of the new copyright law on freedom of expression, finding that while the DCMA will limit digital copyright infringement, it also has the ability to interfere with the exchange of content over the Internet and the free expression of computer scientists seeking to advance the state of the art.  The case in question revolves around the release and distribution of DeCSS software on the hacking website 2600.com.  At issue, is whether the reverse engineering, development, and distribution of software to make encrypted DVDs playable on open source Linux software was in violation of the anti-circumvention provisions of DCMA (Sparks, 2001).  The court ruled the DeCSS was “not subject to constitutional protection sufficient to exempt it from regulation under the DCMA” (Sparks, 2001, p. 8), nor was the DCMA consider too broad, rather it was narrow in terms of the harm it sought to prevent.

However, Sparks (2001) argues that the court’s interpretation of DCMA is overly broad, given “that it prohibits programming with substantial non-infringing uses and purely academic exchanges on encryption/decryption that do not actually infringe on protected copyrights”, (p. 18) in absence of damages, and merely on the speculation of potential harm.  In this sense, the law is seeking to prevent the development of technology that would allow infringement, rather than enforcing infringement when it occurs.  Moreover, Sparks (2001) warns that DCMA “may have the unintended effect of limiting the availability of the means of protected free expression” (p. 19).

The implications of Spark’s (2001) analysis suggest serious potential harm to free expression on the Internet.  First, any technology development that deals with encryption or decryption technology on the Internet, by non-market or market actors could be subject to DCMA enforcement depending on interpretation, irrespective of whether actual infringement or harm occurs.  Second, the government is attempting to regulate barriers to technical progress in Luddite fashion, in an industry notable for a rapid rate of change.  Finally, the law favors market actors over non-market actors, the media and entertainment industry over the software industry, and media oligopolies with aging business models over innovation in the media and entertainment business.

Innovation Versus Oligopoly

Despite the intention of DCMA to constrain innovation in order to protect copyright works, the genie was already out of the bottle.  Where DCMA sought to prevent the reverse engineering of DRM encryption to protect the DVD market, the development and rapid growth of peer-to-peer file sharing technology threatened the business model of oligopolistic media firms in an entirely new way.   The basic contention of the media industry is that P2P file sharing is akin to piracy, and is therefore illegal and immoral, despite the legitimate use for file sharing in other contexts (Benkler, 2006).  As such, the industry has mounted fierce legal attacks on early file sharing technologies wherever a central point existed, such as with Napster’s architecture, resulting in Napster’s eventual demise.  However, P2P technologies evolved into architectures that lack any point of centrality, in a completely distributed architecture, resulting in phenomenal growth of consumer/producer usage, estimated as much as 450 million downloads every week (Currah, 2006).

In an effort to understand the forces at work in the brewing battle over P2P technology, Currah (2006) interviewed hundreds of studio executives across the six major oligopolistic Hollywood studios, finding the firms are seeking to protect their business model from decentralized P2P technology, rather than adopting the technology over fears of loss of control.  Instead, Hollywood firms are investing in centralized server-client distribution with greater control and higher cost models in order to preserve control over distribution and protect the linear, time-based distribution model of studios to assure that digital content delivery does not interfere with the profitable DVD market (Currah, 2006).  The prevailing attitude among studio executives is captured by the response of one of the studio presidents interviewed by Currah (2006):

As executives working for large public companies, we have a fiduciary responsibility to our shareholders to do two things.  First, protect our assets from piracy and offer legal alternatives to piracy. But this is offset by a second and vital factor – we must maximize the value of our products in existing markets and minimize our exposure to risk, like investing in an unproven market such as the Internet, which could easily cannibalize our growth if mismanaged. (p. 459)

Currah (2006) attributes the counterintuitive behavior to the nature of market incumbents versus niche competitors, arguing that niche competitors are attracted to emerging markets given the opportunities for growth in unseating competitors, while incumbents are incented to protect and grow large markets in a risk averse manner.  Tushman and Anderson (2004) describe these behaviors in terms of the processes of exploration and exploitation, where incumbents have little incentive to explore new markets, rather when emerging markets mature, incumbents can simply consolidate the market given their broad industry power and control of assets.

The implications of Currah’s (2006) study is threefold.  First, oligopolistic firms are incented to exploit existing markets and suppress innovation.  Second, P2P technology used in legal form has the potential to reduce the high costs of media distribution to practically zero, potentially forming the basis for a new business model with lower costs and greater reach.  However, while most studios acknowledge the potential, none appear willing to bear the risk of innovation (Currah, 2006).  Third, the battle between media companies and P2P technologies is merely the first foray into a broader need to insert points of control into the decentralized network medium.   One aspect of control is the DCMA regulation that extended copyright protection and attempts to protect DRM technology, providing ‘unprecedented power’ to oligopolistic firms.  More concerning is that battle lines are drawn firmly with the media oligopoly and the state on one side and consumers/producers on the other, centering “on how we create, fund, use, own and share creative works in a digital and networked economy” (Currah, 2006, p. 463).  Put in simpler terms, it appears that media companies and the state might prefer active consumer/producer participants revert back to passive consumers.

Borderless Internet Versus Territorial Sovereignty

In the early days of the Internet, many considered the Internet a virtual world, wholly separate from the physical world, and as such predicted international regulation might be difficult if not impossible (Benkler, 2006).  The reasoning was twofold.  First, the Internet is essentially borderless, insofar as information can appear simultaneously in multiple jurisdictions (Bauml, 2011).  Second, the Internet is decentralized, lacking jurisdictional choke points, rendering the question of jurisdiction difficult to address (Benkler, 2006).   However, early predictions about national government’s ability to regulate the Internet have proven to be overblown (Goldsmith, 2000).  Instead, national governments are legitimately able to introduce regulation of the Internet in their jurisdictions, however not without challenges.

