December 20th, 2010
December 20th, 2010
Wall Street Journal
Tomorrow morning the Federal Communications Commission (FCC) will mark the winter solstice by taking an unprecedented step to expand government's reach into the Internet by attempting to regulate its inner workings. In doing so, the agency will circumvent Congress and disregard a recent court ruling.
How did the FCC get here?
For years, proponents of so-called "net neutrality" have been calling for strong regulation of broadband "on-ramps" to the Internet, like those provided by your local cable or phone companies. Rules are needed, the argument goes, to ensure that the Internet remains open and free, and to discourage broadband providers from thwarting consumer demand. That sounds good if you say it fast.
Nothing is broken and needs fixing, however. The Internet has been open and freedom-enhancing since it was spun off from a government research project in the early 1990s. Its nature as a diffuse and dynamic global network of networks defies top-down authority. Ample laws to protect consumers already exist. Furthermore, the Obama Justice Department and the European Commission both decided this year that net-neutrality regulation was unnecessary and might deter investment in next-generation Internet technology and infrastructure.
Analysts and broadband companies of all sizes have told the FCC that new rules are likely to have the perverse effect of inhibiting capital investment, deterring innovation, raising operating costs, and ultimately increasing consumer prices. Others maintain that the new rules will kill jobs. By moving forward with Internet rules anyway, the FCC is not living up to its promise of being "data driven" in its pursuit of mandates—i.e., listening to the needs of the market.
It wasn't long ago that bipartisan and international consensus centered on insulating the Internet from regulation. This policy was a bright hallmark of the Clinton administration, which oversaw the Internet's privatization. Over time, however, the call for more Internet regulation became imbedded into a 2008 presidential campaign promise by then-Sen. Barack Obama. So here we are.
Last year, FCC Chairman Julius Genachowski started to fulfill this promise by proposing rules using a legal theory from an earlier commission decision (from which I had dissented in 2008) that was under court review. So confident were they in their case, FCC lawyers told the federal court of appeals in Washington, D.C., that their theory gave the agency the authority to regulate broadband rates, even though Congress has never given the FCC the power to regulate the Internet. FCC leaders seemed caught off guard by the extent of the court's April 6 rebuke of the commission's regulatory overreach.
In May, the FCC leadership floated the idea of deeming complex and dynamic Internet services equivalent to old-fashioned monopoly phone services, thereby triggering price-and-terms regulations that originated in the 1880s. The announcement produced what has become a rare event in Washington: A large, bipartisan majority of Congress agreeing on something. More than 300 members of Congress, including 86 Democrats, contacted the FCC to implore it to stop pursuing Internet regulation and to defer to Capitol Hill.
Facing a powerful congressional backlash, the FCC temporarily changed tack and convened negotiations over the summer with a select group of industry representatives and proponents of Internet regulation. Curiously, the commission abruptly dissolved the talks after Google and Verizon, former Internet-policy rivals, announced their own side agreement for a legislative blueprint. Yes, the effort to reach consensus was derailed by . . . consensus.
After a long August silence, it appeared that the FCC would defer to Congress after all. Agency officials began working with House Energy and Commerce Committee Chairman Henry Waxman on a draft bill codifying network management rules. No Republican members endorsed the measure. Later, proponents abandoned the congressional effort to regulate the Net.
Still feeling quixotic pressure to fight an imaginary problem, the FCC leadership this fall pushed a small group of hand-picked industry players toward a "choice" between a bad option (broad regulation already struck down in April by the D.C. federal appeals court) or a worse option (phone monopoly-style regulation). Experiencing more coercion than consensus or compromise, a smaller industry group on Dec. 1 gave qualified support for the bad option. The FCC's action will spark a billable-hours bonanza as lawyers litigate the meaning of "reasonable" network management for years to come. How's that for regulatory certainty?
To date, the FCC hasn't ruled out increasing its power further by using the phone monopoly laws, directly or indirectly regulating rates someday, or expanding its reach deeper into mobile broadband services. The most expansive regulatory regimes frequently started out modest and innocuous before incrementally growing into heavy-handed behemoths.
On this winter solstice, we will witness jaw-dropping interventionist chutzpah as the FCC bypasses branches of our government in the dogged pursuit of needless and harmful regulation. The darkest day of the year may end up marking the beginning of a long winter's night for Internet freedom.
Mr. McDowell is a Republican commissioner of the Federal Communications Commission.
December 20th, 2010
Call it the year of the stealth bankruptcy.
