Subject: [NEXTEL-1] The Testimony of Mr. Adam ThiererDirector, Telecommunications Studies, The Cato Institute

From: [email-masked]
Date: Thu, 29 Apr 2004 11:09:17 -0400

Telecommunications Policy: A Look Ahead
Wednesday, April 28 2004 - 9:30 AM - SR - 253

The Testimony of Mr. Adam ThiererDirector, Telecommunications Studies,
The Cato Institute

Good morning, my name is Adam Thierer and I serve as Director of
Telecommunications Studies at the Cato
Institute. Thank you Mr. Chairman for your invitation to testify here
this morning as the Committee begins the
important business of thinking about what the next Telecom Act should
look like. As someone who worked
closely with members of this Committee a decade ago when we started
getting serious about telecom reform, I
think it’s safe to say that we all share a sense of frustration and
disappointment that we were not able to advance
the ball a little further last time around. If I had to summarize what
went wrong with the Telecom Act of 1996, I
would use the following paradox: Congress wanted market competition but
did not trust the free market enough
to tell regulators to step aside and allow markets to function on their
own. Consequently, the FCC, the
Department of Justice, state and local regulatory commissions, and the
courts, have spent the last ten years
treating this industry as a regulatory plaything to be endlessly toyed
with. Today there is virtually no element of
telecommunications that is not subject to some sort of meddling by some
or all of these regulatory officials.

While it’s fair to say that it was probably wishful thinking to believe
we could have undone a century’s worth of
command and control regulatory policies in a few short years, one would
have at least hoped that we would not
be stuck still debating the same issues today that dominated the agenda
over a decade ago. Indeed, 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. But despite the ongoing regulatory quagmire, the good news is
that we have witnessed amazing
strides in terms of technological progress and we can confidently say
that this marketplace has never witnessed
such competitive forces at work. Whether it’s the wireless revolution
that is allowing millions to cut the cord
entirely, or the Internet and broadband revolution that is opening up a
whole new world of opportunities that
did not exist prior to 1996, by almost any measure, consumers are better
off and have more choices now than
ever before. Still, much remains to be done to clear out the regulatory
deadwood that continues to hold back
further innovation and competition. While there are dozens of important
regulatory reform objectives I could
outline, in my limited time here today it makes more sense to briefly
discuss the three most important
over-arching themes or priorities that should frame our current thinking
about how to reform telecommunications
policy. These priorities include: (1) Rationalizing Regulatory
Classifications (2) Dealing with Jurisdictional
Matters (3) Getting Agency Power and Size Under Control Regulatory
Classifications With respect to regulatory classifications, a general
consensus exists today that Congress will need to formally close the
book on the archaic regulatory classifications of the past, which
pigeonhole technologies and providers into distinct vertical policy
“silos.” That is, we still have Title II for common carriers, Title III
for wireless, Title IV for cable, and so on, even though rapid
technological change
and convergence have largely wiped out such distinctions and pitted
these formerly distinct sectors against one
another in heated competition for consumer allegiance. Thus, although
the communications / broadband
marketplace is becoming one giant fruit salad of services and providers,
regulators are still separating out the
apples, oranges, and bananas and regulating them differently. This must
end. One way to do this is to replace
the vertical silos model with a “horizontal layers” model that more
closely resembles the way the new marketplace operates.

We can divide the new industry into at least four distinct layers: (1)
Content; (2)
Applications; (3) Code; and, (4) Infrastructure, and regulate if we
must, each accordingly. But I would caution
Congress against formally enshrining a network layers model as a new
regulatory regime. While this model
provides a useful analytical tool to help us rethink and eliminate the
outmoded policy paradigms of the past, we
would not want these new layers to become the equivalent of rigid
regulatory quarantines or firewalls on
industry innovation or vertical integration. A second and better way to
tear down the old regulatory paradigms
and achieve regulatory parity would be to borrow a page from trade law
and adopt 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.” This would allow
us to achieve regulatory simplicity and
parity not by “regulating up” to put everyone on equal difficult footing
but rather by “deregulating down.” Given
the confusion over the Brand X court case and the ongoing FCC
investigation into a Title 1 “information
services” classification for broadband, this “Most Favored Nation”
approach might help us bring some resolution
to this difficult issue.