Goldsmith’s (2000) analysis attempts to put the problem into perspective by analyzing the conflict-of-law problems inherent with unilateral regulation, arguing that unilateral regulation, while not desirable, is equally an effective vehicle for enforcing the norms of sovereign territories.  Goldsmith (2000) argues that regulation is legitimate insofar as “international law permits a nation to regulate the harmful local effects of foreign conduct” (p. 138).  Moreover, Goldsmith (2000) acknowledges that while regulation of the Internet is imperfect, it remains an effective form of control, particularly through efforts to regulate the demand side of Internet participation.

Furthermore, in making the case that the impact of unilateral regulation is overstated, Goldsmith (2000) suggests that because most Internet content providers will necessarily lie outside the enforcement jurisdiction of most national regulation, the ability of many regulatory bodies will be hampered in the enforcement of local laws.  Therefore, “the entities potentially subject to multiple Internet regulations are users, systems operators (especially Internet access providers) and transaction facilitators (such as banks and credit card companies) with a presence in more than one regulating jurisdiction” (Goldsmith, 2000, p. 140).   It follows that national governments have an ability to regulate the activities of most multijurisdictional commercial firms, while perhaps having a minimal effect on content providers without a presence in the local jurisdiction.

However, while Goldsmith (2000) addresses the legality of unilateral regulation, the author fails to address the potential social and political implications.  This author agrees that the basic arguments on legitimacy and efficacy are sound.  However, the author concedes the primary way that a government regulates an activity is “by raising the activity’s costs in a manner that achieves desired ends” (Goldsmith, 2000, p. 138).  Moreover, Goldsmith (2000) argues further, that content providers are responsible for assuring their content does not cause harm in other nations, and should insert geographic coding, another way of raising costs.  Of course, costs are the heart of the matter.  The Internet has dramatically lowered the costs of producing information, knowledge, and culture, lowering barriers to participate in the medium (Benkler, 2006).  Raising the costs of participation is one way that governments and commercial entities can attempt to shape the Internet into a controlled mass medium where only well-funded entities can participate.

Indeed, higher costs, in the form of taxes is at issue in the upcoming International Telecommunication Union meeting in Dubai, where a draft proposal of new international telecommunications rules include a clause that allow national authorities the right to tax all incoming and outgoing Internet traffic (International Telecommunications Union, 2012).  The U.S. government is unanimously opposed to the draft proposal, arguing “the Internet does not need new international regulations… such regulations could be devastating to Internet freedom and economic development” (Essers, 2012, p. 1).  Of course, the U.S. government may not be exclusively concerned with Internet freedom as much as the economic impact of such regulation.  The effect of national government taxation would be to exact revenues from Internet content providers like Google or Facebook for traffic associated with their page requests (Pfanner, 2012).  The Internet’s growth in economic, political, and social importance coupled with the global nature of the Internet will likely make international regulation a fact of life in one form or another.  Furthermore, the costs of such regulation may impact users beyond the borders of the national regulatory regime implementing the regulations, and have a broad impact on the participatory nature of the Internet.

II. Analyzing the Issue

            U.S. and international society face unprecedented constitutive choices regarding the future of arguably, the most important medium in human history, “a new information environment, one in which individuals are free to take a more active role than was possible in the industrial information economy of the twentieth century” (Benkler, 2006, p. 2).  Furthermore, Benkler (2006) describes this moment in history as one of both opportunity and challenge in a period of choices regarding the ‘institutional ecology’ of the digital environment, an ecology made of up the laws and regulations that will define the degree to which individuals are able to participate.  The opportunity, as Benkler (2006) defines it, is to shape the ecology in such a way as to safeguard the individual freedom, use the Internet as a platform for improved democratic participation, and “achieve improvements in human development everywhere” (p. 2).  In the broadest sense, the Internet is a powerful force for the advancement of liberal ideals.  Not liberal in the sense of alignment with a political party, rather liberal as befitting a free person.

Therefore, the constitutive choices faced in Internet regulation policy remain the degree to which constraint is chosen over freedom across the myriad issues at play.  At question is how much constraint is required to deal with legitimate political, economic, and social concerns, while protecting the freedom needed to encourage continued innovation and freedom of expression in the networked public sphere.  Therefore, the lens through which to evaluate policy options is the balance between freedom and constraint.  Of course, a key question is how to evaluate the balance between freedom and constraint?  Given the networked information economy has threatened the control of dominant incumbents of the mass media era (Benkler, 2006), evaluating the degree to which a policy or regulation seeks to introduce controls that support powerful incumbents over rights that protect new market entrants or individuals can illuminate whether the policy options favors freedom or constraint.

Freedom Versus Constraint in Regulatory Examples

As discussed previously, the DCMA extended copyright protection for works already in the public domain in the interest of international harmonization (Sparks, 2001), a protection that extended the rights of media firms and limited the rights of individuals seeking to use those works in the public sphere.  Moreover, DCMA limited the exchange of information deemed as potentially harmful to media companies by making copyright infringement possible, despite potentially legal uses of the information, and the fact that there was no evidence of actual infringement (Sparks, 2001).  Both described elements of DCMA enhanced the protections afforded market incumbents at the expense of individuals.  Some might argue that the public good was achieved through DCMA, by protecting the media industry DVD distribution model and the rights to monetize copyright works; a compelling argument.  However copyright and patent law exists to encourage contributions to the public good by allowing a creator to monetize their investment for a limited period of time to encourage economic growth and innovation.  In this situation, the law was used to allow incumbents to cling to an aging business model, limiting the rights of innovators, like P2P developers, in the networked information economy.

