The Federal Communications Commission (FCC) made a power grab to control the Internet and there is a raging debate on both sides.  Rather than take a position to rollback the FCC action or let it stand, I offer a third alternative.  Shutdown the FCC.

The FCC should follow its sister agencies, the Interstate Commerce Commission (ICC) and the Civil Aeronautics Board (CAB) into the dustbin of history.  The very technology it is trying to regulate is, or perhaps has, made it irrelevant.

History

Regulation of telecommunications in the U.S. started with the Radio Act of 1912.  This was in direct response to the sinking of the Titanic, based on a lack of distribution of coherent radio signals along the east coast of the United States, preventing the ship’s distress signals from reaching the maritime safety officials.  It was through this act that Congress seized control of the electromagnetic spectrum for the first time.

The Communication Act of 1934 created the FCC.  The FCC, since then, has controlled the radio spectrum, television, telephones, cable, satellite and microwave communications, wireless communications, digital broadcasting and personal communications systems.  It also gave us the Fairness Doctrine, the Corporation for Public Broadcasting, and National Public Radio (NPR).  But the technology has advanced at such an incredible pace, this is an area where the free market is ready to show its strength over government regulation.

Technology

The key to a successful free market is competition and a free flow of information.  Of the distinct technologies above, notice how they have changed and increased competition.  I spent most of my technology career as a witness to these changes working in voice and data communications.  Telephone is nothing like it was in 1934.  The old circuit switched telephone network has been collapsed onto the data network.  You no longer have voice and data.  Now you have voice as data.

In the internet world, what moves around are data packets.  The data packets consist of a header and a payload.  As analogy think of a piece of mail.  What is inside the envelope is the payload.  What is written on the envelope is the header.  The header basically includes some address information and some information about options on how to handle the packet, or the envelope to continue our post office analogy.  Today, inside the envelope can be part of: an e-mail, a voice conversation, a web page, video, a data file, virtually anything you can digitize.  The header contains information on how to get it from one end of the network to the other.

The “Reason” for the FCC’s Action

The FCC has perceived that it is possible for a large company to exert power over smaller competitors or customers, to gain an advantage.  Therefore we need the government to be ready to step in and stop it if it happens or put rules in place to prevent it from happening.  They call this Net Neutrality.  This is a solution in search of a problem.  If we have learned anything from the 2008 financial disaster, it is the concept of crony capitalism, where the government joins with a few large corporations and cuts deals to cement and protect the dominance of the big boys.  It happened with the ICC and CAB; what makes us think it won’t happen here?  What we want is real capitalism, unfettered.

The players who make up the Internet tend not to have any interest in content.  One reason is that it takes time and computing power to “open the envelope and look inside” to determine what the content is and then make a decision what to do with it.  The second reason is that they want to move the data across their network as fast as possible and to do so, they want to spend as little time as possible reading the packet before moving it on.  To use our postal analogy, if they can look only at the Zip code to decide how to handle it that would be better than reading the entire address; if they can look only at the five digit Zip code rather than nine digits, that would be better; if they can look at only the first or second digit of the Zip code to make the routing decision, better yet.  The less time a packet is held to examine it, the less capital has to be invested in the infrastructure to move it and make up for lost time.

Competition

Back when the Communications act of 1934 was passed there was not a lot of competition, although there were a lot of individual providers they seemed to have their own niches, like radio stations.  The competition was for the airwaves.  But when you look at it today there is a lot of competition and more coming.  For example, I have my phone service, television service and Internet service all through my cable company.  It seems like once a week I get a solicitation from the local phone company offering to run fiber optics to my house and provide phone service, television and internet to replace my cable company.  Everyone in my house has an iPhone and when a call comes into the house phone we generally ignore it, as it is probably a solicitation.  If it’s important we’ll get a message and call back.  We have even considered eliminating the house phone altogether.  The next generation of wireless, 4G, is starting to roll out with a significant increase in bandwidth and that might be the death knell to wires to the house.

My cable company offers three levels of internet service.  The basic service is $29.95 per month and it provides 15 Mbps downstream and 2 Mbps upstream.  This is fine for my needs.  If not, for another $9.95 per month I can get 30 Mbps downstream and 5 Mbps upstream.  Need more?  For $55 per month over the basic, I can get 101 Mbps downstream and 15 Mbps upstream.  For the internet, all that really matters is bandwidth.  Everything else can be provided at the endpoints.  It should be like water or electricity.  It shouldn’t matter what I plan to use the water or electricity for, just get me as much as I need when I need it.

