Monday, November 12, 2012

Elections Matter, But So Do Powerful Ideas

Elections certainly matter. But the sheer force of powerful ideas matters too. That's why the Free State Foundation masthead proclaims, "Because Ideas Matter."
Reform of communications law and policy in a free market, First Amendment-friendly, rule-of-law direction is a powerful idea that ultimately will win out. This is because the present legacy regulatory model, grounded in outdated notions of static monopolistic markets, is so poorly suited to the competitive realities and technological dynamism of the digital age.
It may be that, in light of the elections' outcome, the pace of communications policy reform will not be as quick as it otherwise might have been. Nevertheless, from my vantage point, focusing not on politics but policy, I remain optimistic that the power of free market ideas will prevail, and sooner rather than later.
Well, one answer is given by Bruce Owen, a member of the Free State Foundation's Board of Academic Advisors, in the concluding chapter of FSF's new book, Communications Law and Policy in the Digital Age: The Next Five Years. Based on his decades of experience and scholarly research, Professor Owen explains how the political economy of the regulatory state creates an anti-reform communications policymaking bias. But after delivering a blunt account describing this anti-reform bias, Professor Owen concludes: "This cannot continue indefinitely in an economy that faces global competition, and therefore it will not."
I too am confident "it will not."
Then FCC Commissioner Michael Powell (subsequently FCC Chairman and now President of the National Cable & Telecommunications Association) gave a remarkably prescient address in December 2000 at a Progress and Freedom Foundation conference concerning what he called "The Great Digital Broadband Migration."  In his address, Mr. Powell conceptualized the challenges facing policymakers in light of the "the great technological migration" from narrowband to broadband, from analog to digital, that already had begun as a primary policy reform challenge: The need to focus on innovation incentives; to implement deregulation of competitive markets; to rationalize the regulatory structure to account for the "bit is a bit" phenomenon; and to improve regulatory procedures to make agency decision-making more efficient.    
Although surely there has been some progress since 2000 toward meeting the policy challenges anticipated by Mr. Powell, unfortunately, there certainly has been backsliding as well due to the strength of anti-reform bias described by Bruce Owen. (Think net neutrality regulation, increased wireless regulations, and more intrusive video regulations as prime examples.) AT&T's "Petition to Launch a Proceeding Concerning the TDM-to-IP Transition," filed last week with the FCC, is a useful vehicle for focusing attention on the fact that the "great digital migration" is by no means complete – and for focusing attention on the fact that unnecessary regulation necessarily will slow down the transition to all-IP networks.
While the objective of transitioning to all-IP networks may be broadly shared, there is, of course, an ongoing battle of ideas concerning the way forward. I submit that Congress, ultimately, but, the Federal Communications Commission itself, in the meantime, must reorient communications policy so the agency's regulatory activity is tied to standards requiring demonstrable market failure and consumer harm before government intervention. Presently, the FCC still too readily relies on the more amorphous standards of "the public interest" or "reasonableness" or "discrimination" to default to anticipatory government intervention. These latter standards, the principal hallmarks of regulatory regimes initially developed in the 19th century designed to regulate monopolies, are no longer appropriate in today's marketplace environment.
Why are they no longer appropriate?
Because, whether intentionally or not, in a technologically dynamic digital environment, application of the monopoly-era legacy standards stifle experimentation with new business models that may benefit consumers and, ultimately, enhance overall consumer welfare. The anti-reform bias favors the status quo over change, and uniformity over differentiation. And it too quickly presumes – without waiting for evidence of market failure and consumer harm – that new business models are inconsistent with "the public interest" or that they are not "reasonable" or that they "discriminate."
The ultimate effect of the anti-reform bias, although never admitted by the pro-regulatory forces, is to favor government dictates regarding the parameters of service offerings rather than consumer choice.
Those who favor the status quo, or even more regulation, are quick to presume that any differences in service offerings, whether related to price, service quality, or other terms, are "unreasonable" or "discriminatory," and what's more, evidence of lack of competition. The pro-regulatory forces analyze markets in a way that narrows the scope of market definitions, whether by excluding services that, while, not identical, are substitutable in the sense of meeting differential consumer preferences. And they downplay potential competition and new entry. The Commission, for example, in evaluating competition, still resists the notion that wireless is substitutable for wireline service. Even as well over 30% of U.S. households have terminated their wireline service, the agency clings to the status quo view. It is difficult to conclude that such thinking is guided by anything other than a strong desire by the agency to maintain its regulatory grip.
This pro-regulatory "one size fits all approach" that narrows market definitions so as to presume lack of competition necessarily is incompatible with ongoing experimentation in business models and the development of innovative new offerings. This type of thinking, which presumes agency "experts" know which "one size" – which combinations, say, of speeds, price points, features, functions, or bundles – best serves consumers reflects a regulatory hubris ill-suited to the digital age.
As Christopher Yoo concludes in his chapter in FSF's new book: "On a broader level, policymakers would benefit from taking seriously the possibility that the days of a 'one size fits all' approach to Internet regulation may well be over and that looking backwards for the lessons of the past may not always be the past way to promote future success."
I would put it this way. If such "one size fits all" thinking persists, the FCC will maintain its regulatory grip for longer than it should in areas in which regulation is no longer appropriate. Perhaps the regulators – and the pro-regulatory forces – may, in some sense, consider themselves to be short-term winners.
But this would be wrong. For consumers surely will be the long-term losers.
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FSF's new book, Communications Law and Policy in the Digital Age: The Next Five Years, is filled with many good reform-minded ideas regarding implementation of a free market-oriented communications policy. You may order the book from Carolina Academic Press here. If you order from CAP before December 31, 2012, and use the special discount code MAYFSF12, you will save 20%!

You may also order the book from Amazon here or from Barnes & Noble here.