Another example worthy of examination was the recent attempt to pass the controversial Stop Online Piracy Act and its companion bill in the U.S. Senate, the Protect IP Act.  Both sought to prevent infringing activity perceived to harm U.S. economic interests by enabling broad enforcement measures (Band, 2012).  The legislation was intended to stop “three kinds of infringing activity: copyright infringement, counterfeiting, and circumvention of technological protection measures” (Band, 2012, p. 3).  The main controversies surrounding SOPA and PIPA had to do with the enforcement measures that may have been overly broad.  The law would require intermediaries such as Internet service providers, payment systems, search engines, and advertising networks to block access to alleged infringing websites within five days of receiving notification of infringing activity (Band, 2012).  The problems raised by the law include issues of due process, the use of controversial IP blocking techniques linked with censorship in authoritarian regimes, the potential of the law to negatively impact legitimate websites, and the concern that the law would create an incentive for commercial Internet business to monitor usage, perhaps invading privacy in the process (Band, 2012).

The controversial law was supported most notably by the pharmaceuticals industry, and the entertainment industry (Band, 2012), industries with a high degree of market concentration concerned over protecting their dominant position and business models.   Certainly, infringing activity is an important economic concern of the U.S. government, however the legislation as designed did not seek to achieve an appropriate balance between copyright protection and freedom of expression and provided overly broad power to copyright owners.  Balance, of course, has always been the intent of copyright law, a “balance between the respective values of supporting creative pursuits through copyright protection and promoting innovation in new communication technologies by limiting the incidence of liability for copyright infringement” (“Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd,” 2005).  SOPA and PIPA appeared to favor enhancing the protections of a few industries at the expense of freedom of expression and innovation.

A final example is the proposed ITU clauses concerning the right of national governments to tax inbound and outbound network traffic.  As previously discussed, taxation raises the costs of Internet use and can lead to harmful effects for Internet users by raising the barriers to participation on the Internet.  However, the relationships between freedom and constraint are less clear as the context shifts to national actors on the international stage.  Some consider the Internet to be a U.S. dominated medium that is used to further U.S. foreign policy interests in the Middle East and elsewhere.  For example, the U.S. State Departments Internet Freedom project provides circumvention and anti-censorship technology to activists inside repressive regimes (U.S. Department of State, 2012).  Moreover, the concentrated U.S. power over the medium allows the U.S. to dominate Internet governance and associated trade policies (Revie, 2012).  It is little wonder that foreign governments are seeking to attenuate U.S. Internet power through the use of the ITU.  In one sense, the U.S. government is seeking to strengthen freedom in authoritarian regimes, while foreign governments are seeking to constrain U.S. Internet hegemony.  In another sense, the U.S. could be thought of as attempting to constrain foreign governments freedom of self-determination through the promotion of liberal ideals.  In any event, the ITU example differs significantly from DCMA and SOPA insofar as the U.S. can be considered a largely unchallenged incumbent, and therefore is not seeking to introduce legislation in either the dimension of freedom or constraint, rather is seeking to avoid international constraints.

Summary

The predominant character of the Internet regulation reviewed in this analysis is oriented towards constraining the interests of individual Internet users or innovators to protect powerful incumbents.  There are other policy options that are oriented towards enabling the rights of society to participate in the networked information economy, such as the right to Internet access, network neutrality rules, or the right to develop municipal wireless networks.  However, the U.S. has legislated none of these rights, although the FCC has implemented some network neutrality rules.  However, those rulings are being challenged in court.

To evaluate the argument of policies that favor constitutive choices that support Internet freedom or regulatory constraints, this author placed the respective policy positions in a SWOT chart to contrast the social benefits of both.  Figure 1 highlights the analysis for regulatory constraints oriented policy options:

Figure 1.  SWOT analysis of regulatory constraints oriented policy options.

Whereas, Figure 2 highlights the analysis for policies that enhance legal freedoms:

Figure 2.  Policy options oriented to additional legal freedoms.

These options are not meant to suggest either-or solutions, rather to contrast the differences in the range of options.  Legislation like DCMA or SOPA do little to encourage innovation, rather they protect the status quo in industries that could benefit from competition and change. Although, regulatory constraints on market and non-market activities could significantly reduce infringing activity and encourage market actors to invest more in creative endeavors.  Moreover, regulatory constraints could improve the economic growth of industries that rely on copyright protection.  Finally, regulatory constraints that limit freedom of expression could place the U.S. on the same moral low ground as more repressive regimes.

In contrast, policies that enhance Internet freedom encourage innovation and advance the cause of technical progress.  While some industries may suffer from ‘creative destruction’, other industries will benefit from increased participation on the Internet.  Moreover, limited regulatory protections could create a more level playing field consistent with free market principles. Most importantly, enhanced freedoms could create a more participatory public sphere enhancing the U.S. democratic experience and commensurately increasing the stature of liberal ideals on the global stage.

III. Policy Position and Recommendation

            The overriding policy goal of Internet regulation and legislation should be to shape the institutional ecology to stimulate economic growth at a macro-level rather than protect any particular industry, while improving access, encouraging participation, and safeguarding individual freedom.

With the basis for a policy position set, this author will define the specific policy proposals, provide support for each, and outline both the benefits and the drawbacks.

Policy Position 1: Revise DCMA

DCMA has many positive elements, including safe harbor provisions for Internet service providers and Internet content providers.  However, the anti-circumvention measure goes too far in attempting to limit technical innovation, suppress legitimate free speech, and provides protection for incumbent industry, that allows them to cling to a business model with decreasing consumer relevance.  For this reason, this author recommends revising DCMA to strike the anti-circumvention measure.

The consequences of such action would be to force the media and entertainment industry to innovate, either by keeping ahead of technology, or developing new business models that reflect changing consumer preferences for content delivery.  Moreover, would-be innovators could advance the state of the art without the fear of criminal penalties because of how their innovation might be used by others.  The drawback of striking the anti-circumvention could be that DeCSS technology could be made available to the public and actual infringement may occur.  However, the media and entertainment industry could adopt the RIAA’s legal tactics and bring suit against those that infringe the most.

