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Thursday, February 5, 2004

The Regulatory Right Jabberwocky
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"Somehow it seems to fill my head with ideas -- only I don't exactly know what they are!"
Lewis Carroll, Through the Looking Glass

Grover Norquist is an indispensable foe of taxes, a place where we strongly agree with him. But he knows very little about broadband.

This is on display in a January 26, 2004 letter he sent to the White House. It is a classic of the public policy as agitprop genre. Unfortunately, ATR does not have it up on its website, so I shall quote liberally from the copy I received.

The genre is aimed at a specific audience: policymakers with limited grasp of or patience with the arcana of communications policy but who nonetheless might be swayed by political epithets and non sequiturs.

The letter starts spectacularly. What bugaboos get Republicans' blood boiling? Why Hillary Clinton, unions and government bureaucrats, fully three of the four horsemen of the apocalypse:

It is with great concern that I learned of the attached letter you received from Senator Hillary Clinton and signed by several other Democratic Senators, calling on the White House to create a "national policy on broadband," a specific catch phrase refined by a handful of union-dominated monopolies and government bureaucrats to micromanage broadband deployment.

The enthymeme here is, if these (bad) entities support deregulation, then all good Republicans should oppose them and by extension therefore support regulation.

This Through the Looking Glass Moment then slides into equating a call for broadband deregulation with industrial policy, the practice of government regulators deciding market outcomes:

Senator Clinton's embrace of an industrial policy model for our technology and telecommunications economy should come as no surprise: many in the Clinton administration ... were strong advocates of copying industrial policy models of our international competitors, such as Japan's Ministry of International Trade and Industry (MITI).

Thus ends the first non-sequitur.

To be sure, the Clinton FCC under Reed Hundt pursued an aggressive industrial policy of unbundling and market outcome manipulation in order to induce competitors into the narrowband communications markets. Indeed, the market is still trying to recover from the Reed Hundt hangover. For my part, I do not know Senator Clinton's full meaning when, in her letter, she states: "We fear that the absence of a clear government broadband policy is stifling capital investment and in many cases denying consumers the benefits of new technologies they want and need." But that sure doesn't sound like a call for government enacting preferences for broadband to me.

ATR's letter turns the issue on its head. The current hyper-regulatory mess is called the free market. Moves toward a less regulated broadband regime are deemed industrial policy. Right now, a host of legal and regulatory actions have the broadband incentives in upheaval. The Brand X Internet case leaves the cable players uncertain; the Triennial Review and murky status of section 271 unbundling freezes Bell fiber plays. Though the rather grandiose title "National Broadband Policy" sounds industrial policy-ish, it turns out to be a rather straightforward retreat from pervasive administrative regulation toward a reliance on traditional market norms of contract and property.

Moreover, the unfortunate reality in communications is that policymakers don't have a choice about making industrial policy. The country's entire communications history is nothing but one big experiment in industrial policy, and a failed one at that. From the Kingsbury commitment in 1913 through Carterfone, the MFJ and the Telecommunicatons Act of 1996, Congress and the states have given one big fat industrial policy invitation: Do what is in the public interest. What does that mean? It used to mean regulate entry, regulate prices, regulate quality, order cross-subsidies. What do you get? A thriving market for regulatory favor, distorted rate structures to benefit-favored rate classes.

Industrial policy anyone?

By the Norquist measure of industrial policy, a court interpreting and enforcing a contract constitutes industrial policy. After all, in a contract suit, the government decides who wins and who loses. Yikes.

Admittedly, the task of undoing formerly protected phone monopolies and working out the regulatory status of new technologies like broadband and VoIP is difficult and perilous. For better or worse, "industrial policy" must be made because the '96 Act commands it. The question is whether this industrial policy points toward markets or sinks into the regulatory status quo. A move by the FCC to clear up cable modem's legal status and categorically eliminate unbundling requirements for fiber would go a long way to getting the forward-looking investment incentives right.

The straw man rejoinder to this is that I want to deregulate everything and unleash depredatious monopolists on the land. Far from it. First of all, there is no monopolist in the broadband arena. It is a new market being vigorously contested by competing platforms. Second, I am not against the regulation contemplated by the '96 Act. Indeed, I see a place for vigorous, narrow regulation of the interconnection relationship, and even the need for a modest, time-limited unbundling regime.

Grover, who has been such a champion of so many worthy causes, needs to delve deeper than this p.r.-firm level of broadband policy. Policy work from think tanks and advocacy groups is often accused of being bought and paid front advocacy for interested players. I do not think that this is true, or I wouldn't be in this business. But, policy work can become a race to the bottom where p.r. firm talking points crowd out more principled, measured thought. Pieces like this make that case easier to make.

Finally, here's hoping that the White House continues to listen to Grover on taxes, but listens to other conservative voices on communications policy. The fundamental metric for a free market administration to apply to telecom policy cannot be obscured behind the acronyms. Less regulation allows markets and the creative destruction of a dynamic sector more quickly to herald the digital age (and, not trivially bring jobs back to the equipment and carrier sector); the regulatory status quo will leave regulators trying to superintend the outcomes, allocate market share and redistribute rents between the communications carriers shareholders.

We do not now and have not had a free market broadband policy in this country. It is unfortunate that markets regulated only by traditional norms of contract and property need to be the substance of "national broadband policy" but in the bizzarro world of communications regulation property and contract are novel while pervasive regulation and government-determined outcomes are the norm.

posted by Ray Gifford @ 3:54 PM | General

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