We will turn to more substantive responses to the coalition's alarmism later, but it is rather remarkable that the rather august group of scholars we brought together could allegedly be so starkly misinformed and careless. In Mike Riordan and Simon Willkie, we have the participation of two former FCC Chief Economists. With Jerry Ellig, we have an eminent regulatory economist known for his work at the FTC and Mercatus, and Bob Crandall has few peers in analyzing regulatory economics. Dale Hatfield, meanwhile, is a rightful industry legend and former FCC Chief Technologist. Phil Weiser is incomparable in all ways, and decidedly moderate in his views on USF. Finally, the Roberts Atkinson, of PPI and CITI, respectively, have long reputations in the regulatory arena, with "Columbia Bob Atkinson" having been Deputy Bureau Chief at the FCC. I realize that arguments from authority are not dispositive, nor should they be, but I do submit that the DACA proposal brings serious intellectual firepower to the fore and offers a considered proposal to make universal service viable for the future.

The depressing part of all of this is the political reaction of the subsidized companies can be nothing but hysterical in the face of proposed reform. I cannot blame these companies for protecting their self-interest by continuing claims to subsidies, but their attempts to dress up their claim as anything more than Logic of Collective Action interest group rentseeking is unavailing.

I don't mean this as a cute or loaded question, but rather I sincerely wonder whether BITS with Trinko still vital as precedent would make the respective layers of the Internet realtively antitrust-free? I think the mechanics would be as follows:

Trinko can be read a number of ways, but it seems to me the best readings are as an institutional competence/separation of powers decision. In essence, the Court said that if Congress creates a prophylactic regulatory system that encompasses an entire industry sector, and if that system governs the economic and competitive relationships within that sector, then traditional antitrust will yield to that regulatory scheme. This is because the interrelation between the two systems of law could be potentially quite hazardous, and further because the theory of an administrative occupation of the regulatory field makes the agency more competent than the court to make the relevant decisions.

BITS (v. 2.0), meanwhile, extends the reach of the FCC's jurisdiction clearly and wholly within the Internet space. Instead of the current focus on physical networks, BITS gives the FCC regulatory authority over the logical (net neutrality mandate/interconnection) applications (VoIP) and content (broadcast rules) of the Internet protocol stack.

With the FCC then clearly having regulatory power over the entire Internet protocol stack, to what degree then does antitrust and competition policy fall by the wayside in favor of the specific mandates in the act?

Please discuss....this has to draw Professor Speta out.

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.

So, in another CNET piece, this one published in October 2004 and entitled "Calling for Regulatory Overall Bit by Bit," I called for a new communications law framework that would not be based on what I called "highly abstruse techno-functional constructs." I said such a regime would lead to continuing disputes about the boundaries of service categories that determine regulatory consequences. And I concluded: "What we need is a new market-oriented regulatory model, not a replacement regime based on another set of techno-functional definitions."

Regretfully, the discussion draft released by the House Commerce Committee staff late last week is a framework built on regulatory techno-functional definitions--classifications of BITS providers, VoIP providers, and broadband video providers with attendant regulatory consequences. The serious difficulty with this approach from a political economy and public choice standpoint is that, on the one hand it lends itself to legislators and regulators fiddling with the techno-functional constructs in ways that allow them to shape the market to their own ends, however well-intentioned. And, on the other hand, it leads those who might be benefitted or disadvantaged by manipulating the interpretation of such techno-functional definititons to invest in doing so.

For an example of the first hand, look at the broadband video provisions which require the provision of certain types of (not-yet-offered) integrated Internet functionalities in order to qualify for streamlined franchising treatment. Do the legislators (or regulators who will implement the provisions and, inevitably, the courts who will ultimately interpret them) really know what consumers will demand in the marketplace and or technological capabilities might evolve in the future, absent regulatory constraints, to meet such demand?

Or, to take on the second hand the market participants who seek to qualify for treatment as a BITS provider, or disqualify their competitors. Will the dispute over whether a new protocol is a "successor protocol" of the TCP/IP protocol really be anything other than a metaphysical food fight? And one with likely ongoing uncertainty and attendant long running litigation that will impede marketplace development? (Anyone reading this who remembers the FCC's decade-long struggle to define protocol processing for purposes of drawing the lines between "enhanced" and "basic" services please raise your hand!)

