Do We Need To Regulate Communications At All?
In a recent session on Google Hangout, House Energy and Commerce Committee chair Fred Upton (R-Mich.) and Communications Subcommittee chair Greg Walden (R-Ore.) announced an effort to overhaul the 1934 Communications Act. Hearings will be held throughout 2014 in preparation for a legislative push in 2015. And Tom Wheeler, newly appointed chairman of the Federal Communications Commission (FCC), recently released a network manifesto of sorts, praising the importance of networks in driving human innovation and economic growth. These discussions are encouraging, because change is desperately needed when it comes to regulating communications technologies.
Today's world is vastly different than that of 1934; indeed, communications technologies today are far different than in 1996, the last time the Communications Act was updated. At the time of the rewrite, there were roughly 38 million wireless subscribers. By 2011, that figured jumped to 317 million. Just as important, today's phones are smarter, with each connection providing the opportunity not just to talk, but to download information, get directions, or email friends and family.
Technology has transformed the way we live, touching almost every aspect of our lives, from how we talk to others, to how and what we listen to, to what we watch and where we watch it. The old lines are blurring, or have completely disappeared, making much of the FCC's compartmentalized stovepipe regulation woefully inadequate for the 21st century. Simply watching NCIS raises a number of questions for regulators: Is the show on television? Delivered over the airwaves, or by a cable network, or satellite? Or maybe it's watched on a smartphone or tablet? More and more, the way technology is used does not fit the FCC's world, raising a number of disparities in how providers are treated.
Unfortunately for consumers, the one area that seems impervious to technological change is regulation. Broadband and communications providers continue to labor under legislation written in 1996-when today's cutting-edge technologies were not even on the shelves. As a consequence, there is a disconnect between technology and consumer expectations on the one hand, and regulation on the other, with outdated laws hurting consumers by hampering the adoption of new technologies.
As Nobel laureate Ronald Coase noted in his discussion of the FCC in 1966, "However fluid an organization may be in its beginning, it must inevitably adopt certain policies and organizational forms which condition its thinking and limit the range of its policies. Within limits, the regulatory commission may search for what is in the public interest, but it is not likely to find acceptable any solutions which imply fundamental changes in its settled policies."
Technology has eliminated the borders between various products as messages, sounds and images are reduced to bits of data-zeroes and ones that can carry virtually any information a consumer requires. Just as the industry is re-inventing itself, governments must re-examine the regulatory framework to eliminate outdated laws that impede competition and delay improvements in functionality that consumers have come to expect. The legacy of rate regulation and natural monopolies is a poor reference point for future policy. Old notions of regulated utilities are already impeding competition and deployment of new technologies.
Chairman Wheeler outlined a three-pronged approach for the FCC in his tract on networks: First, "promoting economic growth and national leadership"; second, "guaranteeing the network compact"; and third, "enabling the public purpose benefits of networks." The first prong suggests it would be prudent to abandon the common carrier mentality and adopt a market failure test to replace its "public interest" test for intervention. These new markets are competitive, and absent demonstrated cases of market failure, there may be little need for regulatory oversight. The second prong-the network compact-is an opportunity to revisit the issue of universal service, the source of many distortions in today's market. The cross-subsidies common to the public utility model are problematic in a competitive market. Finally, the third prong-enabling the public purpose benefits-leaves the door open to excessive regulation. While the network must be secure and available in emergencies, it should be up to the providers and users of the network to shape the services that it provides.
Congress is right to hold hearings on reform, and Chairman Wheeler has outlined his view of change. The FCC regulates the technologies that will drive innovation and spur economic growth. Lawmakers need to disentangle the various objectives of communications policy in order to redefine both market and government priorities. Perhaps the first question to ask is whether regulation is needed at all.
