The MTTLR Blog

Microsoft’s long awaited cloud computing platform, Azure, opened for business this week.  Now available in 21 countries, the platform comes with a flexible and transparent payment schedule.  This might not sound as nifty as the iPad, but startups with small budgets are sure to take notice, particularly with the free trial options Microsoft is offering.  Azure represents a major step in the development and dissemination of cloud computing, as Microsoft associates its stable, business-oriented brand appeal with the cloud.

In December, MTTLR reported on the regulatory problems posed by cloud computing.  Weighing in on this ongoing debate two weeks ago at the Brookings Institution, Microsoft’s General Counsel Brad Smith suggested the role the United States government should take in regulating cloud computing.  A recent survey, commissioned by Microsoft, concluded a majority of Americans use cloud computing services despite being unfamiliar or only vaguely familiar with the concept of cloud computing.  These survey results could be misleading, as even industry leaders seem to disagree on the proper definition for cloud computing, but the survey does highlight the significant knowledge gap that presents one of cloud computing’s biggest challenges:  What happens when most Americans store their emails, financial files, photographs, and other personal information in something as nebulous as (appropriately) the cloud?

Several indicators point strongly toward regulation:  Transaction costs of public action on this matter are extremely high, the knowledge gap between users and providers is severe, and the chance of getting caught misusing information obtained over the internet is… well, certainly not a sufficient deterrent.  Microsoft suggests a federal regulatory scheme that takes a three pronged approach, addressing issues of privacy, security, and international sovereignty. 

Microsoft’s statement about the privacy and security of consumers and businesses is obviously well-timed and serves to strengthen reliance on Azure.  It also raises questions about whether or not it is desirable to impose comprehensive regulation on the internet.  Nonetheless, their proposal for regulation is persuasive, and contributes significantly to an ongoing debate that is sure to ramp up in 2010.

It’s been seventeen years since I tore the wrapping paper off my G.I. Joe Battle Wagon.  I believe I ended its electronic-missile-firing life a few months later with a poorly thought out tour through the bathtub.  But nearly a score later, it’s not so certain that the Battle Wagon would have had a life to begin with, at least without a lot of testing and retroactive product liability in the form of the Consumer Product Safety Improvement Act.

This is the first Christmas since the testing requirement of the Consumer Product Safety Improvement Act was made effective for toys (the lead ceiling currently has a one year stay).  The bill sailed in the wake of the lead paint scare for toys made in China and nearly passed unanimously (lone wolf – Ron Paul) in the House.  The Act covers all children’s products, or any product intended primarily for children under 12.  This would include hard-to-access microchips in toys and other items not readily removable. 

A key provision of the bill is its requirement that all children’s products be tested by third-parties.   It isn’t enough for the materials to be of reputable quality; samples of every component must be tested.  Writing in Forbes, Walter Olson catches the first wave of unintended consequences.  “[N]ew kids’ goods will all have to be subjected to more stringent ‘third-party’ testing, and it will be unlawful to give away untested inventory even for free.” While retailers aren’t required to test themselves, they will be subject to liability if the products don’t conform to the regulatory standards. 

The Act contains specific limits for lead content.  In addition to reiterating a ban on lead paint, the Act limits lead in other components to less than 300 ppm.  In the Wall Street Journal, Richard Posner likened the Act to “killing a gnat with a bazooka”.  “Instead of targeting the known sources of lead contamination, this ill-conceived statute extended coverage to the max…”  said Posner.  These lead limits apply retroactively as well.   But there are (very unlikely) exceptions: no testing if you can show “on the basis of the best-available, objective, peer-reviewed, scientific evidence” that a lead product won’t lead to harm.  I wouldn’t hold my breath. 

This Act can affect technology for toys in a number of ways.  The most obvious is higher costs in getting to market.  Testing is expensive, and testing the numerous components and combinations of components could be prohibitively so.  With electronics, chips are often manufactured by third parties and integrated into toys separately.  This could lead to a lot of companies doing the same testing for the same chips once integrated, even with a proven track record. 

Additionally, soldering is used in nearly all electronics, and most commercial solder contains some amount of lead.  In 2003 the EU passed the lead-limiting Restriction of Hazardous Substances Directive (RoHS), prompting many manufacturers to begin removing lead from all products, and some electronics companies such as Intel have been using lead-free materials for a few years now.  However, most commercial solders still contain lead, and lead-free alternatives by manufacturers such as Kester cost up to five times as much as their lead-based counterparts. 