Regulation vs. Free Markets

An example that actually happened concerns Comcast and a product called BitTorrent.  BitTorrent is a peer-to-peer file sharing service.  Comcast is a cable based provider designed for fast downloads and slower uploads similar to the services provided by my cable company I mentioned above.  Some people use BitTorrent to share movies and music and use both the downstream and upstream equally.  This caused congestion problems for Comcast because the downstream and upstream had different capacities.   Comcast dealt with this during times of congestion by sending a signal to the BitTorrent service telling it to drop the connection.  This process not only affected the heavy file sharing users, but also affected other BitTorrent customers.  This was quickly picked up by the media.  Comcast couldn’t explain itself out of the jam it created.  Verizon jumped in and offered Comcast’s customers alternative service with more bandwidth if they switched over.  At the same time, tech wizards were figuring out ways to avoid the “hang up” message Comcast had been sending out.

Comcast backed away from its policy, negotiated an arrangement with BitTorrent to help make BitTorrent more efficient and Comcast promised to implement a traffic shaping regime by the end of 2008.  “By the time the FCC released a ruling on Comcast’s behavior in July, the issue had already been rendered a moot point by technological and market developments.”  To paraphrase a popular saying, “The Free Market will be half way around the world before the FCC gets its boots on.”

A Fond Farewell

With voice merging into data, with cable and telephone companies competing for customers, with wireless gaining ground on land lines in terms of speed and satellite adding to the mix, there is plenty of competition to keep each provider on its toes.  It is standard practice on the business side to connect to two or more Internet Service Providers (ISP).  The competition is there.  The other piece of the free market puzzle is to make sure that information about what is going on and who is providing what flows freely and the need for a government overseer goes away. News and information travels freely and very fast.

No matter what problem occurs, I have more faith in a Silicon Valley tech head to figure it out than a Harvard lawyer at the FCC.  In addition, the tech head can formulate a solution, test it, run a beta trial and roll it out before the FCC has figured out who to call as expert witnesses.  The Internet has provided tremendous innovation, throwing cold regulatory water on it is a very bad idea.

On the more sinister side of it we have the likes of Al Sharpton trying to get the FCC to start censoring Rush Limbaugh.  The free market laughed at what liberal Air America had to offer and so the progressives want the government to impose what they are incapable of achieving through free speech.  Also any expansion of government power is likely to lead to crony capitalism.  The progressives will tell you all day long they are doing it to protect the little guy, but in the end the fat cats, give boatloads of money to the politicians, then carve up the pie and the little guy either gets the bill or goes out of business.

To enjoy the riches of technological innovation that benefits us all, we should stand back and let the free market work its magic.  To our friends at the FCC, thank you for your service, your country is grateful to you.  Don’t forget to turn out the lights on your way out.

That’s my opinion; I’d like to know yours.  Please comment below.

The Obama Administration probably wishes they didn’t spend $18 million to build a website that is making a mockery of their vaunted stimulus package that if not passed might result in an economic calamity from which we might never recover.  Well, here is a random sampling of six beneficiaries of stimulus money:

• Maine — Fish River Rural Health: $491,222. Jobs created — zero
• New Jersey — Southern Regional High School Board of Education: $119,622. Jobs created — zero
• Michigan — West Branch Rose City Area School District: $879,258. Jobs created — zero
• Georgia — Georgia Crisis Family Center: $16,425.  Jobs created — zero
• Minnesota — Regents of the University of Minnesota: $294,200.  Jobs created — zero
• Texas — Port Aransas Independent School District: $143,241. Jobs created — zero

Enough already, I think you get the picture.  Lest you think my sampling was biased you  can play along.  Go to the website, pick a dot at random and see for yourself.  The media seem to be starting to wake up and do their job.  ABC News reported on data from non-existent Congressional Districts.  The New York Times reported on a $1,000 grant that created 50 jobs and upon further investigation found out the $1,000 went to purchase a lawn mower.  But don’t worry, President Obama put that pit bull Joe Biden in charge of making sure the money was spent carefully.  President Obama: \”Nobody Messes with Joe\”  Joe Biden, call your office.

We are on an express train to financial ruin.  This is not just a financial problem but a national security problem as well.  We won the Cold War, not with weapons, but with our economy.  President Reagan ramped up our military and the teetering Soviet economy could not keep up and communism collapsed.  China is becoming more capitalist every day as we chase the ghost of Karl Marx.  I ask a simple question, “Do you trust this administration to spend your tax dollars wisely?”  Do you believe any administration, Republican, Democrat, Independent, can effectively manage the federal government as it exists today? 