I have great admiration for those who have put in many long hours to produce the discussion draft. It is not easy making sausage on hilltops, especially with a lot of chefs in the kitchen. By virtue of the nature of the process, I believe, however, that the production of the discussion draft can be a constructive step in helping to focus the coming legislative debate. There are elements of the draft that have a deregulatory thrust that are commendable, putting aside for the moment ambiguities in the language that call into question whether that thrust would, in fact, be realized.

I am sure that if one assumes that the discussion draft model, which is what we called the IP Migration model in our DACA regulatory framework group, is the only basis for moving forward with communications legislation, there are ways to improve on the draft language to diminish the likelihood of regulation that is unnecessary and unwise in the current communications environment. To some extent the draft takes what one might call a "clean version" of an IP-Migration model and then reimposes some of the old legacy regulation on top ot it. See, for example, the Section 104 Net Neutrality provision governing "access to bits" or the entry registration requirements throughout. By definition, it is very difficult for any model based on technology distinctions to establish a deregulatory firewall in today's fast-changing technological environment. But it is my intent to offer a few such drafting suggestions that move in the direction of tightening up in another post, assuming for the sake of argument the current draft. I bet some of my colleagues might as well.

But, for now, what I suggest is this: Compared to the techno-functional approach taken in the discussion draft, the market-oriented model ("FTC model") that the DACA Regulatory Framework Proposal released in June presents an attractive, non-techno-functional alternative that deserves to receive renewed attention. It is likely that the reform debate will continue well into next year. There is time enough to reflect and make sure we get the overall fundamental framework right.

Here at PFF, of course, we've been working hard with a group of respected academics and experts to provide a new framework for communications policy reform. That project is called "DACA," which stands for Digital Age Communications Act.

One thing we largely left out of DACA effort was any in-depth discussion of video regulation. That is, the extensive "public interest" regulatory regime that currently covers the broadcast sector and to some extent cable and satellite services. There were several reasons we left it out of the DACA project; most importantly, we simply felt that most of these rules could easily be sunset in light of growing competition in the multi-channel video marketplace and the media universe more broadly. Under our DACA framework, any "market power" problems that might develop in the future video / media marketplace would be handled with simple competition policy principles borrowed from antitrust law.

So Much for "Hands Off the Net"
Unfortunately, after looking through the House Commerce Cmmt. draft legislation last night, I realize that not everyone shares our opinion about the growing media market competition alleviating the need for extensive "public interest" regulation of the video marketplace. Specifically, Sec. 304 of the bill (which begins on pg. 41 of the discussion draft) is entitled "Application of Video Regulations to Broadband Service Providers." Section A which immediately follows is appropriately labeled "Comparable Requirements and Obligations," and then goes on to not how "each of the following provisions of the 1934 [Communications] Act, and the regulations under each such provision, that apply to a cable operator shall apply to a broadband service provider under this title in accordance with regulations prescribed by the Commission..."

"[T]he States can best govern our home concerns and the general government our foreign ones. I wish, therefore... never to see all offices transferred to Washington, where, further withdrawn from the eyes of the people, they may more secretly be bought and sold at market."

Thomas Jefferson, letter to Judge William Johnson, June 12, 1823

If, as Stigler has persuasively argued, regulatory institutions can be captured and public officials of good will tend to work toward the ends of the regulated, which regulatory institutions are more susceptible? Federal or state? Or does the organizational structure matter more than the level of government? Email me your arguments.

If you believe the states are better equipped to resist capture or to err less grievously when captured than their national counterparts, consider that on the one hand, there is generally more diffused power among agencies and the legislature. But, on the other hand there tend to be fewer "watchdogs" at the state level.

First, I would emphasize that it is a standard, not a mandate. Under the framework, regulatory intervention to compel interconnection can only happen upon a showing of: "a substantial and nontransitory risk to consumer welfare by materially and substantially impeding interconnection" to a public communications network. Admittedly, the "public communications network" term is problematic, and I think the working group would be open to alternative terms. Principally, though, this standard does not mandate interconnection but first requires a showing of harm from failure to interconnect.