After two years of colossal corporate meltdowns--the liquidations of Lehman Brothers and Circuit City, the General Motors and Chrysler bankruptcies, the near failures of AIG and Citigroup--2010 seemed like a year of convalescence. The default rate on corporate debt, according to Moody's, plummeted from the peak levels of 2009 and headed back toward pre-recession levels. The biggest bankruptcy of the year was a company most Americans have never heard of--bond insurer Ambac--and investors saw it coming so far in advance that the markets barely reacted. And overall corporate profits reached stratospheric levels, signaling boom times for companies that endured the Great Recession and lived to tell the tale.
Yet even though it officially ended in 2009, the recession cast a long shadow over 2010, claiming many companies that took on too much debt in earlier years and simply couldn't generate enough cash flow to pay their bills in today's frugal economy. Many of those companies were able to stay in business as they worked through bankruptcy and restructured their debts, with customers barely noticing. That's a sign that lending is returning to normal and banks are willing to take more risks on companies with good prospects. A few brands, particularly in the auto industry, disappeared simply because their relevance faded. And some corporate flops occurred as newer, more aggressive companies displaced older, outdated ones--a constant in a capitalist economy. Here are the biggest corporate casualties of 2010:
A&P. This grocery chain, with about 400 East Coast outlets, struggled during the recession, and also took on lots of debt when it acquired competitor Pathmark in 2007. The financial strains became unbearable, forcing A&P to declare bankruptcy in December. The company plans to keep operating its stores, which include the Super Fresh, Waldbaum, and Food Emporium chains, while it restructures. It may also merge with another retailer, to broaden its scale and appeal.
Affiliated Media. Newspapers used to be nicely profitable--until the Internet became a ubiquitous source of free news, rupturing a decades-old business model. When this company, which publishes the San Jose Mercury News, Denver Post, and about 50 other newspapers, declared bankruptcy in January, it followed at least a dozen other newspaper publishers into Chapter 11. The good news is that Affiliated emerged from bankruptcy less than two months after filing, with a lot less debt, some new owners, and its papers intact.
Ambac. The main subsidiary of this bond insurer sold protection on mortgage-backed securities, which became the "toxic assets" that helped trigger the financial panic of 2008. Ambac has been trying to restructure its business since 2007, when the housing bust began to intensify, by expanding its more conservative municipal-bond business. But it finally succumbed to bankruptcy in November 2010--the biggest filing of the year, according to BankruptcyData.com. The firm is also dickering with the IRS over $700 million in tax refunds from prior years that it may not deserve.
American Media. Here's a tabloid shocker--dirt doesn't sell the way it used to. That's because the type of tawdry gossip peddled by Star and National Enquirer, this company's franchise publications, is available faster and cheaper on the Web, at sites like TMZ and Gawker. Other American Media titles, like Shape, Men's Fitness, and Natural Health, are also struggling to hold onto advertising revenue as publishing migrates to the Web. By November 2010, American Media had a debt load seven times the value of the company, which drove it into bankruptcy. It hopes to emerge soon, with less debt and most of its businesses intact.
Blockbuster. This movie-rental chain failed to notice the future happening all around it. While Blockbuster was doubling down on retail stores and dunning its customers with loathsome late fees, Netflix wooed millions of movie fans by mailing them DVDs and offering streaming video over the Web, and Redbox set up convenient kiosks offering overnight movies for a buck. No wonder Blockbuster declared bankruptcy in September. It hopes to emerge from bankruptcy and fight back, but the company is now way behind.
Hummer. Its audacious off-roaders captured the fin de siecle, faux-rugged ethos of the early 2000s. But Hummer sales tanked during the 2008 oil-price spike, and Hummers ended up on the wrong side of the "new frugality" that followed the Great Recession. The end came after parent firm General Motors declared bankruptcy in 2009, and thinned its divisions from eight to four as part of its restructuring. For a while it looked as if a Chinese company would buy Hummer from GM, but when that deal fell through, Hummer was put out to pasture.
Innkeepers USA. This commercial-property company--which owns about 70 hotels that operate under brands like Residence Inn, Hampton Inn, Summerfield Suites, Hilton, and Hyatt--followed a familiar path toward bankruptcy. A private-equity firm bought the company in 2007, near the peak of the real-estate bubble, taking on a lot of debt to finance the purchase. As property values fell and business dried up during the recession, the company came up short on the cash flow needed to pay down its loans. It's now working its way through a "prepackaged" bankruptcy that has left most of its properties operating normally.
Jennifer Convertibles. Furniture sales sank during the recession, and this sofabed seller closed about 50 stores to stanch the red ink. But that wasn't enough to prevent a bankruptcy filing in July. The company has been able to keep more than 300 stores open while it restructures, half of them under its Ashley Furniture brand. A Chinese firm that's one of Jennifer's biggest suppliers will end up owning a big chunk of the company.