Policy Position 2: FCC Ruling to Prevent Intermedia Concentration of Content Providers and Network Providers on the Internet

Media concentration can sometimes be cause for concern, both in the general sense, as well as in the specific instances where Internet service providers acquire content.  In such cases, like with the Comcast acquisition on NBC Universal, there is evidence that the network provider may choose to throttle traffic or guide traffic to their own content, reducing choice and diversity for consumers (Benkler, 2006; Lessig, 2001).  The FCC should largely prevent the media concentration of these types of firms or provide extensive oversight to assure that network providers to no hamper diversity and choice through network management techniques or pricing bundles.  Moreover, prevention is favored over oversight due to high costs and the low efficacy of independent regulatory bodies.  The drawbacks are likely few, given most mergers of this type have typically failed over the long term, AOL/Time Warner being the most notable example.

Policy Position 3: Legalize and Create Tax Incentives for Municipal Broadband

Many municipalities, particularly in rural areas, are seeking to deploy municipality wide broadband wireless networks to stimulate economic growth and attract residents.  These efforts have to date been interpreted as illegal in suits brought by traditional media companies or their proxies (Benkler, 2006).  Municipal broadband efforts can go a long way towards helping to solve the last mile problem, where 10% of the country still does not have access to broadband.  Moreover, broadband can help stimulate economic growth by connecting a community to the larger world, allowing them to take advantage of the strength of weak ties (Granovetter, 1973).  Properly channeled, a broadband network coupled with community investment can reinvigorate communities and stimulate economic growth (Intelligent Community Forum, 2012).  There is little need to protect the domain of telecommunications providers, particularly when there appears to be little interest or profitability on their part to in build the last mile.

Policy Position 4: Prevent International Efforts to Tax National Incoming and Outgoing Traffic    

The U.S. should exert all of its political and economic force to prevent the ratification of draft ITU clauses that allow national governments to tax incoming and outgoing traffic and raise the Internet participation costs for everyone.  First, the idea that Internet content providers should pay national taxes for requests for information from citizens of foreign governments is beyond pale.  The idea would raise the costs incurred by Internet content providers, which would have to be passed along to consumers, irrespective of the jurisdiction where they reside.  Moreover, low barriers to participation is the reason that so many users of the Internet are able to participate and exercise the right of self-determination, despite the lack of economic power.  The Arab Spring is a great example of such phenomenon.  Repressive regimes can use taxation as a tool to assure that few of their citizens can participate in the Internet, eroding international freedom and limiting the power of the Internet to improve human development globally.

These policies will help to restore the balance between freedom and constraint and level the playing field to assure that Internet freedom remains the right of a free society and free peoples the world over.  Moreover, adequate copyright protections remain in place, without stifling innovation.  However, traditional industries will be forced to evolve the Internet, rather than attempt to impede technical and social progress by virtue of their market power.  In addition, these policies can help prevent the potential negative implications of greater media concentration by keeping production and distribution separate and distinct.  Ultimately, these policies may help to keep the costs of participating in the creation and exchange of information, knowledge, and culture low, enabling a more participatory democratic society.  While not comprehensive, these policies can help level the playing field between freedom and constraint by creating the ecological conditions for continued innovation and economic growth from the Internet platform.

References

Band, J. (2012). The SOPA-TPP Nexus PIJIP Research Paper no. 2012-06. Washington D.C.: American University Washington College of Law.

Bauml, J. E. (2011). It’s a mad, mad Internet: Globalization and the challenges presented by Internet censorship. Federal Communications Law Journal, 63(3), 697-732.

Benkler, Y. (2006). The wealth of networks : how social production transforms markets and freedom. New Haven Conn.: Yale University Press.

Currah, A. (2006). Hollywood versus the Internet: the media and entertainment industries in a digital and networked economy. Journall of Economic Geography, 439-486. doi: doi:10.1093/jeg/lbl006

Essers, L. (2012, August 16, 2012). ITU Opens Public Consultation on the Future of Internet Regulation  Retrieved August 31,, 2012, from http://www.pcworld.com/businesscenter/article/260949/itu_opens_public_consultation_on_the_future_of_internet_regulation.html

Goldsmith, J. (2000). Unilaterla regulation of the Internet: A modest defence. European Journal of International Law, 11(1), 135-148.

Granovetter, M. S. (1973). The strength of weak ties. American Journal of Sociology, 78, 1360-1380.

Intelligent Community Forum. (2012, February 26, 2012). Riverside, California USA (2012). Top Seven by Year  Retrieved March 4, 2012, from http://www.intelligentcommunity.org/index.php?src=news&refno=688&category=Community&prid=688

International Telecommunications Union. (2012). World Conference on International Telecommunications: Draft of the Future ITRS. International Telecommunications Union Retrieved from http://www.itu.int/en/wcit-12/Documents/draft-future-itrs-public.pdf.

Lessig, L. (2001). The future of ideas : the fate of the commons in a connected world (1st ed.). New York: Random House.

Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd, No. 545 U.S. 913, 928  (2005).

Pfanner, E. (2012, June 11, 2012). Debunking Rumors of an Internet Takeover  Retrieved August 31, 2012, from http://www.nytimes.com/2012/06/11/technology/debunking-rumors-of-an-internet-takeover.html?pagewanted=all

Revie, R. (2012, July 11, 2012). The Tangled Web of ‘Internet Freedom’  Retrieved August 31,, 2012, from http://www.worldpolicy.org/blog/2012/07/11/tangled-web-internet-freedom

Shafritz, J. M., Russell, E. W., & Borick, C. P. (2011). Introducing public administration (7th ed.). Boston: Longman.

Shirky, C. (Producer). (2009, July 23, 2011). How Social Media Can Make History. Talks. Retrieved from http://www.ted.com/talks/clay_shirky_how_cellphones_twitter_facebook_can_make_history.html

Sparks, S. (2001). Busting the code: The anti-trafficking provision of the digital millenium copyright act and free expression in digital media. International Journal of Communication Law and Policy(6), 1-20.

Tushman, M. L., & Anderson, P. (2004). Managing Strategic Innovation and Change: A Collection of Selected Readings. Oxford: Oxford University Press.

