Thursday, April 7, 2005 - The Progress & Freedom Foundation Blog

A Little Telecom Reform May Go a Long Way in the Short Run

As reported in National Journal's Tech Daily and TR Daily [subscriptions required], key staff and their bosses continue to predict that Congress will roll out telecom reform quickly over the coming months, rather than over the years predicted by conventional wisdom. Further, certain Congressional committees are reportedly trying to minimize the need to share control over telecom reform. Thus, one can add timing and turf battles to the list of reasons why policymakers and hangers-on should focus more on narrow approaches to telecom reform, at least in the near future.

Congress' concerns with timing and turf in the reform debate suggest it will not yet demolish the house of cards into which Internet voice and other digital technologies have turned the Communications Act. Instead, if Congress acts at all, it probably will build a new wing onto the statute and either rebuild the Act's fundamental structure later, or let it become increasingly irrelevant as technology evolves. This new wing primarily would consist of a "playroom" where companies can escape most traditional regulation in exchange for deploying new technologies with substantial consumer benefits.

Certainly, there are reasons beyond timing and turf battles why any reforms actually enacted by Congress will likely follow such a "playroom approach." Some industries with major lobbying clout, like cable and wireless, would rather avoid revisiting the entire Communications Act so as to minimize the risk Congress or the FCC will saddle them with the heavier regulatory burdens already imposed on phone companies. Large phone companies worry that a broad re-write could require involvement of the House Judiciary Committee or others that may not agree to free them to compete more effectively against their less-regulated competitors. Rural phone companies, ironically, seem poised to eschew comprehensive reform out of fear they would be deregulated, which also could force them to relinquish subsidies on which regulation has made them dependent. Consumer advocates decry even narrow telecom reform because they fear Congress will loosen rules that prevent phone companies from abandoning lesser-value services, customers and networks. Finally, though many providers of Internet content, applications or devices urge Congress to shield them from new rules, many are loathe to allow "too much" reform to extend similar treatment to competitors or other companies that build broadband networks.

If they revise the Act at all, the current leadership in Congress seems likely to decrease, rather than increase, regulatory burdens on communications companies. This preference and the political pressures described above suggest that any telecom reform that emerges will focus on situations where consumer benefits are undeniable but few important constituencies lose the government goodies they enjoy under the current regime. Limiting companies' regulatory relief to situations in which they offer newer and more valuable services (i.e., a playroom) satisfies these parameters nicely, as most recent legislative proposals evidence.

More importantly, a playroom approach may be more likely to benefit consumers in the short-term than attempts at broader reform, particularly with respect to promoting investment and innovation in new technologies. This is true, first and foremost, because a playroom approach stands a much better chance of actually being enacted, for the reasons offered above. Simply put, reforms that ensure at least some newer services are protected from regulation are more effective at promoting investment than no reforms at all.

Further, a playroom approach could be crafted in a manner that provides more regulatory certainty than broader reforms. The sheer scope of broad reforms expand the potential for unclear or inconsistent language that creative lawyers can litigate for years. In contrast, the uncertainty of a playroom approach could be limited by defining precisely the offerings that would thereby escape regulation. For example, services or technologies could be exempted from regulation described elsewhere in the Act or agency rules if they provide or use "last-mile" bandwidth above a certain numerical level. Congress could peg this bandwidth level so as to encompass high-speed technologies that are not yet widely deployed. This bright-line test, in turn, would enable companies and shareholders to invest with confidence that their rewards for building these technologies would not evaporate in the face of subsequent regulation. And Congress generally could reap these benefits without continuing the distortions of the current Act, which encourages regulators to treat similar, competing services and networks differently.

None of this suggests we must abandon as hopeless efforts to revise the Communications Act comprehensively. Likelihood of enactment aside, such efforts offer the prospect of eliminating more of the inconsistencies that increasingly plague the current regulatory framework, as I have argued elsewhere. Comprehensive efforts also may be preferable in the long-run to the extent they avoid skewing investment toward technologies that seem to deserve priority now but may not a few years from now.

But the advantages sketched here do suggest policy mavens should devote more attention to narrower reform options, like the "playroom approach" described above. Otherwise they may miss a critical opportunity to exert thoughtful influence on the type of reform Congress seems likely to adopt anyway.

posted by Kyle Dixon @ 10:52 PM | Broadband , Capitol Hill , Communications , Innovation , Think Tanks