A related effect is increased liability, which can both increase costs and deface a company’s public image.  Since the 1970’s lead poisoning has cast a dark shadow on paint products, of which toys are the most recent example.  Lead poisoning and its effects are real threats, and the absent sensibilities of children pose a unique risk.  To avoid potential liability and looking the part of villain, manufacturers will probably pay the “for-the-kids” premium expected by the public, even though the risk of consumption of lead in electronic goods is low compared to the potentially high testing costs.  As noted on Popehat.com, no child was injured in the lead paint scare of 2007. 

It’s hard to say what effect the Act has had on companies this past toy season.  Due to changes in the economy, sales figures probably won’t tell an accurate story as to testing costs, and initial dissidents to the legislation have tended to be on the small side.  But the potential for high costs of testing and the even higher liability for violation could limit a lot of technological toys making their way into the market.

New Jersey senators Joseph Vitale and Sean Kean have proposed legislation that would impose heavy fines on entities that sent unsolicited text message advertisements. Though the Telephone Consumer Protection Act was enacted prior to the advent of text messaging, such unsolicited text message ads have recently been found to fall under the TCPA. The 9^th Circuit has declared this interpretation of the FCC to be reasonable and other circuits are likely to follow. The FCC prohibitions, however, do not include all text messages; rather, they only prohibit those sent from an internet domain name. Messages sent from cell phone to cell phone are exempt.

Vitale and Kean’s bill provides that fines will only be levied in two instances: if the text message causes the recipient to incur a fee or decreases the number of text message the recipient is allocated by his cell phone provider. The fines, only imposed if the advertiser sends more than one per year, are very steep; $10,000 for the first offense, $20,000 for subsequent offenses, and $30,000 if the advertiser knew or should have known the recipient was disabled or elderly. The bill also contains a provision requiring all phone companies to offer New Jersey consumers the option of blocking all incoming and outgoing text messages. Senator Vitale explains the motivation of the legislation, “We have to do a much better job in New Jersey to protect consumers from unsolicited text advertisements which can drive their cell phone bills through the roof.”

Certainly the New Jersey bill correctly recognizes the need to close the loopholes in the FCC’s regulation; however, it is still deficient. Firstly, in many cases it would be impossible to determine whether an advertiser knew or should have known if the recipient was disabled or elderly. The bill contains no guidance on what type of inquiry, if any, the advertiser should undertake to determine if the recipient falls into one of those categories. In many cases, it seems unlikely the advertiser would have enough information to know the recipient’s status. If the bill’s intent is to protect these groups, the additional fee should be levied regardless of the advertiser’s knowledge; otherwise, it is unlikely they will ever be subject to this additional fine.

More importantly, under the terms of the bill, unsolicited text messages to a recipient who had an unlimited text messaging plan would be permitted; a consumer with an unlimited plan would not incur a fee or a decreased number of available messages. Thus, the bill does not properly deal with the nuisance of unsolicited texts, rather it only recognizes the monetary cost. Such a stance is unreasonable; a consumer would have to receive a massive amount of unsolicited ads for any real cost to be incurred. Sprint, AT&T and T-mobile charge only twenty cents per text message. Most consumers would not be aggravated by this minimal charge, but rather at the annoyance of unsolicited contact. The bill should be amended to prohibit all unsolicited text ads, even if the consumer suffers no monetary loss. With this alteration, the bill would operate as an effective deterrent.

Most people don’t think of TV when the subject of broadband internet comes up.  That may change if the FCC gets its way.  The commission is currently reviewing some of its TV policies as part of its National Broadband Plan to encourage nationwide adoption.  Last month, an FCC task force identified several current hurdles to overcome, including what it calls the “Television Set-Top Box Innovation Gap.”  The focus on television comes from a task force finding that 99% of American households have television sets, while only 76% have computers.  Despite the relative ubiquity however, the task force notes that current innovation is limited with regard to the convergence of video, TV, and internet-based services.

This may be due to the fact that cableCARD has yet to meet its goals under the  Telecommunications Act of 1996.  Under the act, the FCC has authority to ensure that cable and satellite television networks are open to third-party devices.  Similar to the earlier Carterfone decision (allowing customers to connect third-party phones to the AT&T network), the goal is to foster innovation through competition.  Roughly the same size and shape to a laptop PCMCIA card, a cableCARD can be inserted into a compatible device, like a TiVo,  and allows it to access encrypted video content such as video on demand or HD channels without requiring a separate cable box.  Since the TiVo could also be connected to the internet, the ability to combine the two sources has potential for a number of interactive applications.  Despite this, adoption has been slow and cableCARD devices have not yet achieved significant market share.

