Explaining Our Knee-Jerk Opposition to Wireless Regulation

Friend-of-a-friend Tom Lee offers another example of the evils of the unregulated cell phone market. Apparently, AT&T, Sprint, and Qwest are all blocking a free conference call service he uses, in order (Tom speculates) to twist his arm into switching to a paid conferencing service—the idea, presumably, to get them to sign up for one of those companies’ products.

Instead of punishing the companies that have screwed up, we’ll be forced to switch conferencing providers. Which, if the freeconference.com people are to be believed, is exactly what the networks are conspiring to accomplish.

Now compare the situation to my VoIP vendor. If I’m using an open protocol (and, since my home Asterisk server speaks SIP, I am), the decision to switch vendors is as simple as googling for a new provider, filling out a web form and altering a configuration file to match the credentials that will have been emailed to me. That’s how it ought to be: if Cingular starts screwing you over, forward your calls to the T-Mobile trial account you just set up — all it’d take is changing a few settings on your handset. If you like it, switch for good for whatever the current, reasonable number-portability fee is.

I find this a little bit puzzling because I would think that the FCC would already have some authority to deal with this sort of thing, since the PSTN is firmly under the commission’s control. I would think this would be a case where the FCC would have full authority to step in, as they did in the Madison River case, and tell them to knock it off. I wonder if one of the actions in the email is to call the relevant FCC commissioners’ offices.

But let me address Tom’s more general point about our collective skepticism about government regulation.

I think the most pressing question here isn’t whether the world would be a better place if we could get cell phone companies to stop doing this sort of thing, but how you’d go about achieving that result, without causing a lot of collateral damage in the process. Because Congress isn’t going to pass a law to address this specific problem. Rather, if you want Congress to give the FCC more authority in this area, you have to write a rule that (1) stops the behavior you don’t like, (2) doesn’t unnecessarily restrict other behavior, (3) doesn’t create perverse incentives to do wasteful things to avoid its reach, and (4) is sufficiently unambiguous that there won’t be room for cell phone company lobbyists to subsequently re-interpret things in a way that neuters the law or even turns it to their advantage.

Historically, this has proven to be rather difficult. And it’s often difficult to predict ahead of time where the flaws might be, especially in an industry that changes as rapidly as the cell phone market.

Competitive markets are far from perfect, but they have at least one advantage over regulatory solutions to these sorts of problems, which is that they don’t create a single point of failure. If one firm screws up really horribly, there’s a reasonable chance that at least one of the others will have made a different choice. That doesn’t protect you from minor screw-ups, but it does protect you from really major ones. In contrast, if a regulatory agency royally screws something up, that screw-up affects the entire industry.

Which is why many of us are willing to accept minor defects in existing markets, rather than rolling the dice on a regulatory scheme that might make things a little better, but could also make things a lot worse. It’s not that markets always outperform regulatory schemes. It’s that in the long run, markets—even slightly oligopolistic ones like the cell phone market—are more resilient and more responsive to consumer desires than are regulatory processes. Consumers have essentially no power in front of the FCC. The possibility of switching cell phone providers gives them at least a little bit of clout in the marketplace. I’ll take the process that gives me as a consumer a little bit of clout, no matter how imperfect, over the system that’s completely dominated by vested interests.

SHARE: 10 comments