The Wrong Policy for the Right Reasons?

USA Today: FCC plan could help keep high-speed Net prices low

It’s hard to translate back from the dumbed-down explanations in this article, but it seems that the FCC is moving towards treating competitive broadband data services more favorably than competitive local voice services. The draft they are considering apparently leaves in place “line sharing” which allows companies such as Covad to offer DSL at low rates, while phasing out the "UNE-P" rules that allow WorldCom and AT&T to do the same.

I can see the value of this approach, on both legal and policy grounds. Broadband is critical to the future of communications, and competition is critical to the future of broadband. The danger is that the FCC will do exactly what Chairman Powell (wisely, I think) wants to avoid: let the end justify the means.

For many years the FCC has put in place and preserved a set of rules that have the effect of promoting data services. Make no mistake, I think this is a wonderful outcome. Given the political and regulatory situation in the late-1990s, when Internet services were truly nascent, it was absolutely the right approach to follow. But you can’t build a solid building on rickety foundations. At some point the FCC has to get to a system that is internally consistent. That means revolutionary change in the regulatory structure.

I’m worried that, by pursuing a feel-good policy of promoting data-centric services, the FCC is making the same mistake it did when it implemented the 1996 Telecom Act. Rightly or wrongly, Wall Street got the message that the new CLECs and DLECs would not be allowed to fail, so they shoveled money into new competitors. We all know the result: a spectacular crash.

It’s happening again. The Wall Street Journal has a piece today about IP telephony, talking about the coming conflict over whether to impose traditional telecom regulation. All the companies and analysts quoted said the FCC has a special policy to promote Internet telephony. As one of the primary authors of the 1998 FCC report to Congress that defined the current policy, I know what they are talking about. But they are assuming too much. The FCC has wisely held off figuring out how to integrate IP telephony into its regulatory structure, but that day of reckoning will come. If nothing else, the courts will force the FCC into it. As we saw with the 1996 Act, rulemaking by the judiciary involves far more time, uncertainty, and confusion than rulemaking by the FCC.

If I were FCC Chairman Michael Powell, I would start with the assumption that by 2010, everything about communications policy is going to change, and work backwards. It will change through some combination of a new Telecom Act, spectrum reform, and new techologies undermining the existing industry structure. Winning the last war isn’t going to help.