Lessons from Telecom Act of '96 -- Part II

"If Rip Van Winkle fell asleep in 1994 and woke up in 2004, he wouldn't think he'd missed a beat if telecom regulation was any guide," wrote Adam Thierer, Director or Telecommunications Studies at The Cato Institute, in testimony presented at the second day of hearing by the U.S. Senate Committee on Commerce, Science and Transportation. The good news, according to Thierer, is that, over this same time period, we have witnessed amazing strides in terms of technological progress, benefiting consumers in countless ways. The three highest priorities that he believes should frame future telecommunications policy are 1) Rationalizing regulatory classifications (2) dealing with jurisdictional matters and (3) getting FCC power and size under control.



Thierer argues that regulatory classification, such as Title II for common carriers, Title III for wireless, Title IV for cable, have been made irrelevant by technology convergence, pitting these formerly distinct sectors against one another in heated competition. He believes that these old walls could be torn down by adopting "the equivalent of a 'most favored nation' (MFN) principle for communications. In a nutshell, this policy would state that: Any communications carrier seeking to offer a new service or entering a new line of business, should be regulated no more stringently than its least regulated competitor."



On jurisdictional matters, Thierer observed that America's telecom market remains riddled with a patchwork of differing policies. He called for the country to "get serious" about adopting a national policy framework that pre-empts state and local regulations. His final "big picture" reform involves containing or cutting back the size and power of the FCC.



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The United States is performing exceptionally poorly in broadband deployment, and more generally in local telecommunications services, reported Charles Ferguson, Senior Fellow of Economic Studies at The Brookings Institution, in his Senate testimony. Ferguson argued this underperformance raises national security concerns, puts a drag on the economy, and creates a social digital divide. He blames the dominant providers of local telecommunications for blocking "true competition and the development of a modern, open-architecture industry." Ferguson recommends: (1) a national broadband policy with the primary goals of establishing a competitive, open architecture industry; providing universal broadband service; and providing continuous improvements that keep pace with the information technology sector. (2) True mandatory unbundling of existing telephone and cable television local loops, including open-architecture access points analogous to those used in the Internet. Access rights should be expanded to all potential providers, rather than being restricted to common carriers as is the case under the 1996 Act. (3) Subsidies may be helpful. However, they must be linked to actual broadband use, and possibly restricted to services provided by non-dominant carriers. For example, a subsidy for each unbundled loop used for new broadband service, in exchange for low loop resale rates, would potentially be helpful. (4) Antitrust investigations and actions directed at the incumbent telephone firms should be seriously considered. (5) Reform of the FCC, DOJ antitrust division, and other Federal regulatory systems to improve the political independence, efficiency, and high technology expertise of Federal regulation and policymaking.



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The broadband experience in Korea and Japan proves there was no Internet "bubble" and that the American Internet "bubble" was actually a crisis of policy, argued George Gilder, Senior Fellow for the Technology and Democracy Project at the Discovery Institute, in his Senate testimony. Gilder believes the Telecom Act of 1996 only succeeding in producing a "a carnival of lawyers, micro-mis-management by bureaucrats, price controls, the socialization of infrastructure, the screeching halt of innovation and investment in the "last-mile" local loop--and the Great Telecom and Technology Crash of 2000-2003."



Gilder also argued against the a new "big idea" in telecom regulation -- one he attributed to former FCC authority Kevin Werbach, Stanford law professor and technology author Lawrence Lessig, industry analyst Roxanne Googin, and IPioneer Vint Cerf. This new "big idea" is mandated open access to the logical layers of the network. Gilder contends that technology convergence will ultimately make it impossible to be neatly define and "quarantine" layers of the network. In his words, "The real threat to monopolize and paralyze the Internet is not the communications industry and its suppliers, but the premature modularizers and commoditizers, the proponents of the dream of some final government solution for the uncertainties of all life and commerce."



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In his submitted testimony, Reed E. Hundt, the former Chairman of the FCC during the Clinton Administration, stepped around the debate about the extraordinarily prolonged judicial fights that resulted from the Telecom Act of 1996, instead highlighting some of the great innovations, productivity gains and overall market growth that nevertheless occurred since the Act was implemented. What comes next? Hundt noted that the rapid penetration of broadband in South Korea was supported by $1.5 billion in government subsidies to finance infrastructure build-out. More significantly, Hundt urged legislators to grant a modest amount of spectrum below 1 GHz to enable new wireless broadband applications that reach inside a building. He also urged that spectrum currently used for analog TV transmission be opened to wireless broadband use. http://commerce.senate.gov/hearings/witnesslist.cfm?id=1166