As a result, the FCC announced earlier this month that it is seeking public comment on methods to bridge the set-top box gap.  Specifically, it stated that cableCARD “has not achieved its intended result” and therefore the commission is considering other options.  This might result in a modification of the current standard, or may involve scrapping cableCARD in favor of a whole new standard.  The FCC has already received numerous suggestions, ranging from complete overhauls to tweaks of the existing standard.  It will be very interesting to see what direction the commission decides to take when they submit the final plan to Congress in February.

Cloud computing, though its definition can be expressed in a more detailed manner, is basically the next generation of IT systems organization, where data and applications are centrally accessible through individual portals such as laptops or desktops.  Many popular sites operate on a cloud computing model, including Facebook and Google Docs.   Earlier this year, the announcement that the U.S. government would be moving toward cloud computing raised the profile of this rapidly developing phenomenon.  By adopting a cloud computing model, the government highlighted the increased efficiency that cloud computing can produce, but also brought to the forefront some of its problems, including security and privacy risks and the difficulties posed by questions of how, or whether, to regulate this form of systems organization.

In Security in the Ether, David Talbot examines the expected expansion of cloud computing and the potential security risks posed by such computing.  Major security risks are implicated by storing data on remote servers also used by third parties, who may be able to access the data.  Providers of cloud computing services are working to increase security with more sophisticated methods of encryption.  Because cloud computing will most likely grow in popularity, and become popular amongst entities such as banks and health care providers that deal with sensitive information, cloud computing represents an area in which the government may wish to regulate the storage, protection, and use of information.

The aggregation of more and more data into fewer and fewer places provides an environment for government regulation that the internet thus far, with its seemingly infinite reach and scope, has not.  Most government regulation of information use, such as the Red Flags Rule requiring businesses to track their own information for signs of identity theft, has involved a particular provider of services monitoring its own information for potential misuse.  Large scale cloud services providers, whose servers will provide data processing and storage for numerous entities, could present an easier method of regulation of information.  In addition, because of the large amounts of data involved and the security risks posed by data centralization, the government has a strong incentive to regulate cloud computing providers.

Government involvement in cloud computing could prove problematic.  The incentive to regulate also invites the risk of over regulation.   Government regulation regarding the use and dissemination of information, though intended to increase security for individuals, could stunt technological innovation and decrease the efficiency of cloud computing.  Jonathan Zittrain, co-director of Harvard’s Berkman Center for Internet and Society, points out that the freedom and experimental nature of the internet are at risk with the rise of cloud computing.   In addition to risks posed by over regulation, cloud computing poses significant Fourth Amendment concerns.  Legal precedent for privacy rights of information stored in clouds is murky at best because of the sophisticated technology involved.  As cloud computing continues to increase in popularity, policy makers will need to balance the interests of individuals in the privacy of their data with the interests of the government in having access to that data, the interests of these same consumers in a more efficient, free, and innovative internet, and the interests of businesses that provide and utilize cloud computing services.  Any government action that does not balance these competing interests will work to the detriment of developing the next generation of systems organization that further realizes the potential of the internet.

European Union (EU) regulators closed their investigation of  Qualcomm Inc. after all of the companies accusing Qualcomm of charging excessive royalties on technology patents withdrew their complaints. In 2005, six technology companies filed complaints alleging that the royalties Qualcomm has charged since its patented technology became part of Europe’s 3G standard are unreasonably high. Two of the companies, Nokia and Broadcom, withdrew their complaints after reaching separate outside settlements. Ericsson said in a statement that it is withdrawing the complaint and continuing “its ongoing dialogue with competition authorities around the world in relation to Qualcomm’s licensing practices.” Since all complaints have now been withdrawn, the EU dropped its investigation and is focusing its resources elsewhere. Qualcomm still faces antitrust scrutiny elsewhere in the world. Japan’s Fair Trade Commission said in September that Qualcomm coerced Japanese mobile-phone makers into agreements that prevented them from asserting their intellectual property rights, impeding fair competition and ordered Qualcomm to rescind the restrictive provisions. Earlier this year Qualcomm was fined 260 billion Won ($220 million USD) by South Korea’s antitrust agency for deterring competition through unfair fees and is currently appealing the fine. While the EU closed its four-year old antitrust investigation without levying a fine, Qualcomm was not absolved of wronging and the investigation could be restarted if another complaint is filed.

