Friday, May 21, 2010

The Law of Unintended Consequences - and Remembering Larry Darby

Much rightly has been made, including by me, regarding Bill Kennard's -- Bill Clinton's FCC Chairman -- opposition to regulating broadband Internet service providers as common carriers. There were other similar statements, but I especially have in mind Kennard's 1999 warning that it would not be good for America to "pick up this whole morass of regulation and dump it wholesale on the cable pipe." He was referring to the incipient cable broadband services. You can read the relevant part of his entire statement in my May 1999 blog here, or you can google "Bill Kennard" and "whole morass of regulation."

I was thinking of Bill Kennard's opposition to broadband Internet regulation because I recalled a very brief article by former FCC Commissioner Susan Ness, Kennard's Democratic colleague also appointed by President Clinton. The article, which I had been meaning for some time to get back to, was entitled, "The Law of Unintended Consequences." It appears in the June 2006 edition of the Federal Communications Law Journal. You can read it here.

Not unexpectedly, I don't agree with everything former Commissioner Ness says in the article. But, on rereading, there is much to commend it, especially as it relates to the ongoing efforts of current FCC Chairman Julius Genachowski to have broadband Internet services regulated as common carrier services under Title II of the Communications Act.

(I understand Genachowski suggests the Commission, in a problematical legal maneuver, would attempt to forbear from applying some of Title II's common carrier provisions to Internet providers at the very same time the agency determines to subject those same ISPs to Title II regulation. But note he does not propose to forbear from the two provisions – Sections 201 and 202 – of Title II that are at the heart of the common carrier regime. These two provisions require that the telecom carriers' – remember, the providers would no longer be ISPs – rates be reasonable and that they not discriminate. The FCC enforces the reasonable rate and nondiscrimination obligation.

Don't get me started on why the FCC's proposal definitely does not embody a consensus view and in no way, whether denominated "Third Way" or "any which way," does it represent "light handed regulation" as the Chairman tries to suggest.)

Back to Susan Ness's article. Here are some excerpts that ought to be quite relevant to today's net neutrality debate:

"Whether intentional or not, the 1996 Telecommunications Act (“1996 Act”) was transitional legislation, focused largely on the constituencies that battled before Congress at the time of its passage, with compromises to address historic realities."

"Even though the Internet was scarcely understood, Congress wisely established a national policy that it should be 'unfettered by Federal or State regulation.'"

"Facilities-based competition is preferred over resale and similar arrangements, both because it allows for greater differentiation in service offerings and because competitors fare better when they control their own destinies. But as we ruefully learned, a detailed regime of wholesale regulation is virtually impossible to administer in the face of determined resistance from incumbent providers."

"Do not pick winners and losers. Technological and competitive neutrality should be the goal. We do not have different regulatory regimes for wireless depending on whether a given provider uses Global System for Mobile Communications (“GSM”), time division multiple access (“TDMA”), or code division multiple access (“CDMA”)—or Evolution-Data Optimized (“EV-DO”). Technology changes too fast to base regulation on a specific technology, and regulators should not skew outcomes anyway."

"Think, and think again, before imposing regulatory restrictions. Many of the things that seem important when lobbyists are pressing their case turn out to be inconsequential within the not-too-distant future."

As I said above, there is much in these statements that warrants serious consideration by the current FCC Chairman and Democratic majority. Commissioner Ness was correct – and perceptive in recognizing back in 2006 – that the Telecom Act of 1996 is transitional legislation. It ought to be even more obvious now than it was then that the Communications Act needs an overhaul. A primary aspect of such overhaul should be the substitution, for decision-making purposes, of antitrust-like competition standards for the indeterminate "public interest" standard that pervades the act. This reorientation would require that the agency's decisions be grounded more rigorously in economics and less in politics.

And, for present purposes, if Congress determines there is a need for the FCC to have authority to regulate the Internet, it should devise a narrowly-circumscribed statutory provision that requires a showing of market power and demonstrable consumer harm before the agency takes any remedial action. Unless and until Congress determines the FCC should have such authority, the express admonition in the 1996 Act – highlighted by Commissioner Ness – that the Internet should be unfettered by federal and State regulation should be heeded, not circumvented, by the FCC.

Finally, I confess that Chairman Genachowski's current course, one of persistence in trying to impose net neutrality mandates even after the Comcast decision, puzzles me greatly. The fact of the matter is that there is no present evidence of market failure or of consumer abuses requiring the Commission to implement a regulatory regime for the Internet resembling the one employed to regulate the railroads – before the railroads were deregulated thirty years ago. In his Brookings speech on September 21 laying out his plan for net neutrality regulation of Internet providers, Genachowski acknowledged: "We cannot know what tomorrow holds on the Internet, except that it will be unexpected." And then he added this: “I understand the Internet is a dynamic network and that technology continues to grow and evolve." There was a real disconnect, even then, between his words, like those, and the reality of his proposal. On that September day, I wrote a blog about what I called his "immodest proposal for Internet regulation."

Now, the rejiggered course proposed – abandonment of a successful agency decision, successfully defended in the Supreme Court, that broadband Internet service providers should not be classified as common carriers – is even more immodest. Since the Chairman has acknowledged the Internet is a dynamic network and that technology continues to grow and evolve, just a modicum of regulatory modesty would caution against proceeding further without congressional sanction. It would be appropriate to consider carefully the words of former Commissioner Ness reproduced above, especially: "Think, and think again, before imposing regulatory restrictions."

And it would also be appropriate to be mindful of the "Law of Unintended Consequences," which Commissioner Ness chose as the title for her law review article.


PS – I would like to dedicate this particular blog to the memory of Larry Darby, who passed away suddenly on Tuesday. Larry was a distinguished economist. He served as Chief Economist and Chief of the Common Carrier Bureau back in the late 1970s, and I was fortunate that my service at the Commission overlapped with his. He was a fine civil servant who cared deeply about doing a good job for the Commission, especially encouraging the development of then-emerging competition, while at the same time protecting consumers.

Most recently, Larry was a Senior Fellow at the American Consumer Institute. You can read much of his recent work, superbly data-driven and rigorously analytic, on the ACI website. In the past half dozen years, we had reconnected, and we reminisced often and fondly about our time together at the FCC and about how much the communications environment had changed since those bygone days. Of this I am certain: Larry knew a monopolistic environment when he saw one in the 1970s Ma Bell era. And he understood that those days were long gone, supplanted by a technology-driven competitive environment that hardly could be imagined during our FCC days. To my mind, this understanding is why in recent years Larry became such a steadfast, articulate opponent of net neutrality regulation. Indeed, in a May 7 posting concerning Chairman Genachowski's Title II regulatory proposal, Larry had this to say: "Notably missing from the statement is any link between means (more FCC regulation) and ends (more investment, more innovation, more competition, greater consumer welfare, etc.) The reason is in equal parts obvious and distressing. There is not a shred of evidence that more regulation – light, heavy or in between — will advance any of these goals. None."

Larry's family and friends can be proud of his body of work, and the legacy he leaves behind by virtue of his intellect, good humor, and collegiality. But for all I have said about him – which praise might embarrass him into silence – I'm sure, as to all the rest, Larry would say, "Keep up the good fight!" Larry Darby, RIP.