U.S. Copyright Office. (1998). The Digital Millennium Copyright Act of 1998: U.S. Copyright Office Summary.  Washington DC.

U.S. Department of State. (2012, March 15, 2012). Internet Freedom Programs in the Middle East  Retrieved August 31, 2012, from http://www.state.gov/r/pa/prs/ps/2012/03/185904.htm


What Hath God Wrought: Commonality Between the Telegraph and the Internet


Often with the advent of new technology comes speculation regarding the technology’s social, political, and economic effects, both dystopian and utopian.  Such was the case of the telegraph, which caused Briggs and Maverick (1858) to opine:

National health can only be maintained by the free and unobstructed interchange of each with all.  How potent a power, then, is the telegraphic destined to become in the civilization of the world…It is impossible that old prejudices and hostilities should longer exist, while such an instrument has been created for an exchange of thought between all the nations of the earth. (p. 22)

Indeed, their statement could have been made in 2000, rather than 1858.  Of course, similar utopian speculations abound with respect to the Internet.  For example, Shirky (2010) believes that social media will usher in a new era of human creativity and generosity, while Botsman (2010) sees the Internet enabling the rise of collaborative consumption in response to the world’s growing environmental crisis.   In addition, Benkler (2006) describes greater civic engagement in the networked public sphere.  In this sense, the Internet and the telegraph share a similar social response to the technology, as determinists attempt to shape the neo-technological ideologies of their day.  Of course, the Internet, as with the telegraph, will not inevitably alter society in some preordained manner based on the bias of the technology, rather, its social form will be the result of what Starr (2004) describes as ‘constitutive choices’ made today that are based on the foundation of earlier choices.  Therefore, it stands to reason, by understanding the ‘constitutive choices’ of earlier generations regarding the telegraph that this generation can perhaps begin to develop a perspective on upcoming regulatory, commercial, and political choices facing U.S. society.  Through an analysis of the consequences of decisions made during the development of the telegraph, this author finds that government must balance their regulatory efforts to continue to promote Internet industry growth, while protecting the public from commercial interests that would use their dominant market positions to reduce competition through industry consolidation, thereby exerting undue influence over network, and perhaps limiting freedom of expression in the process.

Early Development of the Telegraph

            Prior to the development of the telegraph, information was delivered by U.S. Post Office mail carriers.  Moreover, the U.S. Postal Service only provided service to a fraction of the country and was supplemented by private services such as Wells Fargo and the Pony Express.  Because information was delivered by hand and over enormous distance, news of distant events would arrive much delayed.  The semaphore system, was first developed by the French in 1789 was demonstrably quicker than postal services, however was labor intensive, expensive to construct, and the communication was not private (Holzmann, 1994).  The time delay of the postal service and the inefficiency and lack of privacy of the semaphore system set the stage for the introduction of the telegraph.

While Samuel Morse is popularly credited for the invention of the electric telegraph, others had developed a working telegraph prior to Morse (Mather, 2009; Scherer, 2008).  Rather, “Morse’s merit was to conceive once for all the apparatus by which electrical telegraphy became practical” (Mather, 2009, p. 1).  However, the development of Morse’s invention into a modern telegraph network was built on the foundation of earlier constitutive choices, including the development of a free press, a national Post Office, Congressional funding of schools, and most notably, property rights in the form of patent law (Starr, 2004).  For example, Morse’s invention was dependent on the work of Leonard Gale, an NYU professor that helped him extend signaling distance, through the use of relays (Smithsonian Institute, 2012).  Moreover, Morse patented his invention through the U.S. Department of State’s Patent and Trademark Office, protecting Morse’s ability to share knowledge of his invention and safely develop the technology (Smithsonian Institute, 2012).  Finally, after presenting his invention to the U.S. Congress, the Congress funded the construction of a demonstration line between Washington and Baltimore out of Post Office funds, from which the first message, “What hath God wrought”, was sent (Smithsonian Institute, 2012).  Thus, the development of the telegraph should be credited not only to Samuel Morse, but also to the ‘constitutive choices’ of earlier generations.

Constitutive Choices that Shaped the Development of the Telegraph Industry

            By 1870, a mere 26 years from the transmission of the first message, Western Union owned more than 112, 000 miles of wire and handled more than nine million messages annually (U.S. Census Bureau, 1975).  The remarkable progress of the telegraph industry between 1844 and 1870 is as much a result of the promise of the technology as it is the product of a number of notable constitutive choices that spurred the development of the technology.  Of course, not all of the choices appear to be deliberate.  There is ample evidence that Morse thought the telegraph ought to be an extension of the Post Office (Munro, 1891; Smithsonian Institute, 2012).  Indeed, most European governments ended up nationalizing the telegraph.  However, Morse saw things differently and took his invention and offered to sell the patent to the government for $100,000, but the Postmaster General declined, on the grounds that the proposal “had not satisfied him that under any rate of postage that could be adopted its revenues could be made equal to its expenditures” (Munro, 1891, p. 68).  In addition, it also appears that the U.S. Congress as a whole was somewhat skeptical of investing in Morse’s invention (Munro, 1891; Smithsonian Institute, 2012).  Thus, it appears that the U.S. proclivity to privatize the telegraph, a significant departure from U.S. historical precedent set by the establishment of the Post Office, may have been the result of skepticism rather than a strategic decision.

The decision to allow the telegraph to remain in the domain of the private sector proved to be a boon for economic growth of the nascent industry.  Following the rebuff of the government, patent holders like Morse, sought private capital to erect the needed infrastructure for the telegraph, however, they “had difficulty convincing capitalists of the commercial value of the invention” (Smithsonian Institute, 2012, p. 1).  Most resorted to selling licenses to use the patents, resulting in 50 different companies operating telegraphs by 1851, using a variety of incompatible technologies (Smithsonian Institute, 2012).  This wildcat period for the telegraph industry was paralleled by the introduction of legislation, first by New Jersey in 1845, and eventually by thirty-four states by 1860 (Nonnenmacher, 2001).  The legislation in this period varied state by state, however had common legislative elements and proceeded in two distinct phases, the first being legislation that helped nurture the nascent industry, and the second being legislation that exerted social control of the new technology (Nonnenmacher, 2001).