A phrase we often heard in the midst of the financial crisis as justification for bailouts was “too big to fail.”  One response to that was “make them smaller.”  If the federal government is too big to manage and is growing without bound, then we, who are the government of the people, must make the government smaller.  It is a fundamental truth of government that programs once started do not end, they just find other things to do.  Here is a case in point.

When I worked for one of the phone company spin offs after the break up of AT&T, I came across a regulatory agency called the Rural Electrification Administration.  Strange I thought, most of America has electricity, and I am not working for the electric company.  It turns out, that agency was created to help bring electricity to rural America.  Okay, that sounds like a good idea.  However, once its mission was completed, instead of going out of business, it found a new mission: bringing phone service to rural America, and it will go on and on.  One of the key problems is how the mission is defined.  In this example, as long as one farm doesn’t have electricity, the agency will still have a reason to exist.  As long as a log cabin in the woods doesn’t have a phone land line, the agency must soldier on.  As any economist will tell you, the cost of serving each additional rural property, will eventually skyrocket.

If we were to take these functions and drive them down to the state and local level, eventually someone will stand up and say, “We’re done,  it’s not worth the increase in taxes to prolong the life of this agency.”  But ensconced in Washington, it costs more to fight it than let it go on.  But we have reached a tipping point where if we don’t cut the beast down to size, the beast will have us for dinner.  Chinese anyone?

“marked by or involving cooperation, agreement, and compromise between two major political parties” — Miriam Webster Dictionary

The talk about bipartisanship and the accusations about a lack of bipartisanship are flying back and forth with such intensity, who could blame the casual observer for throwing up their hands and wishing a pox upon both houses?

President Obama and Bipartisanship

I believe that President Obama is sincere in his desire for bipartisanship.  His willingness to meet with and listen to conservative columnists, and Republicans is indicative of his desire to change the tone in Washington.  On the stimulus bill, I think he just painted himself into a corner by letting Nancy Pelosi write the bill while he held those meetings.  Listening to the other side is a start, but it falls short of the definition.  It remains to be seen if President Obama recognizes where this approach fell short or if it really is just window dressing.

Democratic Leadership and Bipartisanship

The Democratic Leadership has a very different view of bipartisanship.  Their view is, “we stake out a position and you (Republicans) agree with it and that’s bipartisanship.”  If they don’t agree, they are rabid partisans, doing it strictly for future political gain.  But if you look at the definition of bipartisanship above, the Democratic Leadership is just not interested.  The stimulus bill was put together solely by the Democrats and when asked by a reporter if the bill was bipartisan Nancy Pelosi responded, “That depends on how the Republicans vote.”  That’s pretty much it in a nutshell.

When President Bush came into office, he brought with him his experience in Texas where he worked very successfully with the Democrats in the legislature.  However, the Democrats in Congress were so angry with the outcome of the election in 2000 that they never gave him a chance, voting against anything he proposed.

Republicans and Bipartisanship

The Republican leadership has expressed their appreciation to President Obama’s efforts to reach across the aisle.  However, as genuine as the gesture was they were still pretty much excluded from the legislative process.  They fully understand that elections have consequences, but they want to be heard, they want to offer alternatives, they want the opportunity to persuade.  If denied that by the Democratic Leadership, they will take their case directly to the American people and in 2010 get the public’s decision.

Is Bipartisanship Possible?

Is there such a divide that bipartisanship is just not possible?  Former Speaker of the House Newt Gingrich is trying to tackle that issue through a non-profit organization called American Solutions.  That organization polled Republicans, Democrats and Independents to find areas of widespread agreement.  The key to bipartisanship is to first find areas where you agree. Then look for areas where you differ but not so significantly that there is not room for negotiation and compromise.  Lastly, is to recognize those areas where the difference is so wide that you simply have to agree to disagree.  This is a list of ten initiatives that a majority of Republicans, Democrats, and Independents agree on.

1. English should be the official language of government. (87 to 11)
2. We want our elected leaders in Washington to focus on increasing the energy supplies of the United States and lowering the costs of gasoline and electricity. (71 to 18)
3. The option of a single rate system should give taxpayers the convenience of filing their taxes with just a single sheet of paper. (82 to 15)
4. Every worker should continue to have the right to a federally supervised secret ballot election when deciding whether to organize a union. (79 to 12)
5. Keeping the reference to “One Nation Under God” in the Pledge of Allegiance is very important. (88 to 11)
6. Congress should make it a crime to advocate acts of terrorism, violent conduct, or the killing of innocent people in the United States. (83 to 12)
7. We should dramatically increase our investment in math and science education. (91 to 8 )
8. We believe that if research indicates we could build clean coal plants in the United States with no carbon emissions, it would be important to build such plants as rapidly as possible. (71 to 8 )
9. Illegal immigrants who commit felonies should be deported. (88 to 10)
10. We support giving a large financial prize to the first company or individual who invents a new, safer way to dispose of nuclear waste products. (79 to 16)

As you can see by the percentages, the support for each of these ten measures is rather substantial.  Bipartisanship on any one of these issues should be very easy to obtain.  You just have to ask yourselves: how many of these are supported by the Democratic Leadership or President Obama?  You can see that a number of them are not only not supported, but adamantly opposed.

