Thursday, June 27, 2013

Competition Will Produce Better Outcome for IP-Network

Greg Vogt – Guest Blogger

The FCC is now considering the evolution of the telecommunications network from the existing “public switched telephone network” to an Internet Protocol-based network.  AT&T's recent petition filed at the Commission requesting IP-transition trials, along with other proposals, is prompting increased attention to the inevitable transition to an all-IP network.

Former Chairman Genachowski tasked an advisory committee, the Technology Advisory Council, to look into the transition and make recommendations for possible FCC actions.  In a 2011 Memorandum, the head of the TAC, Tom Wheeler, recommended, among other things, (1) establishment of common metrics to promote broadband network quality and (2) identification of potentially stranded investment in equipment consumers use to obtain services using the PSTN.  The TAC recommendation seemed to be encouraging public discussion, not necessarily government regulation.

Now, of course, Mr. Wheeler is the Obama administration’s nominee to Chair the FCC. He is well-respected, and he has extensive involvement with the telecommunications industry.  In the written testimony for his June 18 confirmation hearing, Mr. Wheeler stated: “Competitive markets produce better outcomes than regulated or uncompetitive markets.” This perspective is highly commendable because it recognizes that private enterprise competing in the marketplace can make better decisions than government, which doesn’t suffer adverse consequences from potentially ill-conceived decisions.

In describing the transition to an IP network in response to a question, however, Mr. Wheeler said that the transition should not happen without the Commission developing a “stratagem” to develop a “planned structure” to “mitigate” the transition’s impact.  He opined that individual companies changing things on their own could lead to “dislocations and harm to consumers.”

It is unfair, of course, to take individual statements out of context, and general congressional testimony is untethered from a factual context necessary to most decisions. But, considered in one vein, Mr. Wheeler's comments possibly could be taken as favoring too much government management of the transformation of the network, like the government did when over-the-air TV was converted to digital, an example Mr. Wheeler identified in his oral testimony.  However, the TV digital transition was clearly a different animal because TV stations used government-owned radio spectrum. The spectrum rules needed modifying for the digital age and to protect against interference.

The PSTN, on the other hand, was built largely with private plans and investment.  In 2010, the FCC reported that the telecommunications industry had made approximately $777.7 billion in private capital expenditures for the years 1998-2008. Over this same 10-year period, the report concludes that only approximately $34.6 billion, or 4.4 percent, was funded through federal universal service support, which was paid for by consumers. Even much lower investment was made possible through public grants and loans:  the Rural Utilities Service reports that some $13 billion has been invested through its telecommunications program, mostly of that amount through loans.

Even though the wireless part of this network involves government-regulated radio spectrum, there has been virtually no wireless operations regulation or network management.  The government did almost nothing to create a “planned structure” and the vast majority of consumer “dislocations,” if any, were not caused by network operators.  Other than very limited consumer regulations, what part of the wireless network development required “impact mitigation”?

This private-investment-based network of networks is most certainly evolving from an analog, circuit-switched model, to a digital, IP-based model.  This is happening without government mandates and is occurring for legitimate business reasons.  Consumers want these improvements and are willing to pay for them. 

Mr. Wheeler’s prepared testimony appears to recognize this fact. But the hypothetical notion that the FCC might help to create a “plan” for the transition to the IP network to prevent disruptions caused by individual company decisions at the same time says way too much about government’s potential benefits, and way too little about the benefits of competition and private investment.  The notion of government management of private decisionmaking, or a “planned structure,” quite often leads to disastrous results because the “management” is guided by amorphous notions such as the “public interest,” not economics and sustainable business plans.  Focusing instead on limited consumer safeguards, such as ensuring continued access to emergency services, would be sufficient without interfering with the evolution of the network.

A generally deregulatory, hands-off approach without unnecessary government interference would produce a far superior network, and, as Mr. Wheeler put it so well, “better outcomes.” These better outcomes will occur faster and with less money than they will with overly intrusive government mandates.  Producing certainty so that business can feel comfortable investing in the evolving network can occur if the government recognizes it generally should adopt a hands-off approach to the IP transition.