The earliest telegraph legislation provided right of way for telegraph companies to erect the telegraph poles and wires along public roads, in effect lowering the cost of development (Nonnenmacher, 2001).  In addition, early legislation enacted penalties or made criminal, the damaging of telegraph property (Nonnenmacher, 2001).  Both types of legislation paint a picture of a pro-telegraph, pro-business, legislative environment designed to spur the development of the telegraph.  In describing the legislative environment of the 19th century, Hurst (1956) suggest that the legal order was used “to protect and promote the release of individual creative energy to the greatest extent compatible with the broad sharing of opportunity for such expression” (p. 6).  Companies seeking to exploit the new technology found a willing partner in state legislatures.

However, over time, legislatures also sought to exact a measure of control over the fledgling technology.  In particular, state governments appeared concerned over the growing power and potential undue influence of telegraph companies, and introduced legislation to regulate which messages needed to be accepted and how messages were prioritized for transmission (Nonnenmacher, 2001).  In addition, legislation was also written creating penalties for the unlawful disclosure of the messages (Nonnenmacher, 2001), perhaps resulting from the growing influence of the Associated Press (American Telegraph Magazine, 1861).  These early efforts to exert social control would be only a precursor of legislative efforts to regulate the new medium given the rapid growth and eventual consolidation of telegraph companies.

While the decision to allow the private sector develop the telegraph proved wise from a standpoint of the country’s economic growth, that same decision would have unintended social consequences.  Two early patent holders, Hiram Silbey and Samuel Sheldon, after unsuccessfully attempting to compete with other New York telegraph lines, embarked on a strategy to begin acquiring and consolidating lines and technologies under one company that would eventually become the Western Union Telegraph Company (Smithsonian Institute, 2012), the nation’s first industrial monopoly.  Much of the success of Western Union stems not only from the company’s role as a consolidator, but also from the combined impact of a nationwide rail system, and a nationwide communication system, on U.S businesses and markets.  Yates (1986) describes how the telegraph affected existing forms of economic organization of the period:

In some cases, it favored the formation of large and efficient markets; in others, it favored the emergence of large, integrated firms. By functioning, along with the railroads, to enlarge market areas, the telegraph created the possibility of relatively efficient nationwide markets. (p. 160)

Of course, it followed, that the possibility of efficient nationwide markets attracted capital across a variety of industries to exploit the opportunity.

However, no industry would capitalize on the opportunity quite so well as the Associated Press.  The Associated Press was originally formed to pool the costs of telegraphy, but in short order become a dominant information monopoly.  The combination of a national news service and a national telegraph network, in the form of a two-headed monopoly, made broadcast possible and raised the concomitant concerns of the impact of commercial interests having to great an influence over the public sphere (Blondheim, 2004).  Indeed, lawmakers concerns were justified for a variety of reasons.  First, the AP and Western Union operated as a cartel, through their various commercial agreements; the AP’s contracts with newspapers forced the newspapers to not accept news from other news services, while Western Union’s contract with the AP forced AP to solely use Western Union (Blondheim, 2004).  “And so Associated Press and Western Union effectively created a criticism-proof information system that married content creation with a national network, and in which few competitors could surface” (Laser, 2011, p. 2). The agreements served to assure their joint broadcast network prevented the likelihood of competition.  Second, lawmakers were also concerned that the companies would use their position as the information conduit between businesses and to the public to serve their interests, rather than the public interest (Blondheim, 2004); a situation that became apparent following the ‘stolen election of 1876’, when Senate investigators found that pro-Republican Western Union was funneling information to the Hayes campaign, “while the AP constantly published propaganda supporting the Republican side of the story” (Laser, 2011, p. 1).  As a result of the growing media power of Western Union and the Associated Press, the U.S. Congress attempted a variety of strategies to regulate the industry between 1866 and 1900, introducing 96 bills or resolutions and publishing more than 48 reports, but failed to legislate a regulatory framework over concerns of infringing free speech (Blondheim, 2004).  Where the Congress had failed to find a rationale for the government’s regulation of the press, in 1900, the Supreme Court of Illinois, in a suit between Chicago Inter-Ocean and the AP, found (Blondheim, 2004):

“Associated Press was of vast importance to the public, so that public interest is attached to the dissemination of that news. . . . It has devoted its property to a public use, and has, in effect, granted to the public such an interest in its use that it must submit to be controlled by the public for the common good.

And so began the government regulation of the communications and news industry, despite Constitutional prohibitions to make no law abridging the freedom of the press, their argument instead being that regulatory control was required to protect a free press.

Discussion

             The introduction of the telegraph brought about sweeping changes to U.S. social, economic, and political institutions creating a series of ‘constitutive choices’ that persist well into the 21st century.  The initial choice to allow the private sector to develop the telegraph into a commercially viable technology, commensurate with a favorable regulatory environment that helped to nurture the nascent industry, would set the stage for the creation of a two-headed monopoly over the nation’s information and broadcast capability.

Indeed, the Western Union and Associated Press cartel was an opportunistic response to a new national market for information by capitalist enterprises, that allowed the companies to prevent competition, assure profitability, and generate wealth through the combination of monopoly power and agenda-setting.  The decision by lawmakers and the judiciary to determine the appropriate role for government and business in assuring freedom of expression and a free press was perhaps the most important ‘constitutive choice’ of the era that developed the legal basis for regulating information and communications.