So what is your view of bipartisanship?  Is it where you surrender your principles and fall in line with your opponent?  Or is it trying to find common ground among all Americans and not pushing a partisan agenda where government runs the smallest aspect of your life?

He looked nervous.  He curled up the corners of his two hole cards, aces.  He eased them back down on the table and scanned the other players.  Nancy Pelosi had a stack of chips totaling $25 billion and he wanted all of them.  No, he needed all of them.  Desperately.  The other three, all Japanese, sat expressionless behind their dark glasses.  At every hand all they said was “Call”.   No raise.  No drama.  Very cool.  Very dangerous.

He looks again at the four cards on the table.  Nothing to help him there.  He needs another ace. He needs the ace he calls the Volt. Pelosi turns to him. “So, what’s your plan?”  He swallows hard, trying hard not to show it and says, “All in,” and pushes his remaining chips into the center of the table.  The dealer burns another card and then peels off the “river.” And we’ll be right back for the final outcome of tonight’s game.

GM on the Precipice

That must be how Rick Wagoner feels.  It seems he’s betting everything on the Chevy Volt. If he draws that ace, he’s a hero.  If not, he’s history.  So what are his chances?

If that’s all he’s got, they’re pretty long odds.  The Volt is not due to hit the showroom floor until 2010, and at a whopping $40,000 per copy.  Not a bad price for a Cadillac, but for an untested electric car with a 40 mile range?  That’s a tough sell.  Even at that, the $40,000 might not be profitable, just break even.  But, there will be a tax credit of $7,500 to help take the sting out of it.

Without Bankruptcy

Without a major revamping of their cost structure that can probably only be achieved through the bankruptcy courts, GM is still carrying $2,000 per vehicle in labor costs that its competition doesn’t have.  And what about those three players to his right in the dark glasses, do you think they are standing pat?  Although very low key, it is reported that Toyota, Nissan and Mitsubishi are all planning to introduce electric cars in the same time frame.  If they do that and they also have the $2,000 per vehicle edge, it will be very bad for GM and any bailout will go down the drain.

The other factor is the way the Japanese do strategic planning.  They typically do not look to just the next quarter.  They are known for developing 50 and 100 year plans.  That is not a typo.  So if they introduce a vehicle they will do it for the long haul.  Believe it or not the Toyota Prius has been on the market for seven years already.  The Japanese are not afraid to introduce a pretty good model and then continuously improve it and if they believe the direction is right, they are willing to wait for the results.  The Big Three, on the other hand tend to have a shorter planning horizon.  Witness Ford’s announcement that it intended to build 250,000 hybrids and then did a market survey when gasoline was about $2.30 per gallon, and decided that they should not go forward.  When gas prices took off they were caught flatfooted while Toyota was selling Priuses at a premium and they couldn’t make them fast enough.

New Administration, New Congress, New Energy Policy

Then there is the energy issue.  Putting more and more electric cars on the road is a good idea and a way toward energy independence.  However, the new administration and the incoming Democratic Congress want to kill the coal industry.  Coal currently generates 49% of our country’s electricity and when it comes to coal reserves, the U.S. is to coal what Saudi Arabia is to oil.  But the new incoming chairman of the House Energy committee, Henry Waxman of Beverly Hills, California, is more determined than ever to implement a green agenda and kill coal.

So what do you replace the coal with?  Oil? Gas? Nuclear?  On the campaign trail, I heard Barack Obama and Joe Biden mumble some things about nuclear being okay, but it was hardly a ringing endorsement.  Do they think for a minute that wind or solar are anywhere near replacing coal?  So, they actually plan to reduce our electric generating capacity by 49% and then not only replace it but grow it to be able to handle all these electric cars.  Where’s that plan?

If you don’t have enough electricity, you can’t charge up your electric cars.  If good old supply and demand does its usual thing, the price of electricity should skyrocket and I can tell you first hand that in New York, it’s not cheap right now.  If electricity skyrockets, whatever manufacturing is left in New York and other rust belt areas will be pulling up stakes left and right and heading south.  If that population follows the jobs, does that mean more votes for the red states and a shift in Congressional seats as well?

The Democrats better re-think that plan if they want to stay in power.