Loehmann's. Retail sales began a tepid recovery in 2010, but it was too late for this chain that sells discount designer clothing. The November bankruptcy filing was the second for Loehmann's, which also declared Chapter 11 in 1999 and emerged a year later. A Dubai-based investing firm bought Loehmann's in 2006, taking on more debt than it could manage as sales tumbled during the recession. Loehmann's hopes to write off debt and be solvent once again in 2011, with most of its 46 stores operating as normal.
Mesa Air. Airline bankruptcies have become so routine that few fliers noticed when this small carrier--which operates regional "express" flights for United, US Airways, and Delta--filed Chapter 11 last January. Mesa described the filing as a "voluntary" action that would allow it to rapidly streamline while continuing normal operations, and so far the airline has slashed its fleet from about 180 aircraft to fewer than 80, while still serving 130 cities. US Airways could emerge as a part owner of the company.
Metro-Goldwyn-Mayer. This studio's archives include classics like The Wizard of Oz, Dr. Zhivago, and Rocky, but a dearth of recent hits--plus debt piled on when a group of private investors bought the studio in 2005--led to a much-anticipated bankruptcy filing in November. MGM should be back on its feet by early 2011, with a much lower debt load and new owners eager to move forward on big projects like two new Hobbit films and the 23rd James Bond flick.
Mercury. Parent company Ford Motor has turned itself around and become nicely profitable, but it's not bringing the middling Mercury brand along with it. The aging Mercury got sandwiched between the mainstream Ford lineup and the Lincoln luxury division, with Ford deciding two nameplates was enough. Since most Mercury models were glorified Fords anyway, few car buffs will miss it.
Movie Gallery. Haven't we seen this movie before? Movie Gallery, which ran Hollywood Video and was once the second-largest video-rental chain in America, first filed for Chapter 11 protection in 2008, then filed again in February 2010 when its restructuring plan failed to gain traction. The firm tried to keep some stores open, but eventually went to black and closed all of its 2,400 U.S. outlets, cashiering 19,000 workers.
Newsweek. The Washington Post, which had long owned Newsweek--and lost millions on it in recent years--sold the venerable title for one dollar to 91-year-old billionaire Sidney Harman in August. Since the magazine had millions in debt, the deal seemed like a sympathy purchase that would merely delay Newsweek's demise. Then Newsweek merged with The Daily Beast, the website run by publishing titan Tina Brown, creating a strange amalgam of two money-losing properties that might, um, lose less money together. Critics will spend 2011 either snickering over synergy that's never going to happen, or eating their words.
Oriental Trading Company. A little bankruptcy. No big deal. That's the message this crafts, novelties, and party-supply retailer conveyed after declaring bankruptcy in August, saying on its website that it plans to continue with "business as usual" and that writing off more than $400 million in debt "will enable us to pursue our growth strategy more effectively." The company, owned by private-equity firms, is shifting more of its business from catalogs to its website as it tries to shed costs and reach more consumers.
Penton Media. Trade publications like Air Transport World, Nation's Restaurant News, and Farm Press face the same challenge as consumer periodicals: staying profitable while ad revenue migrates from traditional media to the digital world. With a stable of such titles, business publisher Penton battled a steep decline in sales that led to bankruptcy in early 2010. But Penton emerged in less than a month, and is now revamping its websites and focusing on mobile apps and other digital initiatives.
Pontiac. It was once one of GM's marquis divisions, with must-have muscle cars like the GTO and the Trans Am. But GM could never revive Pontiac's faded glory, and when the automaker was forced to shrink following its 2009 bankruptcy, Pontiac got the boot. The last dealerships closed in October. Saturn, a newer GM division, closed as well.
Swoozie's. This Georgia-based gift and stationery chain expanded into the Northeast just as the recession was gathering steam, and never reached sales levels that would have made it profitable. The company declared bankruptcy in March. A private firm bought it out of bankruptcy and downsized its footprint. The company now runs seven stores, down from a peak of 43.
Uno Restaurant Holdings. The debt was deeper than the pizza, and when the recession cut into cash flow, the parent firm of Pizzeria Uno had no choice but to file bankruptcy. It emerged in July, after shedding debt and closing about 25 stores. The company still operates 160 restaurants in 24 states, plus a few overseas locations.
Urban Brands. The parent firm of the Ashley Stewart brand, which caters to young and middle-aged plus-size women, began to struggle in 2007, and finally declared bankruptcy in September 2010. Shoppers may barely notice, however, since its 210 stores are operating normally while the company fixes its finances.
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December 19th, 2010
Federal Communications Commission Chairman Julius Genachowski is making progress in narrowing gaps with his two Democratic colleagues over his controversial plan to adopt sweeping new rules for the Internet, National Journal has learned. But with the talks very fluid, and differences remaining, there's still a possibility that the regulatory initiative could be pulled at the last minute from the agenda of Tuesday's commission meeting.
