Wednesday, May 26, 2010 - The Progress & Freedom Foundation Blog

Abolishing the FCC and Other Fun Thoughts

Just the other day, leaders from the House and Senate said they planned on updating the Communications Act. Maybe they've finally started listening to us - we proposed doing this back in 2005, with PFF's Digital Age Communications Act (DACA). Or, perhaps the FCC's so-called "Third Way" doesn't look like the "no-brainer" that the agency spun in its press releases. Well, whatever their intentions may be, it certainly couldn't arrive at a better time.

The framing is all important, of course. Art Brodsky of Public Knowledge (ostensibly one of the groups "writing" the next Act) says Americans shouldn't worry about the FCC's "Third Way." In his view - "The government is not taking over the Internet. What the government is doing is engaging in traditional consumer protection, traditional regulation of a telecommunications service that will get people to the Internet." PK seems happy with this model - whether done at the FCC, or at Congress' hands.

Hmmm...Getting people to the Internet? Traditional, simple stuff. Sort of like strolling to the store, or peddling to the park. Or, like in childhood, making a call from tin cans and string - which is what'll result if PK and their ilk have their way.

The biggest part of this exercise remains the administrative box we cannot seem to live without. Why does the FCC, or any ever-engorging Code of Federal Regulations rule maker, have to mediate success. This is 19th Century thinking for 21st Century networks - how dated.

The DACA approach represents a middle-ground proposal, which seeks to work within current federal regulatory constraints to reduce innovation-killing regulations. I do not want to belittle that considerable proposal. Still, in my estimation, it does too little to reduce the regulatory sclerosis that is the FCC. So, I propose something more radical, along the lines of a 1995 PFF paper, entitled "The Telecom Revolution - An American Opportunity," by Drs. George Keyworth, Jeffrey Eisenach, and Thomas Lenard. Like the 1995 paper, my plan would take a more functional analysis toward government's meddling in our digital revolution.

Buh-bye, FCC - Consumer protection becomes new touchstone

The first thing I'd do is "dynamite" the FCC, once and for all eliminating the vestiges of the abolished, 19th Century, Interstate Commerce Commission, the first "independent agency" which morphed into the FCC itself in 1934. The Communications Act's titles would thus be cast like the Diaspora across the lands. Where issues arise, common law / property law (as proposed by Peter Huber in his "Law and Disorder in Cyberspace"), marketplace guidance, the evolution of technology tools, consumer education tools and empowerment, industry best practices, and present competition policy enforcement (based on actual, not conjectured, consumer harm) would address disputes and concerns. Anything that touches the network is the network, and consequently, interstate in nature. While federal jurisdiction would predominate, fair trade practices would still be dealt with in the bifurcated manner they are now - state and federal.

Make no bones about it: Title-based application of the Communications Act would end. It makes less and less sense in the age of digital convergence. It actually runs contrary to innovation, investment and consumer interests. Consequently, the last point - consumer interest - is actually the starting point for this new system of "regulation." One thing that should not change is the need to ensure consumer protection. Thus, some role for competition "policemen" must remain. There are two approaches that could work to prosecute consumer interest, based largely on an ex post approach such as seen at the FTC. If the FCC has not been abolished, residual authority could be vested in a more modest FCC, or special FCC competition (or other) court. Of course, if the FCC is gone, competition policy could be enforced in either the FTC or DoJ.

And now for the "Lite" version

All of this may be unsettling to some. Certain areas of FCC practice may demand a "lite" version of the "dynamite approach." To this end, the FCC plays an important and useful role in Part 68 (technical standards) issues; it might be prudent to keep some FCC authority so that the expert body can continue in this function. Of course, numerous NGO / third-party technical bodies exist in this space (the Internet is essentially "run" / aided by many of these). It would not be inconceivable to see some of those functions outsourced there. Still, the industry and consumers win where there is less "technical kvetching" or uncertainty occurring - this organizing function, however it occurs (aided, one trusts, by marketplace guidance), must continue.

