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Friday, September 16, 2005

Communications Reform and "Social" Obligations: Looking for Another Way
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Not unlike Ray's comment on the FCC's recent Wireline Broadband Order, the draft communications reform bill just released by the House Commerce Committee includes elements of promise and peril. On the one hand, the draft (and the ensuing discussion) offers another chance to consider how to promote broadband by limiting regulation of these competitive services primarily to so-called "social" obligations. On the other hand, the bill highlights the risk policymakers will fail to consider where regulation may not be needed at all, especially with respect to social goals.

One of the chief benefits of the draft bill is that it continues discussion of the need for meaningful communications reform. In this regard, it attempts (aside from some counterexamples) to embrace the conventional wisdom from the 1996 Act and the FCC that minimizing "economic" regulation of rates, terms and conditions for broadband and broadband-related services will promote its deployment. Moreover, at least with respect to broadband Internet access itself, the draft embraces the wisdom that such intrusive economic regulation may not be necessary to protect consumers, public safety and other social goals. The promise of this approach is that it focuses attention in the reform debate on achieving these social goals somewhat directly, rather than as a collateral benefit of soup-to-nuts economic regulation.

The peril arises because, in many places, the draft assumes too readily that social goals cannot be achieved in the absence of a government mandate. The draft takes the welcome step of requiring Internet voice providers to contribute to universal service contributions only if the FCC decides such contributions are appropriate. Yet the draft imposes several other obligations on Internet voice (e.g., "dial 911" emergency calling and disabilities access requirements) without any consideration or inquiry of whether these goals might be satisfied by market and technological developments or other voluntary actions by industry. Similarly, as Adam has discussed at length, the draft would impose the panoply of traditional cable social obligations (e.g., public access channels, prohibitions on discriminating against poor consumers) on other providers of broadband video services before determining whether the expansion of video competition beyond cable and DBS merits a new approach.

The point is not that pursuing these social goals is a bad thing. Many of these goals are tightly woven into the fabric of our lives individually and collectively. As a former regulator, moreover, I fully recognize that the ultimate goal for communications regulation must be to maximize consumer welfare, and that may require government to play a central role. But the lesson of the last several years is that market and technological developments often benefit consumers more than regulation, not just by maximizing incentives for companies to compete on price and service but also to innovate. Thus, although the draft's attempts to eschew the most onerous forms of economic regulation are laudable, its decision not to consider whether several mandates are necessary, particularly with respect to social policies, may deserve further thought.

The peril implied by assuming mandates are necessary to achieve social policies is dramatized further by its impact on the overall framework for regulating communications. As discussed elsewhere, many of these policies emerged when communications services were provided over distinct networks in separate markets with their own economic characteristics. Regulation followed suit, treating each service and network separately. But as convergence melds communications functionalities and provides them over increasingly multi-purpose broadband networks, these distinctions have become less sustainable, and this trend is only likely to intensify. Simply put, the more services are provisioned the same way, the less sense it makes to regulate them differently and the greater the risk that regulation will distort what gets offered and sold in the marketplace.

Can Congress or regulators impose social mandates without regulating services and technologies separately? Probably not, or at least maybe they shouldn't. In applying such mandates, even market-oriented policymakers are faced with a "Hobson's choice:" They can apply the mandates to services "like" traditional services and thereby keep regulating services differently (e.g., apply 911 requirements only to Internet voice). Alternatively, regulators can apply the mandates to a broader array of services (e.g., extending 911 requirements to Internet video games that include a voice feature). Either way, the mandates will dampen and/or distort investment, impose costs and otherwise make it more difficult for companies to provide service to their customers.

To its credit, the draft bill picks the lesser of these two evils, limiting obligations that already apply to voice to competing Internet voice services, and limiting obligations that apply to cable to other broadband video service providers. Thus, its decision to continue the tradition of regulating different services and technologies separately must be viewed through that favorable lens.

That said, this Hobson's choice can be avoided to the extent government pursues social policies without imposing mandates, such as when regulators use the "bully pulpit" to encourage voluntary action by industry, or when regulators discover that market forces are already achieving desired goals. In these situations, separate regulatory treatments are not necessary because there is no "treatment" at all.

Can social policies always be achieved without mandates? Probably not. In cases of true "market failure," the government may need to insist that the private sector provide benefits for which it does not face adequate incentives. But the government won't know whether the market has failed unless it asks.

Thus, as debate surrounding the draft bill percolates in the coming weeks and months, one can hope that Congress (as the bill has with respect to Internet voice providers and universal service contributions) will consider whether some of the social policies to which it appears committed can be promoted without regulatory mandates. If Congress does that, it will shift the bill's impact on the debate and on whatever becomes law more decidedly toward promise and away from peril.

posted by Kyle Dixon @ 6:27 PM | Broadband , Cable , Capitol Hill , Communications , Innovation , Internet , Net Neutrality , The FCC , Universal Service , VoIP , Wireline

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