Handicapping Michael Powell's legacy year

In history?s cold, hard retrospective glare, these decisions will be seen either to have moved communications policy forward in a deregulatory direction in keeping with today?s marketplace realities or, instead, to have further entrenched policy in a sticky regulatory morass from which near-term escape is unlikely.

Thanks to the onrush of technology, we are now in an environment in which communications providers of all stripes, however they previously were denominated for regulatory purposes, are subject to real competitive pressures. It is in this milieu that the FCC?s actions will be judged.

Thus far, the commission has compiled a record that at least points in the right direction. In February, it decided not to require incumbent telephone companies to share with their competitors newly installed fiber or other broadband lines used to connect homes and businesses to the Internet. Government-mandated sharing of facilities at government-mandated prices does not lead to real competition in any sense of the word.

Although a commission majority retained the existing facilities-sharing mandates for virtually all equipment used to provide traditional voice telephone service--even when such facilities are susceptible to competitive supply--the agency drew a line in the sand regarding new broadband facilities. This refusal to import the traditional sharing obligations and rate regulation of the narrowband telephone world into the broadband Internet world sends a positive signal that should spur new facilities investment.

Next, the commission earlier this month voted to relax its decades-old media ownership rules that continued to treat radio and television broadcasters as if they faced no competition from new media. These ownership rules were put in place before technological advances bequeathed us 300- and 400-channel cable and satellite systems, not to mention the Internet with search engines that retrieve information instantly from around the corner or around the globe.

In the face of considerable political pressure from the government control crowd, the commission moved--again modestly--in a deregulatory direction more in tune with marketplace realities. For example, it substantially relaxed the prohibition against a newspaper owning a broadcast station in the same market and against the regulation preventing one entity from owning two television stations in the same market.

Net neutrality?
Fast on the heels of these major decisions, the FCC is now being pressed to make another decision with far-reaching consequences. A curious alliance of Microsoft, Amazon.com, Yahoo, eBay, consumer-electronics companies and self-styled consumer representatives have assembled under the appealing-sounding banner of ?net neutrality.? The companies claim to be concerned that broadband Internet providers, such as cable operators, in efforts to favor their own affiliates or business partners, might prevent subscribers from reaching all content on the Web or attaching to their broadband service any device they choose.

So Microsoft and the others urge the FCC to adopt the proverbial ?simple rule? that would prohibit broadband Internet providers from discriminating against unaffiliated companies. But history shows that never have there been any simple nondiscrimination rules adopted by the FCC. Common sense tells us there never will be.

Indeed, when you dig deeper into what the proponents want embodied in the new regulation you find prohibitions against a broadband provider ?delaying,? ?degrading? or ?imitating? content, or ?impairing the functionality or features of the Internet source.? You can imagine the disputes concerning delivery and presentation of Web content that will be brought to the agency by competitors and their legion of attorneys invoking the no-impairment rule in attempts to impair competitors? business plans. There is no reason to expect anything other than the regulatory muddle that still bedevils telephone regulation.

More fundamentally, the pro-regulation proponents do not acknowledge the marketplace differences that exist today as opposed to those that prevailed when the public-utility-type regulations were adopted for then-monopolistic service providers. With cable and telephone companies slugging it out to sign up new broadband subscribers, and satellite, wireless, powerline and perhaps other platform providers looking to join the fray, it?s unlikely that service providers will be able to impose unreasonable service restrictions on unwilling consumers.

Perhaps those companies pushing for new broadband regulation fear they may draw the short stick as new business partnerships are formed and re-formed between heretofore separate transmission, equipment and content providers in the still-developing broadband environment. But in a dynamic, competitive marketplace, preventing companies from bundling products and vertically integrating operations often imposes significant efficiency losses that diminish consumer welfare.

Any new regulation of Internet services in the name of ?net neutrality? is much more likely to result in a ?net neutering? that chills technological progress and economic growth.

Taking stock of the commission?s actions so far in this pivotal year, I?d give the FCC a slight pat on the back for moving away haltingly from the historical managed-competition regime. But if it fails to firmly dismiss pleas for regulation of broadband Internet services, then the Powell-led FCC will forfeit any claim to being remembered as deregulatory in times surely crying out for less regulation.