“So if I know about a stock’s activity one day before it’s insider trading, but if I know about a stock’s activity one second before it’s high frequency trading?”

-Samantha Bee, The Daily Show

Ms. Bee doesn’t have it quite right, but mainstream comedy shows rarely feature such topics.  The term high frequency trading (HFT) encompasses various trading methods that employ sophisticated algorithms and powerful computer hardware designed for speedy trading.  Wall Street banks and investment institutions spend billions on HFT.  HFT algorithms can read market data and implement market-wide strategies in milliseconds.  As the name suggests, high frequency traders aren’t buy-and-hold investors.  HFT profits are aggregates of small profit margins on enormous trading volume.  In fact, HFT is thought to be responsible for huge increases in trading volume in recent years.  Estimates vary, but algorithmic HFT accounts for as much as 70% of daily equities trading volume in all markets.  The enormous profit potential of HFT has fueled competition for talent and a technology arms race.  Many institutions pay exchanges monthly rental fees to “co-locate” their hardware on the exchange premises, bypassing order routing infrastructure and improving latency to get ahead of other traders.

What strategies do high frequency traders use?  The answer is largely guesswork, as proprietary trading algorithms are closely-guarded secrets.  Among other practices, HFT facilitates “iceberging,” or disguising large orders by parceling them out into numerous smaller orders.  But critics allege that HFT is used in connection with unfair or illegal practices like flash trading, front-running (placing bets in the market based on pending client orders) and bullying other market participants into disclosing price limits and giving up profits.

In a climate of heightened public scrutiny of Wall Street, HFT made waves in the mainstream media this summer.  In late July, Senator Chuck Schumer urged the SEC to address flash trading, an instance of HFT where some exchange participants view and trade on price quotes immediately before they are publicly visible.  When an exchange first receives a buy/sell order, it determines whether any exchange participant has publicly displayed interest in the desired security at the stated price.  If not, Rule 602 of SEC Regulation NMS requires the exchange to include the order in public consolidated quotation data, routing the order to other exchanges.  However, an exception to Rule 602 allows exchanges to first “flash” the order to paying exchange participants as little as three-hundredths of a second before routing.  Those exchange participants with HFT capabilities are fully capable of acting on such a short timeframe.

Why would the SEC create an exception for flash trading in the first place?  When Rule 602 was enacted in 1978, it apparently didn’t consider the possibility that technological developments would eventually enable automated traders to capitalize on the “flash,” rendering an administrative convenience exception into a substantial loophole.

Prompted by Senator Schumer, the SEC issued a proposed rule in September to ban flash trading in all markets, concluding that the flash trading exception is “no longer necessary or appropriate in today’s highly automated trading environment.”  The Commission found that flash trading promotes a two-tiered market where material price data is available to some traders before the general trading public.  Because flash trading creates disincentives for exchange participants to publicly display interest in trading (when they can instead act in secret on flash data), the proposed rule also voiced concerns about transparency, market efficiency, and the need for publicly displayed liquidity.  In addition, under the Securities Exchange Act, the SEC is required to consider whether market practices damage public confidence in the fairness of securities markets.  The SEC found that long-term investors might consider flash trading an unfair practice that damages the integrity of the market.  To the extent that the interests of short- and long-term investors conflict, the SEC has a “clear responsibility” to protect long-term investors.

Goldman Sachs submitted comprehensive comments to the SEC concluding that flashes should be subject to the same regulations as standards quotes.  In other words, co-located high frequency traders should no longer have a head start.  Of course, HFT maintains a distinct edge against less technologically sophisticated competition.  To allay this concern, Goldman points out that technological developments like HFT have lowered bid-ask spreads, increased market efficiency, injected considerable liquidity into securities markets, and increased accessibility to markets via automated market makers, “primarily benefitting retail investors.”  In broad strokes, Goldman cautions against throwing out the HFT technology baby with the bathwater, instead proposing better regulation at the margins, where technology has outpaced SEC oversight.  Flash trading lies at the margin and is per se unfair.

But is Goldman correct that the benefits of HFT outweigh the costs?  The question is difficult to answer, primarily due to a lack of empirical data.

