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Thursday, October 27, 2005

DACA Rolls Through Boulder, Colorado
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The second conference of the Federal-State Framework Working Group of the Digital Age Communications Act (DACA) project offered familiar reactions to our proposal, as well as some new ones. Speakers at yesterday's conference, hosted by the University of Colorado's Silicon Flatirons Telecommunications Program, displayed a rough consensus that the current allocation of responsibility among communications regulators should be adapted to the rapid evolution of the Internet era. Likewise, speakers generally agreed with the Working Group's report -- co-authored by reigning dean of "cooperative federalism" Phil Weiser -- in insisting regulators at all levels must not impede the competition, investment and innovation made possible by digital technologies.

Beyond that common ground, however, speakers' views diverged, generally echoing significant disagreements that erupted during the Working Group's deliberations. Without restating those here, a few observations of the conference are in order.

Whither State and Local Regulatory Leadership?
Some speakers expressed concern that the Working Group's proposal to integrate federal, state and local regulation more tightly might choke off forward-thinking, beneficial experimentation by state and local regulators. Fair enough. An integrated regulatory regime cannot rule out the possibility that some state and local regulators might enhance consumer welfare more than the FCC. But this merely recognizes that regulatory integration and experimentation are largely tradeoffs. The key question becomes: how should a new regulatory regime balance these competing values?

The Working Group's proposal balances regulatory integration and experimentation primarily by providing states and cities substantial leeway to promote consumer protection, public safety, homeland security and prudent rights-of-way management. And depending on the outcome of any future DACA releases, states also could play a role in distributing federal universal service support and in helping the FCC adjudicate allegations of "unfair competition" in specific markets.

It also is worth noting that, in certain respects, the Working Group's proposal would do little to straightjacket forward-thinking state and local regulators. As discussed in DACA's various publications, much of what regulators (at all levels) can do to "adapt" to digital technologies is to accept that the potential competition inherent in these technologies often erodes or erases the justification for regulation. Thus, the proposal's limits on state and local regulation should not impair state and local regulators' efforts to get out of the market's way. Far from constraining these efforts, the proposal would require less insightful regulators to abandon traditional approaches that may do more harm than good in the current environment. Accordingly, the proposal serves as a complement to DACA's separate proposal to trigger economic regulation primarily when market power is abused (i.e., where competition may not promote consumer welfare adequately).

Allocating Regulatory Responsibility and Institutional Reform

Speakers at yesterday's conference also worried that the Working Group's proposal would hamstring forward-thinking state and local regulators by shifting some responsibility for adjudicating disputes from the states to the FCC. Another fair point. The current FCC may be less experienced than the most competent states to conduct adjudications. Much of the agency's energy in recent years has been devoted to broad rulemakings, either to implement new legislation or to address topics on which the Communications Act is shockingly ambiguous or deeply ambivalent. Many states, by contrast, conduct adjudications as a matter of course.

As the proposal notes, however, not all state regulators are created equal, such that many will lack the expertise or other resources to "out-judge" the FCC. More importantly, worrying that the current FCC might not be able to handle the adjudications envisioned by DACA ignores the reality that meaningful telecom reform also will entail reform of how the FCC operates. As when the FCC hired more litigators to beef up its enforcement efforts, the agency will have to obtain or develop the skills necessary to implement any new statutes governing its behavior, either through internal management decisions or through more sweeping institutional reform.

There is unavoidable risk that the substance of communications reform could outstrip policymakers' ability to make conforming changes at the FCC. But declining to assume that risk now would pronounce hopeless the prospects for meaningful telecom reform overall. And given the critical nature of communications to our economy and to our society, it seems too early to throw in that towel.

Taxation by Regulation

Finally, speakers on the conference's concluding panel discussed the issue -- which extends well beyond federal, state and local relations -- of "taxation by regulation." Richard Posner coined this term to describe the frequency with which regulators achieve ends, not by enacting programs paid for by general tax revenues, but by forcing regulated entities to behave in ways that deviate from their self-interest (e.g., shifting money from one set of consumers to another through "implicit" subsidies). The discussion yesterday emerged in reaction to the Working Group's proposal to ban states and localities from requiring local franchise fees (beyond the costs of accessing rights-of-way), public access channels and similar social obligations. Panelists discussed whether taxation by regulation should remain a feature of communications policy in the digital age.

To be clear, the Working Group's proposal takes no express position on this question. Read literally, the proposal merely preempts states and localities from pursuing the goals underlying public access channels and the like. The proposal does not preclude the pursuit of such policies at the federal level. That said, it would be disingenuous to deny that the proposal evinces some skepticism regarding whether government should be allowed to reap the "goodies" associated with taxation by regulation without adding the bill for these benefits to the ever-growing tab for government programs generally.

This skepticism is well-founded. The nature of taxation by regulation schemes is that they often go unnoticed even by astute observers, let alone the general public. Yet as communications services "converge" via increasingly flexible broadband networks, policymakers will need to consider whether enhanced competition and innovation justify eliminating these largely invisible schemes. Alternatively, to the extent taxation by regulation remains justified, policymakers will need to consider whether the underlying requirements should apply solely to traditional providers and services, or whether these obligations should be extended to new "converged" competitors.

In either case, and especially given the perceived importance of taxation by regulation policies, it would be odd (and arguably anti-democratic) for policymakers to make these momentous decisions hidden from the glare of public scrutiny. This does not suggest that taxation by regulation or other indirect approaches should be ruled out as means to achieve social and other policies. But it does suggest that, before policymakers settle on using such approaches, they should explain to the public what they are attempting to achieve, lest those aims turn murky or corrupt outside the light of day.

posted by Kyle Dixon @ 8:35 PM | DACA General , Federal/State Framework

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