Few things seem as intractable as the incumbent’s stranglehold on our communications future. At the FCC would be disposed to clean house and start over. Yet from a pragmatic point of view that might well take much more time and produce less desirable results. The following outlines the possibility that President Obama, by one or two appointments at the FCC, could set in motion forces where the FCC could begin to make positive changes in our miserable telecom environment. And let these forces work while he tackles the other very grievous issues we face
An Economics of IP Networks list member argued that it would be foolish to try to continue to work within the context of the 1934 communications act and within its 1996 revision. He closed by saying “We cannot solve this problem on the same level of consciousness that created it. An entirely new, expanded, and integrated view is necessary.”
Chris Savage replied
Maybe. But to paraphrase someone who was once famous, we don’t create a new communications environment with the statute we want; we create new a new communications environment with the statute we have.
Suppose one were to look at the ’34 Act from the following perspective: “What is the most I can accomplish under this piece of legislation to generate the end result that is most consistent with the public interest as it exists in 2009?”
Let me throw out some specific thoughts:
(1) Under Section 10 they can do more or less whatever they want in terms of regulating common carriage, or not;
(2) The whole end-to-end architecture of the ‘net means that it is entirely plausible (and maybe even more so than alternatives) to treat Internet connectivity as common carriage, if that made sense (which would, among other things, take care of net neutrality entirely, more or less subsuming it under Sections 201(b) and 202);
(3) To the extent that there is a monopoly on dirt or the things closest to it, it or those things can be more tightly regulated than the rest;
(4) Spectrum could be used in any number of licensed or unlicensed ways;
(5) Devices could be authorized with any number of propagation/interference characteristics. I’m sure there’s more, but you can see that we could be in a lot better place than we are, even with no new legislation.
So, with a tip o’ the keyboard to Bob A’s latest posts, I don’t actually think we have a fundamental statutory problem here (although obviously one could make vast improvements on the ’34 Act, as amended).
What we have is a failure of vision.
The economic forces acting on this industry are enormously powerful. Those forces will do what economic forces always do, which is to try to create a regulatory and market environment that causes money to flow from consumers to suppliers. Think of high-profit-and-revenue-to-suppliers situations as “gravity wells” in communications industry possibility space. We will always tend towards one of them; the question is, which one? One that’s really low (in terms of consumer benefits)? Or one that’s only a local minimum, sitting on top of a high plateau (in terms of consumer benefits)?
That’s where the idea of “smart regulation” comes in: we want to set up rules so that suppliers can make enough money to keep supplying while constraining them to do things they wouldn’t “naturally” do (or not to do things they would). In other words, keeping us on a plateau of consumer benefit, while suppliers maximize their profits from what is available on the plateau.
Until a month or two ago, at least in this administration, and even to some extent in the last, it would be a sufficient answer to such an outlandish claim – the claim that regulation can actually accomplish something good – to state that it amounted to interference with the workings of the market. In fact, the pervasive Chicago-school, let-the-market-work-because-it-always-knows-best meme was – like John McCain’s campaign – a casualty of the financial melt-down.
Unthinking deference to the market is, I assert, a dead ideology walking. It will stagger along for another quarter, or maybe – if the economic mess is a lot nicer than many now think – for another year. But there is now 20-30 years of very good, Nobel-Prize-winning economics (behavioral economics) that, when you think about it, pretty much guts the market-knows-best meme. See, e.g., Thaler & Sunstein, Nudge (2008) for a very readable explanation of why in the real world free-running markets won’t produce optimal results, at least in a number of circumstances. (I will leave as an exercise to the reader the explanation of why markets for things like connectivity are not likely to fall into the “markets can sort it all out” category.)
What this means is that there are now Nobel prize winners to throw back at Friedman, Baumol et al., when those who want to push us into a very deep gravity well say that the market demands it.
But that doesn’t necessarily mean that we will have the political will to resist the push.
The political will has to come from some economic force that stands to gain by disrupting the status quo – by, in effect, dragging us out of the gravity well. In times past (that is, the Computer II era) that alternative economic force was IBM. Now I’m thinking it’s probably Google, maybe Apple, maybe some others. Consumers per se just aren’t organized enough to effectively and relentlessly push for their own interests. That force has to come from someone (or set of someones) who will make skads of money if there is (nearly) ubiquitous, (relatively) cheap, (reasonably) neutral, (pretty) high bandwidth connectivity.
And that’s what troubles me most about the prospect of getting a new Commission that starts with an assumption, probably unstated, that we need to re-fight the same old wars. To the extent that we are on the cusp of something here, that something isn’t tweaking the boundaries between ILECs and cable, or cleaning up universal service; and it certainly isn’t about getting UNE pricing, or even interconnection pricing, right. That something is re-envisioning what the “public interest” in a “rapid, efficient, nationwide” communications system is, in 2009 and beyond. I would submit that it is commerce and person-to-person communication on an end-to-end basis. Focus on the ends. What’s in the middle ought to be transparent. To the extent it isn’t transparent, something isn’t working right. It might not be obvious what that something is, but still.