Jurisdictional Matters Next we come to jurisdictional matters, which
could very well end up being the most
controversial issue this Committee will take up if you choose to re-open
the Telecom Act. Here I am speaking of
the heated debate between federal, state and local regulators for
control over the future of communications
policy. As I noted in my 1998 book The Delicate Balance: Federalism,
Interstate Commerce and Economic
Freedom in the Information Age, decentralization of political power
almost always has a positive effect in terms
of expanding human liberty. But as our Founders wisely realized when
penning the Constitution, there are some
important exceptions to that general rule. Let me be perfectly blunt on
this point: Telecommunications
regulation is one of those cases where state and local experimentation
doesn’t work so well. After all, at the very
heart of telecommunications lies the notion of transcending boundaries
and making geography and distance
irrelevant. If ever there was a good case to be made for an activity
being considered interstate commerce, this is
it. And yet, America’s telecom market remains riddled with a patchwork
of policies that actually thwart that goal
and seek to divide the indivisible and place boundaries on the
boundless. This must end. And the only way it
will end is by Congress taking the same difficult step it had to take
when deregulating airlines, trucking,
railroads, and banking: pre-emption. We must get serious about the
“national policy framework” mentioned in
the preamble of the Telecom Act by comprehensively pre-empting state and
local regulation in this sector. The
rise of wireless and Internet-based forms of communications makes this
an absolute necessity. If you feel
compelled to leave some authority to state regulators, why not devolve
to them any universal service
responsibilities that continue to be deemed necessary? This is one area
where experimentation can work if the
states devised targeted assistance mechanisms. But they should not be
allowed to impose regulatory restraints
or levies on interstate communications to do so.

Agency Power My third and final “big picture” reform involves what may
have been the most glaring omission
from the Telecom Act of 1996: The almost complete failure to contain or
cut back the size and power of the
FCC. Again, we would do well to remember the lessons of the past. When
Congress deregulated airlines,
trucking and railroads, lawmakers wisely realized that comprehensive and
lasting reform was possible only if the
agencies that oversaw those sectors were also reformed or even
eliminated. In the telecom world, by contrast,
the FCC grew bigger and more powerful in the wake of reform and we
witnessed spending go up by 37 percent,
a tripling of the number of pages in the FCC Record, and there were 73
percent more telecom lawyers after the
Act than before. It is safe to say that you cannot deregulate an
industry by granting regulators more power over
that industry. This too must end. The next cut at a Telecom Act must do
more than just hand the FCC vague
forbearance language with the suggestion that the agency take steps to
voluntarily regulate less. We can’t
expect the regulators to deregulate themselves. We need clear sunsets on
existing FCC powers, especially the
infrastructure sharing provisions of the last Act. And then we need to
impose sunsets on any new transitional
powers we grant them in the next Telecom Act. And we need funding cuts
too. If we fail to do so, we’ll likely be
sitting here again in 10 years having this same conversation all over
again.

Conclusion: Ending “Chicken Little Complex” In conclusion, it is my hope
that Congress rejects the many
doomsday-ers and nay-sayers in the telecom sector who claim the sky will
fall without incessant regulatory
oversight and intervention. “Chicken Little complex” seems to run
rampant throughout this sector even though it
is less warranted than ever before. We have a chance to make more than
just a clean break with the past; we have the chance now to close the
book on a regulatory past that has done little to truly benefit
consumers.  Regulators have been given over 100 years to conduct a grand
experiment with the telecom sector. Why not give markets a chance for
once?
Thank you, and I’m happy to take any questions you may have

http://commerce.senate.gov/hearings/testimony.cfm?id=1166&wit_id=3338
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