FCC schizo on DSL, wiretapping

In a pair of decisions on Friday, the commissioners voted to veer in two radically different directions: deregulating DSL lines while simultaneously imposing onerous wiretapping requirements on broadband providers.

Let's first look at the FCC's more justifiable action, which says that companies providing high-speed Internet access over telephone wires no longer must share their lines with rivals.

Until now, companies like Verizon and SBC have been forced to offer competitors like EarthLink access to their networks at government-mandated rates. Friday's 4-0 vote, spurred along by a recent Supreme Court ruling, starts a one-year process of weaning the independent DSL providers and requiring them to negotiate new contracts.

As a result, liberal groups are yowling. Andrew Jay Schwartzman of the Media Access Project warned: "It means higher prices, less competition and disincentives for those entrepreneurs who have used the Internet as a platform for innovation and economic growth." Public Knowledge said it was "disappointed" that DSL is being deregulated.

Those arguments in favor of a Soviet-style regulatory regime might make sense if the Bells enjoyed a monopoly on better-than-dial-up Net access, but that's not the case. The bulk of fast connections are cable modems, not DSL, and satellite and long-distance wireless links are increasingly attractive alternatives.

Immutable laws of economics
Economists have long realized that the best way to ensure a healthy marketplace is not by adding more government regulations but by relaxing them--thus permitting Verizon, SBC and so on to reap the benefits of upgrading copper networks.

Russell Roberts, who teaches economics at George Mason University, offers this analogy: "Let's say I'm Southwest Airlines and I'm going to commission an airplane from Boeing that lets passengers stack more carry-ons in the overhead compartments. I want to order 100 of these planes. But I'm told that if I'm not using them at all times, United can borrow them. That affects my willingness to invest in an uncertain future."

The same economic principles apply to telecommunications companies: If they have secure property rights over their wires, they'll be more likely to invest.

This is what happened after the FCC voted in February 2003 to immunize fiber links from rules mandating sharing with rivals. It ushered in Verizon's Fios fiber service--and a broadband speed war between Verizon and cable operators that's great for consumers.

The benefits of DSL deregulation also promise to be huge. Jerry Ellig, a research fellow at an academic think tank called the Mercatus Center, says: "At a minimum that would create consumer benefits worth about $4.5 billion a year. That refers both to price reductions and the value received for new customers who only get broadband because of the decision."

FCC Chairman Kevin Martin seems to agree. He said on Friday: "Perpetuating the application of outdated regulations on only one set of Internet access providers inhibits infrastructure investment, innovation and competition generally."

Chairman Martin's double standard
So why doesn't Martin extend that logic to outdated eavesdropping regulations? In a second vote on Friday, the FCC extended onerous wiretapping rules designed for copper-wire telephone networks to the Internet. (The rules come from the 1994 Communications Assistance for Law Enforcement Act, or CALEA.)

The text of the FCC's CALEA order is not yet public, but early signs are worrisome. The FCC's two-page summary says that voice over Internet Protocol (VoIP) providers like Vonage that mimic traditional phone service must rewire their networks to be easily wiretappable.

It also proposes--and this is the worrisome part--to levy the same requirement on "facilities-based broadband Internet access service providers," which seems to cover any company or school offering any type of cable modem, DSL, satellite or wireless service. They'll have 18 months to comply or be fined.

"I am committed to ensuring that these providers take all necessary actions to incorporate surveillance capabilities into their networks in a timely fashion," Martin warned, bluntly. The FCC will work "closely with industry representatives, equipment manufacturers and law enforcement officials to address and overcome any challenges that stand in the way of effective lawful electronic surveillance."

What Martin didn't mention is that CALEA was never designed to apply to the Internet. In a column last year, I described how Congress never intended the law to cover online services or Internet service providers. (In fact, the FCC's schizophrenia required it to rule that DSL providers were an "information" service while also being a "telecommunications" service at the same time.)

The dictionary defines schizophrenia as "inappropriate actions" and "mental fragmentation." Unless the final CALEA rules differ from the summary, that seems to be a workable description of the unfortunate malady that's infected the FCC.