The telegraph could have developed far differently in the United States.  Perhaps a skeptical Congress could have chose not to fund the initial demonstration line, allowing European countries to take the lead in the new industry, a scenario that could have had dire economic and even military consequences, given the telegraphs role in opening markets.  Another potential scenario could have been to place the entire enterprise under the direction of the Post Office, in which case the two-headed monopoly may never have existed.  However, considering the short sightedness of the Postmaster General, it is equally likely that the technology would have taken far longer to reach its full potential, due to the lack of innovation inherent in public administration.  Finally, the attempt by Congress to regulate the industry could have resulted in a public utility model given the similarity of infrastructure requirements in the power distribution and communications industries.  In any event, while there were serious political, economic, and social consequences based on the constitutive choices made by decision-makers of the period, it is equally clear that the development of the telegraph was critical to the political, economic, and social progress of the nation.

Western Union and the Telegraph Today

Telegraph usage peaked in the 1929 with more than 200 million messages sent and began a long, steady, decline in usage, supplanted by the telephone, radio, television, and eventually email and the Internet as the primary source of communication and news (Freierman, 2006).  The final telegram was sent on January 27, 2006, after which Western Union became a pure financial services company, focusing on money transfers (Freierman, 2006), a situation this author find ironic, given the heavy regulatory requirements in that industry.

Historical Perspective on ‘Constitutive Choices’ in the Internet Era

Like the telegraph, the rapid growth of the Internet has introduced a variety of political, economic, and social concerns regarding how, whether, and in what form the government should intervene in regulating the Internet and the communications and media industries.   Advocates of network neutrality wish to assure no government or commercial restrictions of the network, while commercial interests are seeking legislation like the Stop Online Piracy Act to assure the protection of intellectual property that favors traditional business models.  In addition, the communications and media industry continues to rapidly consolidate, not unlike the period preceding the formation of Western Union.  In particular, media and communication companies like Comcast are beginning to vertical integrate merging the content and network, a situation also bearing a striking resemblance to the Western Union/Associated Press cartel.  Finally, the International Telecommunications Union, an arm of the United Nations, is seeking to regulate the Internet.  With so many ‘constitutive choices’ facing the nation, and indeed, the globe, the public can look to the past to a degree to help formulate a perspective on the future.

Indeed, the narrative that describes the development of the telegraph is instructive, insofar as it highlights the delicate balance between private sector creativity and government regulation in the market for information.  The government should favor policies that continue to promote the possibilities afforded by the new technology, including outsourced manufacturing and services, creative destruction of established industry into new industries, like cloud computing or open source, and free trade agreements that favor countries with an information advantage, like the United States; policies that unleash the creative energy of individuals and businesses.

Moreover, the government should seek to regulate the communications, media, and high technology industries in order to prevent the accumulation of too much power or influence into to few companies.  For example, the Internet is dominated by several giant high technology companies including Google, Microsoft, Facebook, and to a lesser extent Yahoo.  These infrastructure companies have become the de facto standard for consumer interfaces to the Internet and as such wield enormous influence in their ability to select, present, and prioritize Internet content.  It would be prudent to assure a level playing field for additional market entrants, and assure that these firms do not unduly influence the political process through their ability to influence content.

Finally, the government needs to consider carefully, whether to participate in an international regulatory regime over the Internet, given the close relationship between communication technologies and freedom of expression identified during the telegraph era.  In addition, the U.S. high technology and computing dominance is a source of economic growth and competitive advantage in the international marketplace worthy of protection from international regulatory requirements.

Conclusion

Upon examination and analysis of the development of the telegraph, a picture emerges that is neither utopian nor dystopian, and yet demonstrates vividly the link between communications technology and national progress.  19th century entrepreneurs, lawmakers, judges, businessmen, and citizens had to deal with the consequences of the first nationwide broadcast network and the ramifications of choices that defined the development of the technology without experience with broadcast networks or mass media.  However, 21st century scholars and lawmakers have a large body of scholarly work that describes the ‘constitutive choices’ made during the development of the telegraph that suggests that government must continue regulatory efforts to promote industry growth, while protecting the public from commercial interests that would use their dominant market positions to reduce competition, exert undue influence over network, and perhaps limit freedom of expression in the process.

References

American Telegraph Magazine. (1861). Chapters of Telegraph History: Furnished by the American Telegraph Magazine. Rochester, NY: Jonn Brooks O’Reilly.

Benkler, Y. (2006). The wealth of networks : how social production transforms markets and freedom. New Haven Conn.: Yale University Press.

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Botsman, R., & Rogers, R. (2010). What’s mine is yours : the rise of collaborative consumption (1st ed.). New York: Harper Business.

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The NBC Olympic Broadcast: A Case Study of a Media Conglomerate


Every four years, athletes from around the world gather in one city to compete in what some consider the greatest sporting event in the world.  According to Nielsen Company (2008), nearly 70% of the world’s population tuned in to watch the 2008 Olympics in Beijing, or more the 4.7 billion sets of eyeballs.  The staggering figures suggest that the Olympics may be more of a media event than a sporting event.  Moreover, without media funding, it is unlikely the Olympics would exist, given that television rights fees make up most of the International Olympic Committee’s revenue (Associated Press, 2008).  In fact, NBC paid more than $2.2 billion, a staggering sum, for the television rights to the 2012 London Olympics (Associated Press, 2008).  Only a large and well-funded media organization can afford to bid on the rights, much less be able to successfully monetize such an event.  While a large media organization is needed to enable events like the Olympics, what is the make up and character of such organizations, how are they successful, and most importantly, what are the implications for the public?  Through the examination of NBC as a case study, this author has noted that greater media concentration has potential negative implications for both audience content and the U.S. political and regulatory processes.

NBC Corporate Background

            The National Broadcasting Company, or NBC, was born from the early days of radio as an offshoot of an AT&T-GE-Westinghouse-RCA collaboration (Benkler, 2006).  In 1986, to avoid the threat of hostile takeover, RCA, the parent company of NBC, was purchased by manufacturing giant, General Electric (Richter, 1985).  In 2011, Comcast Inc. cleared FCC regulatory hurdles and won approval to purchase a 51% controlling interest in NBC Universal from General Electric, despite media watchdog concerns over one corporation’s power to both create and deliver content, an industry first (Reardon, 2011).  With the acquisition of NBC Universal, Comcast has become “a leading provider of entertainment, information and communications products and services” (Comcast Corporation, 2012, p. 1).