On the issue of the Commission itself, I think Chairman Martin is a nice guy and a smart guy and politically very astute. But from all I can tell he lacks any sort of coherent vision of what the communications environment should be. I have a very hard time seeing any unifying or animating principle in what he tries to accomplish (other than, maybe, “let the markets work,” as to which, see above). Hence he doesn’t pursue, or enact, any sort of program. He just does deals, more or less distinct from each other. So when things fall apart for him – as the just did on the intercarrier comp/universal service thing, and as they did earlier this year on the retention marketing fight – he ends up on the losing end of 4-1 votes. He doesn’t actually convince anybody; he either cuts a deal or he doesn’t, which is very different indeed.
All that said, and as important as I think this stuff is, I also believe what I said earlier, which is that President Obama will hit the ground in mid-January with much bigger and much more urgent problems to deal with. So in the absence of some below-the-radar, ground-up effort to ensure that the new, improved, Obama FCC as an appropriate vision for what this sector of the economy ought to look like, I fear we’ll just get more drift.
Frank Coluccio: With all due deference to both you, Bob A. and others here, it appears that you’re not giving due recognition to the rapidly changing landscape. Telecom (the service) is undergoing atrophy, and Internet has only begun to sprout. Yet most of the ’services’ once viewed as telecom are rapidly being assimilated as IP applications onto Internet.
Savage: No, I get that completely. And at the same time retail access to IP applications, at least for residential customers, is going from the let-a-thousand-flowers-bloom world of (say) 1999 to a duo-and-a-half-opoly (two arguably fat-enough wires and some possibility of unaffiliated not-quite-skinny wireless). The key question for the FCC in 2009 and forward, stripped of all the folderol, is whether that’s OK or not. If so, what’s all the fuss about? But if not, then we have to conclude that the regulatory policies that have led us here need work.?
Frank Coluccio: Take this to the extreme and you wind up with in short order is a piddly few telecom services, for which most of the legislation being discussed here is devoted, and a potentially wildly-raging environment that supports end point applications, including applications dressed up as telecoms. Now, I know that other factors come into play, which are usually found under the headings of program video and PSTN voice.
The latter two are “retail services”, in my opinion, are not a part of the high-speed Internet access component of bundled offerings (unfortunately, I still have to refer to the triple-play, as though the three were organically dependent on one another) that we should be paying more attention to. PSTN and Video need to be regarded separately from basic connectivity, and indeed decoupled from it as well, and perhaps those two services can be treated finally as the tenants of underlying transport systems that they actually are.
Savage: I agree that POTS and broadcast/cablecast video are becoming less and less central, if not quite yet irrelevant. (Heck, I’m too old to stay up and watch Saturday Night Live like I did when I was a kid, but I didn’t miss an episode this election season, thanks to my broadband connection. Plus an enormous amount of communication that would once have been POTS calls, either local or long distance, is now done via email.)
But you may, I think, have missed one of my legal points, which is that any communications lawyer worth his/her salt could, in very short order, write the FCC order that would withstand scrutiny in court and that would conclude with something like:
“XXX. For the foregoing reasons, as the Nation’s communications networks have evolved, as IP-enabled and traditional PSTN technology has developed, and as consumer and business uses of the Internet have changed, we hereby conclude that the functions of providing Internet access to those who connect to it – both consumers and information and service providers – and transporting communications via the Internet, are subject not merely to our Title I jurisdiction (which, alone, gives us ample regulatory authority with respect to these activities), but also to our jurisdiction under Section 706 of the 1996 Act; to our Title III jurisdiction (to the extent it is provided via wireless technology); to our Title VI jurisdiction (to the extent it is provided via cable systems); and, ultimately, to our Title II jurisdiction as well. This does not mean that we should, or will, regulate the provision of Internet access like old-style plain old telephone service. As described above, however, it does mean that we have the authority to ensure that the terms and conditions on which providers of Internet access deal with those who connect to the Internet, and with actual and potential competitors, are just, reasonable, nondiscriminatory, and in the public interest.”
This was my point about political will or lack thereof. When the dominant political meme is one of deregulation, government-as-incompetent-bumbler-interfering-with-brilliant-markets, etc. – which it has been at least since 1980 – then you look at the law and look for ways that it either allows you, or compels you, not to regulate. (In that regard Computer II was a brilliant piece of regulatory jujitsu, accomplishing broad public interest goals by compelling the deregulation of certain activities and certain market participants, but not others.)
But if the political meme is instead that intelligent regulatory policies can accomplish significant public interest goals (including those related to broadband), then the statute begins to look different and not so constraining.
I am not sitting here saying that the FCC should regulate “the Internet” under Title II. I am not, actually, even saying that it should do much different than it is doing now – if it/we/the country were to affirmatively conclude that where we are, and where we seem to be going on the issue of broadband access is basically OK. Again, note that I’m an old-timer and remember when only big shots had car phones, when the fastest modem you could buy was 9600 baud, when consumer email was something you did with fellow devotees on a closed system like Compuserve. Considering where we’ve come from, maybe a duo-and-a-half-opoly is OK.
But if it’s not OK, I am saying that we do not need a massive re-write of communications law to take steps to fix it.??
Frank Coluccio: So, what matters very much here is the framing one chooses to assume at the outset. Are we attempting, on the one hand, to preserve the status quo by repurposing many of the earlier constructs whose original reasons for being were to provide oversight for something that is a now dying, or, on the other hand, are we viewing the end game as an environment that is well suited for providing ubiquitous connectivity?
Savage: I agree that framing matters, and I think that re-framing is in order. What I am saying is that taking steps in light of, and to implement, the new framing does not actually require a major re-write of the Communications Act.