Critics contend that HFT promotes a two-tier system – HFT-armed institutions in the first tier, retail and individual investors in the other.  To some, HFT is a “sophisticated bid-rigging scheme” that amounts to a multi-billion dollar tax on unsophisticated investors, redistributing wealth to large banks with institutional savvy and the resources needed to exploit technology-capability disparities and loopholes in SEC rules.  Paul Krugman came out guns blazing, arguing that HFT also fosters excessive speculation and concluding unequivocally that “what [high frequency traders] do is bad for America.”  Viewing HFT through the lens of social utility, Krugman cites scholarship showing that speculation based on private information “combines private profitability with social uselessness,” wastes resources, and undermines market integrity.  To the extent that HFT represents a sub-optimal level of speculation, it falls on the negative side of the ledger.  The problem: we don’t have enough data on HFT to quantify the scope of these problems.

What about liquidity and pricing?  There’s no denying that HFT provides liquidity, and lots of it.  Liquidity – the ability to safely buy and sell an asset – is so important in financial markets that many exchanges offer rebates to liquidity providers like high frequency traders.  Some markets might not even exist without HFT.  Critics respond that HFT injects unhealthy, destabilizing liquidity into the financial system.  HFT is also said to contribute to price discovery.  One rebuttal to this claim is the argument that HFT algorithms primarily trade against each other in a game of speculation, as opposed to value investing that contributes to proper pricing of securities.  Again, limited available data makes it difficult to draw solid macroeconomic conclusions on these issues.

Some have suggested that HFT poses a systemic risk to financial markets and the broader economy.  An HFT algorithm with free reign could transform into a “rogue algorithm” that inflicts extreme market fluctuations.  Extraordinary events could trigger a chain-reaction of massive unloading by HFT algorithms, a not-so-far-fetched scenario given one likely cause of the 1987 stock market crash.  HFT may have contributed to excessive volatility during the oil spike of 2008 and the recent market-wide collapse.  The presence of substantial systemic risk may delineate a line of optimal technological innovation in the financial markets.  A public policy discussion of HFT should at least consider the possibility that we have crossed this line.

Proposed approaches to the HFT problem range from laissez-faire attitudes, an armistice in the technology arms-race, investing in new technology (e.g., anti-HFT algorithms), fiscal policy measures (e.g., a tax on all trading, aiming at HFT speculation), and, most helpfully, enhanced regulatory oversight.  The necessary starting point for more regulation, however, is properly measuring and quantifying the effects of the HFT “problem.”  This means more transparency, and the SEC’s approach, focusing on greater disclosure and reporting requirements, is right on track.

First, on October 21 the SEC voted to draft a proposed rule concerning dark pools, largely unregulated private exchanges that implicate many of the same issues as HFT.  Second, the SEC is planning a reporting system for HFT firms.  After the 1987 market crash, Congress enacted the Market Reform Act of 1990, amending the Securities Exchange Act.  Under Section 13(h), the SEC may require persons meeting the Act’s definition of “large trader” to file with the SEC and self-identify when they trade.  The prospective reporting system will gather information to enable the SEC to determine the impact of HFT on the marketplace, with special interest in the possibility of harm to long-term investors, disparities of market access and speed, and market efficiency.

At a recent Senate committee hearing on HFT, flash trading, and dark pools, Senator Edward Kaufman articulated widespread concerns about systemic risk and a two-tiered “trader’s market” where retail investors are at a substantial disadvantage.  The CFTC has also expressed concerns on the impact of HFT in the energy futures market.  Coordinated regulatory action – and possibly new legislation – will be necessary to the extent that loopholes, concessions and limited statutory authority restrict the scope of SEC regulation.  A comprehensive effort to achieve transparency is essential to understanding the full impact of HFT technology in the financial markets.

Given investor reliance on highly beneficial liquidity, it’s unlikely that HFT is on its way out.  But valid concerns about the impact of HFT have been raised, and regulators need to learn more about what they’re dealing with.  In light of recent market failures and inadequate regulatory oversight of financial markets, it would be unwise to give the market free reign on HFT technology.

In other government regulation of the internet news, the FCC is preparing to vote this month on two new net neutrality principles that would prohibit internet service providers (ISPs) from blocking lawful content transfer, and would require the ISPs to disclose their network management practices.

A concise definition of net neutrality is “a state in which users have the freedom to access the content, services, applications, and devices of their choice.” During the initial growth period of broadband internet the issue was often disregarded, as ISPs shoveled bandwidth to their customers with little restraint. However, in an effort to keep up with the mushrooming demand, cable companies may attempt to throttle individual usage, specifically excluding competition to the benefit of their own services. Comcast was recently accused of the practice of “traffic shaping,” in which it limited or completely blocked uploads of files over popular file-sharing software BitTorrent. The telecommunications industry also faces pressure from neutrality proponents, as seen in AT&T’s decision this month to allow customers to use voice over IP (VoIP) applications (such as Skype) on its celluar network, reversing its prior stance.