On the broader question of price controls, if it had its druthers, the group would abolish all rate regulation. However, a concession to the longstanding universal service tradition of communications regulation leads toward retaining the basic service rate on a grandfathered basis. Under this model then there would be no rebalancing of the rate, but just a "rough justice" grandfathering of the various state rates. This would mean that companies would remove all tariffs, cease all rate filings and cost studies, leaving only local exchange maps and a single basic res service tariff in place (in the lingo, the 1FR) at the state level. All other rates would be deregulated and there could be no imputation of the 1FR rate into any packages.

As a matter of institutional design, the Regulatory Framework that DACA proposes takes on the first important question--why should agencies and not courts administer telecommunications competition policy? (On the continuing role for an agency in managing telecommunications policy, you can see my explanation (developed with Jon Nuechterlein, my Digital Crossroads co-author) here.) That a critically important question, but its answer begged a second one: could the FCC do it all itself?

For a host of reasons, some of which Ray ably noted, we concluded that the FCC could not implement competition policy all by itself, even though an integrated federal framework was critical. In taking our best stab at a reasonable institutional strategy, we looked for ways to have both the feds and states play an effective checking function against one another as well as to enable the states to provide valuable institutional support for implementing a federal regulatory regime. After all, if there will continue to be regulation of interconnection and other competitively essential wholesale support (see other debates forthcoming), some agency has to do it. And for those who followed the FCC's one effort to do that in the case of Virginia, which opted out of implementing the Telecom Act, it's hard to imagine the FCC doing 51 of those.

Some initial questions then:

1. Why not complete preemption of state authority; that is, why not cut the states out altogether?

2. Why leave any residual rates in place like the group does, even if it is a basic rate subject to attack under the framework's "unfair competition" standard?

3. How, exactly, would a delegation of competition policy authority to a given state work? Wouldn't there be inconsistent outcomes and procedures?

4. Counter to question 1, why not allow states more initial autonomy to experiment with different sorts of rate regulation and competition policy arrangements?

I am sure there are other questions and controversies that my fellow working group members can detail.

1. Why is there a separate interconnection standard? Why can't it just be left to a general "unfair competition" standard?

2. The Internet backbone interconnects without any special interconnection mandate through privately negotiated agreements, does the DACA interconnection standard inhibit this private deal-making?

3. Does your model allow the FCC to continue its practice of rate-setting -- particularly as to interconnection -- and thus continue the time-worn hazards of rent-seeking and industrial policy shenanigans?

4. Does this Model allow for regulation of the higher layers of the Internet protocol stack, thus isn't it more regulatory?

5. Why do you use the phrase "public networks" in your draft statutory language? Doesn't that create problems in defining what is, and isn't subject to your general standard of "unfair competition"?

6. What is wrong with the IP Migration model?

I have some tentative -- and even some good! -- answers to many of these questions, but I'll turn it over to my fellow working group members first. Specifically, I look forward to the Gattuso/Speta/Shelanski discussion on the interconnection standard, and the Sicker disquisition on the limits of the IP Migration model. Plus, it is my hope we get some cross-pollinization between working groups, as folks cross-comment on their colleagues' work.

Well, we are.

But this one will be a bit different. First, we opted for a blog over a wiki. Not only did we already have Movable Type ready to go, we thought that the term "blog" incited slightly less giggling than "wiki." Given these are serious issues, we opted for the lower giggle factor. Second, this will be a group blog, with all participants of the various Working Groups able to post. We will also, for the time being, enable the comment feature here, with the hope that we get some virtuous feedback loops going. We reserve the right to shut comments off in case we are overwhelmed by comment spam, or if the comments take on an uncivil or unhelpful tone.

The reason for the blog is to further explain, discuss, elucidate and generally argue about the provisions in the respective Working Group reports. Since we released the initial framework report, I have found myself in many very similar discussions explaining why the group made the choices it did; where the close calls were; and where disagreements remain. Also, I have found that the FTC model the Working Group endorsed is quite foreign to the understanding of communications lawyers. Accordingly, I hope that the various members of the Working Group can explain how we anticipate our recommended model to work.

Finally, we entitled our Working Group Report "Release 1.0". We take seriously that our proposal is a first draft, and through the workshop a few weeks ago, as well as the discussion on this blog, we hope to refine and make a better Digital Age Communications Act.

With that, let me declare this blog open for posting.