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Wall Street Journal
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| Editorial Board |
| Tuesday, April 18, 2006 |
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| Out of the Telechasm |
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Ten years after Congress declared it was "deregulating" the telecom industry, our Representatives and Senators are at it again. Both Houses of Congress are drawing up legislation to address some of the absurdities that resulted from the last effort at reform. We'd like to report this as a hopeful sign. But this is Congress, and aside from one noble if likely doomed effort, the prospects don't look bright.
In the past decade, our various "telecommunications" industries have converged, but the regulatory system remains fragmented and heavy-handed. Cable-TV providers operate under one set of rules, "landline" telephone companies fall under a different regime and wireless operators under yet another. Each of these are increasingly competing directly with each other, but our laws don't recognize this fact. Senator Jim DeMint (R., S.C.) has drafted legislation to sweep away these conflicting and nonsensical regulatory regimes and treat telecom the way it ought to be treated -- like any other competitive industry.
His proposal, alas, may never see the light of day. Alaska's Ted Stevens, Chairman of the Senate Commerce Committee, has his own ideas and plans to present a bill in the coming weeks. In the House, Joe Barton (R., Texas) has passed out of subcommittee a bill that deals with a couple of narrow issues -- so-called Net neutrality and cable franchising -- but avoids a wholesale revamp.
This being an election year, the Members are likely to use all of this mostly as a way to soak campaign contributions from all the competing lobbies. But in the real world the time is ripe for revisiting 1996; our current rules make less sense and impose a higher economic cost every day. The Federal Communications Commission has taken some positive steps, but these days is more concerned with Janet Jackson's wardrobe malfunctions than in jumpstarting innovation.
Last year's Brand X decision by the Supreme Court is a good example both of what the FCC has done right and the limits of what it can do. The Court decided that the FCC was within its rights to declare cable-modem Internet access an "information service" rather than a "telecommunications service," and so exempt cable-modem providers from a raft of regulations. The FCC helpfully followed up by granting DSL service (the phone companies' version of cable-modem) the same exemption.
But the real question is why so much should hinge on FCC hair-splitting about "information" and "telecommunications" -- which are two sides of the same coin. The very existence of this sort of distinction was always arbitrary, and its capriciousness only increases with time. One result is that phone companies are regulated one way when they offer voice service the old-fashioned way and another when they use Voice-Over-Internet-Protocol (VOIP) technology.
To consumers, these products blend together. But behind the scenes, each one lives in its own regulatory hell. VOIP phone calling has become popular and can be much cheaper than paying the phone company by the minute. But a good chunk of the savings comes from all the taxes and fees that VOIP customers don't pay the government, because the FCC says VOIP is different from traditional land-line service -- it's "information."
Likewise, cable companies are now offering a so-called triple play -- phone, cable-TV and voice service bundled at a discount. Customers need only call one number to be put on hold when they have a problem, and they only get one bill. The phone companies are installing fiber-optic cables to homes to offer the same bundle. That's right -- the same bundle. Even mobile-phone operators are getting into video and broadband Internet.
But at the moment the Bells can't offer TV in your city without a "franchise" -- a license typically issued by the municipal government. Local franchising dates back to the days when cable companies had to tear up roads or string lines on utility poles to bring service into the home.
Because those rights-of-way were usually controlled by local governments, franchising was a way of making sure that towns had a say in how it was done. But local governments' legitimate interests extend only to those roads and rights-of-way, not to what is transmitted over the network after it is laid down. So the requirement that phone companies seek TV franchises from thousands of local authorities is a purely artificial roadblock to the competition that the federal government supposedly supports.
Mr. Barton's House bill would remedy this by creating a national franchise that would, theoretically, require only rubber-stamp approval from the federal government. As a band-aid, this is better than the status quo. But his bill also threatens to introduce a whole new wave of regulatory requirements by codifying "Net neutrality" rules in law.
Last year the FCC published a non-binding set of Net neutrality "principles" laying out what consumers are "entitled" to -- basically, choices about the content they see, the devices they use and the networks they connect to. However, giving the FCC the power to enforce these rules against Web sites and network owners alike would open a Pandora's box of intrusive regulation and litigation.
The far better solution would be to start from scratch, a la Mr. DeMint's Senate bill. It says, in effect, that telecom companies should be regulated on the basis of fair competition standards used everywhere else in the economy. Rather than trying to legislate competitive outcomes, as the 1996 Telecommunications Act did, Congress could allow open-field running save for anyone who violates antitrust rules.
For years, regulators and "consumer advocates" have argued that telecom is "too important" to be left to market forces. Something like the opposite is closer to the truth. In a digital age, telecom is too important for policy to hinge on arbitrary distinctions between "information" and "telecommunications," or to be held hostage to thousands of rent-seeking municipal agencies. It's time for a rethink, and the more fundamental, the better. |
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