Universal service - i.e., helping people get telecom / Internet access and then keeping them hooked up - is another area that needs more subtly. One approach would be to fully voucher-ize telecom / broadband hook-up so that it takes the form of a means-based tax credit, or outright subsidy, going directly to consumers instead of companies. This would be a yearly, on-budget tax appropriation that would self-execute at the end-user. An alternative to (or, in addition to) would be allowing marketplace levers to rate-rebalance to what it actually costs to get service in a given service area. At the very least, the two plans would eliminate the need for the explicit, approximately $7 billion USF "subsidy," as well as reducing the implicit subsidies, providing proper economic calls to incentivize other competition.

To a large extent, mass media and wireless spectrum allocation matters can be approached together. Both relying on spectrum, like any property, that spectrum should be placed on an open market exchange to find its highest bidders. Licensing would look more like state real estate law, with deeds and titles filed with either the FCC or the Department of Commerce (which "has" the lion's share of spectrum). "Public interest" determinations - whatever they are - would go by the wayside. Indecency matters could be addressed through a strict scrutiny approach to the First Amendment, taking the FCC out of its "indecency policeman" role. Ownership, market cap and other competition issues could be dealt with via competition policy as noted above. And, spectrum allocation matters and disputes - where they could not be addressed through common law / property law - could be placed with a special FCC or DoC court.

Finally, cable services. Treat them like telecoms. Yes, franchising / fees / PEGs should still go through the states / localities, subject to a federal ceiling. But, federal courts could address any related rights-of-way or state competition / barrier-to-entry matters and other matters on a case-by-case basis.

Less regulation built the Net; more regulation won't

To be sure, the Telecom Act of 1996 was imperfect. But its goal, "To promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies" has taken hold. Especially for the Internet.

Section 230 of the Act really spells it, stating "...The Internet and other interactive computer services have flourished, to the benefit of all Americans, with a minimum of government regulation" and then boldly proclaiming "...It is the policy of the United States to promote the continued development of the Internet and other interactive computer services and other interactive media; to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation; to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet and other interactive computer services..."

Inarguably, the FCC has played no small role in where we are today. But, let's also point out that the Internet - perhaps "the greatest deregulatory success story of all time," as noted by FCC Commissioner Robert McDowell - flowered primarily from the agency pulling off of the regulatory gas pedal, not adding speed to it.

For nearly three-quarters of a century we have labored under the belief that one federal body could help communications networks thrive for consumers. In days gone by - when the natural monopoly ruled; when the Internet had not yet connect one geek; when digital technologies were the on-and-off of a glowing vacuum tube - that may have made sense (all competition and marketplace distortions aside, of which, even then, there were plenty). Now, in this time of rapid technological change and abundance, instead of moving beyond that 19th Century mindset, we seem poised to return to it, with even more hooks than before. We can't want that (even some D's appear to waver on some of these pro-regulatory proposals).

We don't need an authority-hungry FCC anymore. Combined with common law / property law, the advance of technology, consumer education, marketplace guidance, industry best practices and present (not expanded) consumer protections, consumers and innovation can thrive simultaneously. If this poses heartburn, or proves politically unfeasible, PFF's DACA approach represents a good compromise position. It keeps government regulation to a minimum and helps consumers.

Suggesting more regulation in this time of abundance - now that's radical, offensive to markets and consumers, and, like the tin cans and string of our childhood, ineffective.

"Hello, Art, is that you? Can you talk up a bit? My tin can seems to be on the blink today." We're headed there if we do not rid ourselves of 19th Century thinking and regulation.

posted by Mike Wendy @ 2:11 PM | Antitrust & Competition Policy , Broadband , Cable , Communications , DACA , Innovation , Internet , Local Franchising , Mass Media , Media Regulation , Net Neutrality , PFF , Regulation , Spectrum , State Policy , The FCC , The FTC , Universal Service , Wireless