Verizon’s Tom Tauke Calls for Congressional Overhaul of Telecom Act; New Regime

by on March 24, 2010 · 6 comments

Noting that the Telecom Act has become ” irrelevant to the ecosystem that has developed,” Verizon’s Executive Vice President Tom Tauke today called for Congress to overhaul the nation’s archaic communications laws and the regulatory regime that the Federal Communications Commission (FCC) is currently attempting to pigeonhole the Internet and entire Digital Economy into.  It’s an excellent speech, and I encourage you to read the entire thing (which I have embedded down below the fold in a Scribd reader).

“[T]he test for government intervention in the marketplace is to prevent either harm to users or anti-competitive activity,” he said. He rightly noted that, in an age of technological convergence and vigorous cross-platform competition, the old silo-based approach of the Telecom Act — with its various Titles for outmoded market definitions — no longer makes any sense. He noted:

by the very nature of the Internet Ecosystem, many are working together or competing in other company’s turf. Computer companies sell phones, and quite successfully. Search engines sell open operating systems. Network providers create their own apps stores. That means that the value proposition to the consumer is really a package created by many companies acting together with little, if any, regard to their previous corporate histories. So no set of companies should be immune from scrutiny.

Of course, a regulatory regime already exists that accomplishes this goal: antitrust law. But Tauke’s proposal isn’t quite that sweeping. He doesn’t call for the FCC to be dynamited the ground and to just shift everything into the antitrust bucket, which some of us would prefer. Instead, he speaks generically about the need for a more sensible process — most likely still enforced by the FCC — that would work as follows:

we could structure a process that uses the innovative, flexible and technology-driven nature of the Internet to address issues as they arise. Instead of the traditional rule-making process, federal enforcement agencies could structure themselves around an ongoing engagement with Internet engineers and technologists to analyze technology trends, define norms to guide such questions as network management, and understand in advance the implications of new, emerging technologies.

Moreover, he advocates greater reliance on expert technical opinion and interaction to help inform the policy process:

Technology leaders and experts from all players involved in the Internet should set up voluntary organizations and forums to provide advice, recommendations, and advisory opinions to government agencies. This will help inform the agencies’ role as backstops that deter damaging activities that undermine the vibrant competition and openness that defines the Internet.

Again, he doesn’t really make it clear who will be administering this new process; his focus on getting Congress to clear out the old regulatory cobwebs and adopt a fresh policy approach for the Digital Age.

Of course, it remains to be seen if anyone in Congress will bite. Many policymakers’ idea of “reform” is to just layer on more misguided regulations to the old system. It’s like attempting to renovate a dilapidated old home by adding a fresh coat of paint and new window treatments. That fact is, the foundations are still crumbling.  Fundamental change is needed, and fast.

I was hoping that Tauke would come right out and endorse what continues to be the best “third way” alternative out there: Progress & Freedom Foundation’s “Digital Age Communications Act” or “DACA” framework. In 2005-6, PFF brought together over 50 leading scholars–a non-partisan collection of lawyers, economists, engineers and others—with the ultimate aim of crafting a regulatory framework that is adaptive to the frequently changing communications landscape. The resulting Digital Age Communications Act  proposal advocated tearing down the old regulatory paradigms and replacing them all with a Federal Trade Commission-like “unfair competition” standard.

Under DACA, the FCC would retain some baseline regulatory authority to oversee the marketplace but this authority would be quite limited and would be based on more settled principles of competition law and economics (namely, streamlined antitrust regulation). Serious anti-competitive corporate actions that lead to demonstrable consumer harm would still be policed and punished under DACA. But this would be done on a limited, case-by-case basis without prejudging business models or practices or by imposing prophylactic regulatory regimes. In essence, DACA stood for the proposition that an ex post form of regulatory oversight was infinitely preferable to ex ante forms of preemptive and prophylactic regulation by the FCC.

To be clear, this is regulation. And, on a personal note, when the DACA working group released its initial framework in June 2005, I dissented to the plan on the grounds that DACA did not do enough to tie the hands of regulators. Moreover, I argued that there was no need to import a competition policy regime into the FCC when the Federal Trade Commission and Department of Justice remain perfectly capable of enforcing antitrust laws when anti-competitive conduct can be proven.

Nonetheless, the DACA framework would be vastly superior to the sort of heavy-handed regulatory approach that some defenders of the ancien regime still favor.  DACA has the added advantage of not being as susceptible to the problems of regulatory creep and regulatory capture.

Tauke didn’t go quite that far today, but I do hope that if Congress got around to reopening the Telecom Act and freshening up public policy in this area that they’d give DACA a second look.  It’s a reasonable “third way” approach that would satisfy many of the goals of traditional regulatory policy regime without all the excess baggage. Tom Tauke’s call for Congress to at least reopen and reconsider the broken old regime is the first step toward that goal.

Prepared Remarks of Verizon EVP Tom Tauke

  • sjschultze

    It is refreshing to see renewed discussion of the need to fundamentally rethink the paradigm for communications regulation. It is exhausting to see the same talking points and positions replayed. In this case, the pattern is: Communications Act is bad and doesn't work, antitrust is good and does work, let's do antitrust but call it a “third way.” DACA may have been “non-partisan” in some sense, but it sought to fundamentally define communications regulation in terms of antitrust.

    To begin with, antitrust does not necessarily capture any of the broader social considerations of historical communications regulation. Some of these social considerations are undesirable in my view (content censorship) whereas others are desirable (duty to serve).

    Within the domain of economic analysis, antitrust is also ill-equipped to deal comprehensively with the internet market. The “settled principles of competition law and economics” are actually far from it. What is the consensus on network/platform/general-purpose-technology economies like the internet? Is Schumpeterian or simultaneous competition better? How do multi-sided markets affect traditional economic models, let alone static or dynamic innovation? What did the Antitrust Modernization Commission have to say about this (nothing, so far as I can tell)? Does solving collective action problems count as preventing harm to consumers, or does “opportunity harm” not count? Do internalized complementary efficiencies deter bad behavior, or do other exceptions to that model cause it to fall apart?

    Indeed, we need a new approach, but antitrust isn't new and it alone isn't the right approach.

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