The Post-NBC Acquisition Comcast Media Business

   Comcast Corporation is a $55 billion vertically integrated media conglomerate with a market capitalization of more than $92 billion comprised of five operating segments, cable communication, cable television, broadcast television, filmed entertainment, and theme parks (Comcast Corporation, 2012).   The cable communication segment is responsible for 67% of their revenue, being wired directly to more than 50 million homes and “serving 22.3 million video customers, 18.1 million high-speed Internet customers and 9.3 million voice customers” (Comcast Corporation, 2012, p. 3).  Moreover, with the acquisition of NBC Universal, Comcast increased its content assets to more that $14 billion worth of annual revenue spanning cable and broadcast television stations, the Telemundo and NBC broadcast networks, film production, and digital properties like Television Without Pity, iVillage, Daily Candy, Fandango, and perhaps most importantly, online video service Hulu (Comcast Corporation, 2012).  While some have been skeptical of vertical integration strategies following the AOL/Time Warner debacle, Comcast executives have emphasized that the NBC Universal acquisition is not aimed at creating synergy between segments, suggesting rather it simply makes financial and strategic sense for Comcast shareholders (Knowledge@Wharton, 2009).  Given the lack of focus on synergy, what does Comcast hope to gain through becoming a content provider?

Why A Vertical Media Business?

In an era shaped by media convergence, it is no surprise Comcast might wish to be more diversified.  New technologies have reshaped the media industry and forever separated content from delivery, as consumers now expect content anywhere, anytime, on any device (Jenkins, 2004).  In describing what is at stake in the converging media market, Jenkins (2004) suggests that “the way in which those various transitions play themselves out will determine the balance of power within this new media era” (p. 34).   Some have suggested that Comcast’s acquisition of NBC Universal is a hedge against the risk of media convergence, allowing Comcast to avoid being commoditized into a ‘dumb pipe’, or said otherwise, simply a channel among many (Knowledge@Wharton, 2009).

Furthermore, the ownership of digital properties may position Comcast to be successful in converged future.  For example, in addition to the typically lucrative prime time coverage of the 2012 Olympics, NBC also offered live streams of Olympic events, where a only 10 events drew more than a million live streams (Hiestand, 2012).  While the digital advertising revenue was a fraction of the more than $1 billion in prime time advertising, the digital presence help draw viewers to the prime time coverage (Hiestand, 2012).  In addition, given Comcast’s nearly 23% share of broadband (Taylor, 2011), the much of the bandwidth intensive streaming occurred through Comcast’s ‘dumb pipes’, conceivably driving demand for increased bandwidth.  Finally, given the recent and very public Viacom and DirecTv programming spat over content costs, it is clear that Comcast may be insulated from the impact of rising content prices for a significant portion of their distributed content, given their ownership stake in NBC.  While there appear to be clear benefits to Comcast, critics worry over the implications of media concentration for society.

Implications of Vertical Media Concentration

            For instance, McQuail (2010) suggests policy issues arising from media concentration include the affect on pricing and content.  While there does not appear to be evidence of rising prices for Comcast cable or broadband, there does appear to be a conflict of interest between Comcast’s television and film production and their digital properties.  For example, both Fandango and Television Without Pity are digital properties that influence audiences by providing reviews, criticism, and content for film and television content respectively.  A cursory analysis of content by this author of content presented on the Television Without Pity web site, found that content regarding the television shows American Idol, a Fox property, and The Voice, a competing Comcast property, were invariably favorable towards The Voice.  Perhaps The Voice is simply a better show, or perhaps there is ownership influence over the content.  McQuail (2010) warns that independence from owners or outside political or economic interests is a structural condition for effective media freedom.  While the fate of the free world may not hang in the balance because of a review of American Idol, there are additional implications of Comcast’s growing concentration of media power.

Indeed, because media freedom requires independence from political and economic interests, limits to media concentration are important (McQuail, 2010).  With Comcast’s acquisition of NBC Universal, and $55 billion in annual revenue, Comcast has become one of the largest media companies in the world with important political and economic interests and the influence to affect their interests.  For example, Comcast spent more than $20 million in 2011, and another $8.5 million in the first half of 2012 on lobbying, putting them among the top ten largest spenders, where they lobbied ‘net neutrality’ legislation, FCC programming issues, and their acquisition of NBC Universal (OpenSecrets.org, 2012).  In addition, Comcast is a member of the American Legislative Exchange Council, a Republican-backed bill mill that favors free markets and limited government (sourcewatch.org, 2012).  Comcast sits on ALEC’s Communication and Technology Task Force, helping Republican legislatures draft model bills on issues like a.l.a. carte cable pricing, cable video franchising, and municipal broadband (ALEC, 2012).  Of course, much of the draft legislation is favorable to Comcast’s business interests.  For example, ALEC’s position on efforts by municipalities to offer broadband is to put safeguards into place to protect private providers, and they are drafting model bills in support of their position to be available to legislator members of ALEC, should they be needed (ALEC, 2012).  It is clear that Comcast is using their market dominance and profits to affect the regulatory landscape and promote their continued growth.  The implication is fairly straightforward; massive media conglomerates are able to use their considerable economic and market power to exert influence on both the political and regulatory process, with the potential for negative consequences for consumers.

Conclusion

            As media events typified by the Olympic continue to grow in size, complexity, and audience share, only the world’s largest media conglomerates are positioned to effectively fund and deliver these events to a global audience.  However, as the Comcast example shows, there are significant societal implications of continued media concentration.  Specifically, greater media concentration appears to have potentially negative implications for society that include greater influence over both content, and national political and regulatory processes.

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