Tuesday, July 10, 2007

Googling the "FUC"

There are press reports that FCC Chairman Kevin Martin is going to propose that a sizeable chunk of the 700 MHz spectrum be set aside as a mandatory open access, net neutralized zone. According to a USA Today story, an FCC official is quoted as stating: “The Chairman has proposed that the winning bidder for that one large piece of spectrum must build a network that allows customers to attach any device or run any application they choose as long as it doesn’t interfere with network management.” In other words, if the press reports are true, it appears the Republican Chairman of the FCC is accepting the net neutrality arguments that Google and its allies have been making for several years now that the broadband marketplace is not sufficiently competitive to protect consumers. Instead, he wants to opt for long-term regulatory micro-management.

It is important to reiterate--as I have many times in the past--that net neutrality and open access proposals always involve an unbundling mandate. Open access and net neutrality necessarily imply unbundling because the regulators simply cannot enforce their openess and neutrality rules unless the broadband service provider separates [read: unbundles] transmission from content applications and equipment attachments. In Computer II parlance, the broadband provider must offer only pure or basic transmission service on an unbundled basis. Otherwise, how to prevent "discrimination" that is the opposite of neutrality?

The Chairman's open access proposal, if it materializes, would be very disappointing in any event. But it would not be totally surprising if it came from Commissioners Copps and Adelstein. It is surprising coming from a Republican Chairman in an Administration that ought to be free market-oriented.

A few weeks ago I wrote a piece to the effect that the FCC risks becoming the Federal Unbundling Commission. That essay focused most heavily on the FCC's wrong-headed proposal to consider mandating more unbundling of cable's OpenCable platform and to involve itself in the ongoing regulatory supervision that unbundling mandates necessarily entail. But it noted that the 700 MHz auction was also a target of regulatory opportunity for the open access/net neutrality/unbundling advocates.

Again, it is puzzling and disheartening that this Republican-led FCC is the one taking the FCC down the path towards becoming the FUC. There was a time during the 1960s Carterfone and 1980s Computer II eras when unbundling mandates may have been justified. For the reasons explained in the Federal Unbundling Commission piece that time has long passed.

The costs of imposing unbundling mandates in today's technologically dynamic, much more competitive environment far outweigh the benefits. Quite simply, investment and innovation are discouraged by regulations that, by design, prevent realization of the market-based returns that result from the efficient integration of operations.

It will be a sad day if as a result of Google's succcess on the regulatory playing field a google search of the FCC turns up the FUC.