FCC Chairman Julius Genachowski believes that these mandates, combined with the non-binding “Four Internet Freedoms” adopted by the FCC in 2005, will help achieve the fundamental goal of “preserving the openness and freedom of the Internet.” He recently made a pitch at the Future of Music Coalition policy summit, targeting independent artists and labels that might otherwise be suffocated by collusion between big industry players, and giving a shout-out to musical backers of net neutrality including alternative rockers Wilco and Guster, who collaborated on a net neutrality benefit album in 2008. Leading the opposition to the proposed rules are the wireless carriers who have invested large amounts in building their the networks, along with the GOP, which is concerned that the regulations may lead to diminished investment in the burgeoning industry.

ICANN took a giant step towards true internationalization last week when it signed a new agreement with the U.S. government that explicitly envisions a transition into privatization of the organization. Granted, the new agreement still gives the U.S. Department of Commerce a role in overseeing and coordinating ICANN activities, but ICANN accountability is now routed through internal processes instead of through the U.S. Department of Commerce.  This move is squarely aimed at criticism that ICANN is too U.S.-centric and doesn’t represent the global nature of the Internet.

But the U.S. government has not completely stepped out of regulating the Internet: on the contrary, the FTC has just passed new guidelines that extend existing regulations to mandate disclosure of conflicts of interests in blogger product reviews. For example, the guidelines now require that bloggers disclose any payment they’ve received for their endorsements and celebrity endorsers must disclose advertiser relationships even when their endorsements occur outside of traditional advertisements–clearly a warning to the Twitter crowd. Although a violation does carry potentially hefty fines, the FTC has hastened to give assurances that they’ll only target advertisers and “big fish” bloggers. Given the size of the blogosphere and the FTC’s limited resources, such a strategy may be the only practical approach to take. However, any attempt to regulate Internet content must run through a jungle of legal issues, with First Amendment, safe harbor and jurisdictional questions being only a few that spring to mind. The FTC will have to step carefully, since it could very well be the precedent-setter for this administration’s regulation of the Internet.

Speaking of destroying the internet, CBSNews.com reporter Declan McCullagh reports Senators Jay Rockefeller (D-W.V.) and Olympia Snowe (R-Maine) recently introduced legislation that would give the president the authority to seize control of the Internet and order a shut-down of Internet traffic during a “cybersecurity emergency.”

Despite vocal concerns from telecommunications companies and civil liberties groups, the bill’s sponsors maintain that the bill is necessary  to protect the nation’s cyber infrastructure security. “We must protect our critical infrastructure at all costs–from our water to our electricity, to banking, traffic lights and electronic health records,” Rockefeller said. Agreed. Sort of. “At all costs?” That might be  a bridge too far. Cybersecurity should be a top government priority, given our national infrastructure’s dependence on the Internet, but at what cost?

President Obama has acknowledged that the United States is “not as prepared as we should be,” when it comes to cybersecurity, and in May said that “[the government's] pursuit of cybersecurity will not — I repeat, will not include — monitoring private networks or Internet traffic.”

As with campaign promises, that may have been wishful thinking on the president’s part. The bill’s text takes a markedly different tack, calling for the White House to engage in “periodic mapping” of private networks to determine which of those networks are “critical” to national security. Those companies that maintain critical private networks are then required to share certain requested information with the government, but the Rockefeller-Snowe bill, in its current form, lacks the necessary internal checks on the vast power it grants the president over private networks and fails to spell out exactly what limitations would be placed on the government in the monitoring process. Before the telecommunications industry (not to mention the general public) can rest easily, the amorphous powers granted in the bill will need to be reigned in to curb opportunities for abuse of those powers.

Not everyone is concerned about the bill’s prospective reach, however. According to McCullagh, a Senate source familiar with the legislation likens the president’s authority to shut down the internet to President Bush’s grounding of all aircraft immediately proceeding the Sept. 11, 2001 terrorist attacks. The obvious difference between the two examples is that the government is not required to access vast quantities of sensitive personal information in order to ground airplanes. Shutting down critical networks in the event of a cyber emergency means knowing exactly which private networks are “critical,” which by necessity means some level of monitoring. Without an appropriate process for administrative review and healthy checks on the extent of the government’s monitoring power, the bill will have a hard time garnering the necessary support to get passed.