Friday, November 18, 2005 - The Progress & Freedom Foundation Blog

In Search of Appropriate Social Goals in Communications Regulation

Last month, I posed several threshold questions by which policymakers can clarify the ends and means of social regulation in communications. In doing so, however, I provided little guidance regarding which ends were appropriate. I asked only that, as policymakers clarify these ends, they look at all the goals of social regulation in conjunction with economic regulatory goals.

My failure to say more at that time about what social goals are appropriate stemmed, in part, from the unfortunate truth that deciding which non-economic goals are appropriate for communications regulation is ultimately a subjective exercise. As in past and current attempts at communications reform, these subjective judgments tend to result in social obligations spilling forth as "laundry lists" to which everyone involved contributes their pet obligations, with no obvious limitation on what obligations will be imposed next.

Nevertheless, my contention that policymakers should set forth the goals of communications regulation comprehensively and with specificity does provide some guidance on how to make these judgment calls. In particular, policymakers should resist pursuing social goals that they cannot (or will not) reduce to discrete and measurable requirements.

Policymakers face several imperatives in deciding which goals should be pursued via communications regulation. I have discussed previously, for example, the need to consider whether regulatory mandates (as opposed to market or other voluntary activity) are necessary to achieve the desired ends. Another imperative is ensuring that government can pursue the desired goal at all (i.e., that the goal is permissible under the First Amendment).

But perhaps the greatest challenge for policymakers in a digital age is ensuring that regulation does not skew or suppress rapid change in communications markets and technology. Specifically, policymakers must recognize that the enhanced competition and innovation inherent in Internet and other digital technologies make it increasingly likely that markets can replace regulations as the most effective methods for promoting consumer welfare. This welfare will manifest, not simply as new services and expanded choices of providers, but also as a growing diversity in the business relationships according to which firms will collaborate and contribute to an increasingly sophisticated and personalized user experience. Thus, regulators will continue to be pressed to determine when existing or proposed rules do not fit the new, more dynamic environment.

Even when regulators determine that government involvement is necessary, moreover, they will be pressed to tailor that involvement to particular circumstances and to keep the overall scope of the intervention clearly contained. Otherwise, they risk discouraging or distorting firms' welfare-enhancing activities. In a world of rapid change and expanding variety, regulators do well to treat their actions less as detailed management of the industry and more as surgical strikes (e.g., regulators may protect against abuses of market power more effectively through adjudications than through rule making, as some have argued).

The task of making regulatory intervention more tailored and contained strongly favors pursuing communications policy goals that have been made discrete enough to be measured easily. An example of this might be reducing the broad goal of combating fraud to specific requirements, such as prohibiting companies from switching customers to their service without consent (i.e., slamming). The idea, much like the FCC's standard for delegating authority to its bureaus and offices, is to clarify what is necessary to achieve the desired goal so much that regulators need not conduct further detailed analysis to determine which companies are in compliance and which are not. When policymakers leave social goals ambiguous, they cannot implement them without further deliberation internally and with interested parties. This additional deliberation lends itself to regulatory inertia, "rent-seeking" and legal uncertainty. In contrast, regulators are more effective at intervening quickly and in a tailored way when what they are trying to achieve is concrete and easily identified.

The benefits of discrete and measurable social requirements are clear whether government chooses to intervene "after the fact" through enforcement or more preemptively. The enforcement approach has clear advantages, of course, as it obviates making predictive judgments about "bad" future behavior that may never come to pass. But clarifying which behaviors are required or are unacceptable through specific, prophylactic rules at least ensures that companies will be able to assess their risks and build their business plans without the delay or uncertainty associated with vaguer mandates, such as the need for license transfers to be "in the public interest."

Further, creating an expectation that social goals will be reduced to discrete and measurable requirements would tend to discourage disingenuous behavior. Regulators and companies that claim they are committed to furthering social goals through mandates will feel pressure to reduce those goals to specific requirements and to satisfy those requirements. Making social goals more discrete and measurable also would make clearer when regulators are trading off other important goals or are pursuing constitutionally questionable actions. In addition, reducing social goals to specific requirements will encourage regulators to clarify which companies must comply and which do not. This approach may expose asymmetries in how competitors are regulated or other anomalies that may favor pursuing the goal through market or other voluntary action, rather than through mandates.

The importance of making social obligations discrete and measurable suggests that policymakers should be circumspect about pursuing social regulation pursuant to the "public interest" standard. This would include the use of mandates to promote media diversity and localism, as well as aspects of merger review proceedings. The vagaries of that standard often provide little guidance to regulators or to companies as to what behavior is required or prohibited. Consequently, regulating "in the public interest" generally invites gaming by parties, the exercise of unrestrained discretion by regulators and the other problems associated with the absence of discrete and measurable requirements.

Other types of potential social regulation are similarly vague and, thus, problematic, even though they may not fall under the "public interest" rubric. Goals such as universal service, access by persons with disabilities and even public safety and homeland security appear to fall into this category. These goals, at present, may be reflected in some discrete and measurable requirements. But policymakers tend to think of these goals more broadly than these specific requirements, and there are few obvious limits to the amount of regulation that could be imposed to further the broad goals. This is not to suggest that mandates in these areas would never be appropriate, just that regulators should specify how they and regulated companies will know when these goals have been adequately furthered.

In contrast, where market or other voluntary action will not suffice, regulators should feel somewhat more comfortable pursuing social goals that have been reduced to discrete and measurable obligations, such as prohibitions against slamming and cramming and notice requirements intended to protect the privacy of information generated by communications customers.

Again, the approach of making obligations discrete and measurable likely will not eliminate the subjectivity inherent in social regulation. But perhaps this approach will avoid some of the problems associated with social regulation or, at the very least, encourage others to proffer better approaches for minimizing the damage that social regulation can inflict on consumer welfare.

posted by Kyle Dixon @ 1:12 AM | Broadband , Cable , Capitol Hill , Communications , Free Speech , Innovation , Internet , Mass Media , The FCC , Universal Service , VoIP , Wireless , Wireline