“Creative Destruction” and Net Neutrality covered by panels of economists, lawyers
David Redl, the newly-minted Assistant Secretary of Commerce for Communications and Information and Administrator of the National Telecommunications and Information Administration (NTIA), put rural broadband front and center while making his first public remarks since being sworn into his new office. His keynote address to the annual U.S. Telecoms Symposium held on December 5, produced by the Phoenix Center for Advanced Legal & Economic Public Policy Studies, noted that many Americans in rural areas “still can’t access broadband at the speeds needed to meaningfully participate in the modern economy.”
Redl stated that maximizing the use of the nation’s spectrum resources is one way to facilitate the roll out of broadband in unserved areas of the country, and to encourage infrastructure deployment. He cited advanced manufacturing as one example of widespread broadband availability. “Wireless technology already plays a major role in providing broadband access, and that role is likely to increase with 5G deployment,” Redl said. “The speed and reliability of 5G also should help unlock the promise of smart cities, connected cars, and the broader Internet of Things, an area where NTIA has long been a thought leader.”
Redl received the Phoenix Center’s Jerry B. Duvall Public Service Award at the event.
The Economics of Creative Destruction – Broadcasting as an Example #
Earlier in the day, a group of government and industry experts discussed the concept of Creative Destruction. This notion, popularized by Harvard professor Joseph Schumpeter, observes that old business models and technologies give way to newer innovations. Prior ways of doing business, which were innovative and efficient when they emerged, eventually are replaced by new methods that are better able to respond to marketplace demands. “Failure,” said session moderator George Ford of the Phoenix Center, “is feedback.” The destruction of older business models may be painful to their practitioners, yet panelists emphasized that it can be crucial to allow failure to happen so that the market may adapt.
As innovation destroys some people’s wealth, resistance is inevitable. Regulations are based on the prior model, so those who invested under the earlier rules have a valid complaint, according to panelist Adam Thierer, a Senior Research Fellow at George Mason University’s Mercatus Center. Rather than presume the need for old regulations to apply to new technologies, Thierer suggested scaling back rules to achieve regulatory parity, so that old and new models are similarly, and lightly, regulated. Former Coast Guard Commandant Admiral Thad Allen (Ret.), now an advisor to consulting firm Booz Allen, concurred, noting that technology progresses much faster than the ability of legislators or regulatory agencies to keep pace.
The current broadcasting industry was cited as an example. Jeff Blum, Senior Vice President and Deputy General Counsel of DISH Networks, noted that the current retransmission consent regime was established by the 1992 Cable Act, when retail cable competition was virtually nonexistent and over-the-top content delivery was not event contemplated. As technology and the marketplace have evolved, the rules have not.
The unintended consequence is that one segment of the marketplace – the broadcasters and programmers – have been handed the ability and incentive by the government to choke off access to content and increase rates for providers and consumers, with virtually no market constraints or effective regulatory backstop. Government’s intervention, however well-meaning at the time, has resulted in massive price increases for consumers, and constrained the ability of video and broadband providers to invest in critical broadband infrastructure. Efforts to correct this imbalance have continued, but have yet to succeed.
A Deep Dive into Net Neutrality #
Naturally, no telecom symposium can occur in Washington without a robust discussion of Net Neutrality. This was no exception. A panel of lawyers, including a number of former high-ranking attorneys from the Federal Communications Commission as well as the Federal Trade Commission, reviewed a number of the arguments for and against the current FCC’s effort to roll back some of the rules implemented in 2015.
A common theme was that the Internet was lightly regulated under Title I of the Communications Act (as an information service) under bipartisan consensus for nearly 20 years. This Clinton-era decision was continued under President George W. Bush, and remained in place during President Obama’s first term. It was not until mid-way through Obama’s second term that Internet services were reclassified as telecommunications service, subject to the many rules under Title II of the Act. Most panelists maintained that the Order being considered by the FCC this month would for the most part simply return Internet governance to its former successful status.
Several attorneys noted that under the previous Commission, the practice of “zero-rating” – where a carrier exempted favored content from the data caps of mobile wireless plans – was frowned upon. Deal, such as AT&T’s delivery of DirecTV content and T-Mobile’s of Netflix, allowed consumers to view these offerings without counting the bandwidth against their data limits. The FCC was investigating these practices as net neutrality violations, although they are clearly popular with many consumers.
Many legal points were also raised during the discussion, such as the pros and cons of taking some aspects of Title II, and having the FCC use its forbearance authority to set others aside; and of having the Federal Trade Commission, rather than the FCC, handle privacy and consumer protection issues. The details of what each agency can, and cannot, do, may still be a matter of debate and interpretation.
However, the panel did note that transparency is another potentially significant issue. Disclosure of terms and practices to consumers is a concept that generates little debate. However, some attorneys claim that aspects of the Communications Act, as amended by the Telecommunications Act of 1996, as well as questionable authority in the case of the FTC, might make it difficult to enforce. Furthermore, pending court decisions in other ongoing cases could affect how the new FCC Order will be implemented and interpreted.
While many hope the new FCC Order will bring clarity, there are likely a number of components of the Order that will have to be worked out, either through FCC procedures or the courts.
Steve Pastorkovich is a Washington, D.C.-based consultant specializing in telecommunications, trade association operations, and public policy.