THE FUTURE OF TELECOMS POLICY…NEAR AND FAR

Gerald R. FaulhaberProfessor Emeritus, Wharton School

Conference of Western Attorneys GeneralJul 20, 2014

2/13/14 Lessons from the History of Regulation 2

Lessons from the History of Regulation

Old But Still With Us (Genachowski)

• Three Big Issues and Their Resolution– Broadband (national plan) some rural investment, talk

about wireless BB, little else.– Spectrum (we need lots more) Two-sided auction

initiated, much talk about sharing, little action, none likely. Bidding restrictions possible

– Net Neutrality: Bingo! FCC finally does something!• FCC knows that hard evidence of a real problem is de minimis,

but acts “prophylactically” (regulation by speculation)• Immediate effect on ISP behavior is nil (by design)

2/13/14 3

Lessons from the History of Regulation

What’s Happening Now (Wheeler)?• Broadband– Supply/Availability of broadband NOT an issue:• 96% HH have one wireline BB provider, 88% have two,

and 99% have wireless BB.

– Demand for broadband IS an issue (maybe):• 70% HH have wired BB (77% have home computers)• 2/3 of non-adopters would stay that way with free BB!• 30% of non-adopters have wireless BB via smartphones

• Wired broadband should be a non-issue; wireless is the future of broadband

2/13/14 4

Lessons from the History of Regulation

…Wheeler Era• Spectrum– Efforts by FCC, NTIA and Administration to

boost available spectrum are wholly inadequate• Two-sided auction a noble idea, but not enough• “Sharing” with Fed users (e.g., DoD) unlikely to yield

much (or anything)

– Spectrum is the future of BB and in fact the Internet. We are re-arranging the deck chairs on the Titanic on this issue

– Something Big is needed; we’re getting nothing2/13/14 5

Lessons from the History of Regulation

…Wheeler Era

• Network Neutrality– Immediate impact has been zero– Intermediate impact negative: forbidding ISPs

from offering differentiated service is silly• Airlines, trains, postal service all common carriers and

all offer differentiated services• Imposing restrictions to keep the Internet “as is”

violates important freedom to innovate and evolve

– Long term impact DISASTROUS!

2/13/14 6

Lessons from the History of Regulation

…Wheeler Era• Be clear: the FCC has started to regulate the

Internet, after a successful 40 years of hands-off– Wheeler has taken Title II common carrier regulation of

the table…for now. But at least some Internet regulation is surely coming. What happens then?

• What does history teach us about regulation?– Regulation will expand to cover the entire industry– Regulation provides wide open opportunities for rent-

seekers to impose limits on competitors and new technologies (e.g., LightSquared, Level 3, Nextel,…)

2/13/14 7

Lessons from the History of Regulation

Is Regulation Really That Bad?

• It’s already started. Net Neutrality is the opening wedge for bringing interconnection under the FCC’s wing, after 30 years of well-functioning markets: Cogent, Level3, etc.

• EU regulates its ISPs like telephone; the result is minimal innovation, substantial underinvestment, lower BB deployment.

2/13/14 8

Lessons from the History of Regulation

…Wheeler Era

• Gracefully exit the wireline telephone business– Expensive, and becoming a white elephant– Help customers and companies transition– Phase out regulated monopoly obligations, such as

carrier of last resort and tariffed rates• Voice is quickly becoming an app on the

Internet; treat it like that• Go, Tom Wheeler!

2/13/14 9

Lessons from the History of Regulation

And Beyond• Time to re-think our basic policymaking institutions

• FCC founded in an era of media and telecom problems, and still acts that way

– Time for Congress to re-visit what regulation we need for an Internet-based world (recent White Paper)

– Eliminate the 1934 Act, the 1996 Act and FCC. Rebuild everything from the ground up• Curtail/eliminate ex ante rulemaking, emphasize competition-

focused ex post adjudication of complaints; transfer to FTC/DoJ– Silos? USF? Title II regulation? Cable regulation? Merger reviews?– Transition spectrum to private/public ownership

– Otherwise, FCC will keep finding new stuff to regulate2/13/14 10