This week juxtaposed calls by Congress [TRDaily subscription required] to shore up interoperability of public safety communications shown lacking by Hurricane Katrina and an update from Vonage [TRDaily subscription required] that 97% of its customers say they know whether they can "dial 911" for emergency help, as recently required by the FCC. This, and the threat that Internet voice providers may have to disconnect customers who don't respond to the 911 inquiry later this month, dramatized some of the trade-offs related to imposing public safety and other "social" obligations.
My use of the term "trade-offs" is deliberate, for the value of maintaining communications during a crisis was self-evident even before the terrorist attacks on September 11, 2001. Post-Katrina, that value is undeniable.
Still, like any regulation, public safety requirements impose costs. And not just the costs borne by providers to comply with new rules. Costs are imposed on consumers as well, both in terms of additional charges by which providers pass on their compliance costs, and in terms of the opportunity cost to consumers when fledgling companies are delayed or prevented from expanding competitive choice in the marketplace.
This latter phenomenon reflects an uncomfortable truth: regulation tends not to affect all companies equally. To the extent it imposes fixed costs for equipment or other inputs, regulation may favor larger, more established companies that can spread those fixed costs over more customers.
Moreover, regulation tends to reward or prove less onerous to companies well-practiced in the "fine" art of being regulated. Companies enjoying such mastery, as public choice theory predicts, may be more adept at shaping how rules are written to minimize their own burdens while maximizing those of their competitors. Such masters are also more likely than less established companies to maintain the expertise and infrastructures that make understanding and implementing regulation easier.
These advantages may be exacerbated by the inexorable creep of digital technologies. Together with the Internet, these technologies divorce services and content from the communications networks they use to reach consumers. This trait -- a blessing, really -- means that more and more of the service choices available to consumers will come, not from traditionally regulated companies, but from companies that are (or fancy themselves to be) more akin to largely unregulated computer and Internet companies. And these companies generally are no match for traditionally-regulated companies when it comes to the day-in, day-out minutiae of monitoring, influencing and ultimately complying with the actions of administrative agencies.
Granted, not all is bleak for the upstarts. If nothing else, their nimbleness and the flexibility of digital technology should help compensate for disadvantages these companies may face in some regulatory battles. Further, even if some companies fall victim to the demands of public safety and other social policies, their demise may be more than justified if lives are thereby saved or consumers reap other off-setting benefits.
In any event, Hurricane Katrina and other tragedies appear to have renewed policymakers' commitment to imposing "social" obligations even on services that may escape rate-setting and other intrusive forms of "economic" regulation. And arguments that consumers are protected when they know the shortcomings of services they choose freely may fall, increasingly, on deaf ears. That, indeed, may be the right thing to do. But we should recognize that the costs and tradeoffs associated with following this course will spread far beyond the companies that will need to comply with new rules.