Genachowski needs the support of Michael Copps and Mignon Clyburn to approve his "network neutrality" proposal, which would create enforceable rules designed to protect the openness that is the Internet's hallmark. While both Copps and Clyburn are net neutrality advocates, they've complained that the chairman's framework cuts too many breaks for major telecommunications and cable providers of broadband. The two Republicans on the five-member commission remain staunchly opposed, arguing that the proposed rules amount to unnecessary government regulation of the Internet.
An FCC source familiar with the negotiations said progress is being made in three key areas: addressing concerns about wireless carriers, limiting Internet toll lanes and adding protections for a new online pricing model.
Responding to the complaint that the proposal, announced Dec. 1, would not bar discriminatory blocking of rival applications and services by wireless carriers. Genachowski appears willing to have the FCC monitor the situation over the next two years. Critics have noted that the proposed rules are more stringent for wireline carriers, even though Americans are rapidly gravitating to mobile connectivity.
Wireless carriers have endorsed (albeit grudgingly) the net neutrality plan, offering Genachowski critical industry support that can help dampen congressional criticism. They insist they need maximum flexibility in operating their networks due to capacity constraints, and won't block competitors.
If clear violations emerge, the agency would promulgate new protections down the road, the source said. Genachowski's side has argued during closed-door negotiations that since the wireless market is still developing, tougher rules shouldn't be applied now. Despite the progress, the source said the fate of the net neutrality proposal hinges on details to be ironed out over wireless service.
The FCC chairman also appears willing to limit the creation of toll lanes on the Internet for companies willing to pay for faster transmissions -- a structure known as "paid prioritization." As a result, the agency might specify scenarios under which such lanes would be barred because of concern about harm to consumers or competition. The chairman originally green lighted these arrangements in his announcement, raising worries that entities unable or unwilling to pay for priority treatment would be relegated to slow lanes.
Regarding a new form of Internet pricing that would charge customers based on the bandwidth they use, the chairman also may be ready to give some ground. Usage or metered pricing is allowable now, but most broadband providers have been hesitant to offer it because heavy Internet users would be slapped with higher fees -- a result that could draw brickbats from Washington. Genachowski, who endorsed the model as part of his net neutrality announcement, now appears receptive to placing some limits on it. For example, the FCC would prohibit a broadband provider from imposing exorbitant metered pricing fees on Netflix customers if the goal is to prompt them to switch to its less costly video service.
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December 19th, 2010
Sunday, December 19, 2010; 12:02 AM
An environmental group that analyzed the drinking water in 35 cities across the United States, including Bethesda and Washington, found that most contained hexavalent chromium, a probable carcinogen that was made famous by the film "Erin Brockovich.
The study, which will be released Monday by the Environmental Working Group, is the first nationwide analysis of hexavalent chromium in drinking water to be made public.
It comes as the Environmental Protection Agency is considering whether to set a limit for hexavalent chromium in tap water. The agency is reviewing the chemical after the National Toxicology Program, part of the National Institutes of Health, deemed it a "probable carcinogen" in 2008.
The federal government restricts the amount of "total chromium" in drinking water and requires water utilities to test for it, but that includes both trivalent chromium, a mineral that humans need to metabolize glucose, and hexavalent chromium, the metal that has caused cancer in laboratory animals.
Last year, California took the first step in limiting the amount of hexavalent chromium in drinking water by proposing a "public health goal" for safe levels of 0.06 parts per billion. If California does set a limit, it would be the first in the nation.
Hexavalent chromium was a commonly used industrial chemical until the early 1990s. It is still used in some industries, such as in chrome plating and the manufacturing of plastics and dyes. The chemical can also leach into groundwater from natural ores.
The new study found hexavalent chromium in the tap water of 31 out of 35 cities sampled. Of those, 25 had levels that exceeded the goal proposed in California.
The highest levels were found in Norman, Okla., where the water contained more than 200 times the California goal. Locally, Bethesda and Washington each had levels of 0.19 parts per billion, more than three times the California goal.
The cities were selected to be a mix of big and smaller communities and included places where local water companies had already detected high levels of "total chromium."
"This chemical has been so widely used by so many industries across the U.S. that this doesn't surprise me," said Erin Brockovich, whose fight on behalf of the residents of Hinkley, Calif., against Pacific Gas & Electric became the subject of a 2000 film. In that case, PG&E was accused of leaking hexavalent chromium into the town's groundwater for more than 30 years. The company paid $333 million in damages to more than 600 townspeople and pledged to clean up the contamination.
"Our municipal water supplies are in danger all over the U.S.," Brockovich said. "This is a chemical that should be regulated."
Max Costa, who chairs the department of environmental medicine at New York University's School of Medicine and is an expert in hexavalent chromium, called the new findings "disturbing." (Read More)