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Time for a Digital Age Communications Act

Policy analyst Randolph May says it's time for a new Telecommunications Act that reflects the realities of the digital age.

When then-President Bill Clinton signed the Telecommunications Act in February 1996, he expressed hope that this "truly revolutionary" legislation would foster a marketplace "where competition and innovation can move as quick as light." Ten years later, it's clear things didn't turn out that way.

In fact, the statute entrenched too much of the legacy regulation put in place when communications markets were characterized by monopolistic power. Even though the 1996 Act acknowledged the Internet's existence for purposes of attempting to legislate control of offensive content, when it came to foreseeing the Net's marketplace impact, and that of other new technologies, Congress didn't look far enough ahead.

Thanks to the technological advances spurred by the digital revolution, no sooner was the ink dry on the 1996 Act than the long-predicted convergence of communications services and emergence of new market entrants began gathering steam.

The 1996 Act's regulatory regime continues to act as a drag on investment in new networks and innovation in new services.

So today we live in a world in which businesses we still call cable television companies provide voice services. Those we call telephone companies are racing to provide video services in competition with cable and satellite providers. Upstarts like Vonage, which utilize super-efficient Internet connections to carry voice traffic, call themselves a broadband telephone company. Wireless companies integrate voice, video and data for delivery anytime, anywhere, to a screen you carry in your pocket. And popular Web sites and blogs compete with traditional broadcasters and cablecasters for viewers' eyeballs.

Convergence and competition, indeed.

Here's the problem: Even while technology forces changes in the marketplace, the 1996 Act's regulatory regime continues to act as a drag on investment in new networks and on innovation in new services. Services are classified based on technofunctional constructs that no longer make sense in a digital world in which a bit is a bit is a bit.

For example, the Federal Communications Commission classifies broadband service offered by cable companies as an unregulated information service, while the telephone companies' competing DSL service remains classified as a regulated telecommunications service. Obviously, when a consumer decides which broadband service to order, he or she couldn't care less about the service's regulatory label.

But the classification has important consequences. Among other things, the rates of telecommunications services are regulated and information services are not. Telecommunications services are subject to universal service fees that information services escape. So voice services offered over legacy wireline facilities are subject to regulation and universal service taxes. New Internet telephony services against which they compete are not.

In addition to the regulatory gaming, which is encouraged by separate regulatory silos based on distinctions that are downright metaphysical, the 1996 Act further discourages investment and innovation because Congress left in place too many different, vague, regulatory directives. Not surprisingly, this has created marketplace uncertainty in light of the difficulty of predicting when and what the agency will regulate and whether the courts will sustain its actions.

A way out?
What should be done? A group of academic and think tank scholars brought together under the auspices of The Progress and Freedom Foundation recently proposed that Congress adopt a radically different framework as part of a new communications law--call it a new Digital Age Communications Act.

Under the new paradigm, the FCC's actions, like the Federal Trade Commission's, would be governed by an unfair competition standard. The FCC's decisions would be tied to jurisprudential principles grounded in market-oriented competition analysis. There would be a presumption that economic regulation of communications markets is unnecessary, absent circumstances that demonstrate the existence of a threat of market power that poses a substantial and nontransitory threat to consumer welfare.

The new framework would also change the rulemaking authority that the FCC enjoys today. Before prescribing regulations, the agency would be required to show by clear and convincing evidence that marketplace competition is not adequate to protect consumer welfare and that the benefits to consumers and to competition of a new regulation outweigh the costs. Rules would sunset five years from the date they become effective, unless the agency demonstrates they continue to be necessary.

Under the new competition-based standard, the FCC's focus would shift to protecting consumers, rather than competitors, which too often in the past has been its preoccupation. The reasoning offered in support of regulatory mandates would have to be more rigorous than that customarily employed by the agency.

If it followed the new law's dictates, the FCC would find itself meeting more success in court. If it ignored the new market-oriented standard, it would be easier for courts more quickly to bring the agency into compliance with the statutory mandate.

Moreover, by changing the FCC's rulemaking authority, the agency, like the FTC, can be expected to act through individual adjudications rather than generic rulemakings more than it has in the past. Whereas adjudicatory actions centered on particular claimed abuses of market power encourage narrowly targeted remedial action, the FCC's traditional overly broad and open-ended rulemaking proceedings tend to invite log-rolling and crazy-quilt compromises that have the effect of ratcheting up regulation.

We are fortunate to live in an age in which technological advances have rendered obsolete the legacy model of communications regulation based on outdated regulatory classifications and a presumption that monopoly power exists. In this era of convergence and competition, a replacement model is needed that represents a meaningful deregulatory shift.

That's why Congress should enact a that requires the FCC to operate under a market-oriented, competition-based standard firmly grounded in economic analysis.