The best telecom reform is no reform

Here’s a question: Is your cable modem a “telecommunication service” or an “information service?”

The obvious answer might be “who cares?” But for the cable TV and local telephone industries, that question was the subject of bitter litigation for the better part of a decade. The question mattered because under the 1996 Telecommunication Act, “telecommunications services” were subject to a host of “common carrier” regulations while “information services” were exempt.

Obviously, these days cable and telephone lines provide both telecommunications and information services. But under the regulatory framework created by Congress in 1996, “all of the above” wasn’t an option. The issue was finally settled last year in the Brand X decision, when the Supreme Court ruled that cable Internet was an “information service.”

The details of the controversy are mind-numbingly dull. But the dispute does illustrate an interesting point: Congress spectacularly failed to craft regulations that could be applied sensibly to the Internet age. The 1996 Act was billed as a step toward deregulation. You might think that “deregulation” meant finding and repealing regulations that had outlived their usefulness due to technological change. You would be wrong: “deregulation” turned out to involve pouring old regulatory wine into new technological bottles. Legislators had their eyes glued to the rearview mirror, focusing on the problems of the 1980s while the rest of the world was hurtling toward the 21st century. The result was a decade of confusion about how to apply the law.

Congress is poised to make the same mistake again. Lawmakers are planning to revise the Telecom Act for the first time in a decade, and once again they appear focused on addressing the controversies of the past rather than the challenges of the future.

The big story of the last half-decade has been the continued convergence of voice, video, and data services. Cable companies now offer Internet access and phone service. Phone companies offer Internet access and will soon offer television content. Internet companies like Apple and Google are beginning to offer voice and video services. In short, voice, video, and Internet access are no longer three distinct products. Ultimately, it’s all just data.

This development is great for consumers. As phone and cable companies enter each others’ turf, their customers benefit from increased choice and competition. The competition will only intensify. The Baby Bells are building new high-bandwidth fiber optic networks to millions of households to allow them to offer video on demand. Satellite television companies are rumored to be exploring ways to enter the high-speed Internet market themselves. And cellular telephone carriers have begun offering data and even video services on mobile devices.

The question Congress ought to be asking is: “why are we regulating these industries at all?” Telecommunications regulations are traditionally justified as a way to limit “natural monopolies,” but there don’t seem to be any monopolies left. A sensible telecom reform would repeal the anachronistic regulations that draw increasingly meaningless distinctions among voice, video and data services.

Instead, Congress is headed in precisely the opposite direction. In September, the House released a draft of proposed telecom legislation that would create three new categories of service: Broadband Internet Transmission Service
(BITS), Broadband Video Service (BVS), and Voice Over Internet Protocol Service (VoIP). Each of these services would be subject to its own set of arcane regulations, which are largely focused on shoehorning 21st-century services into a 20th-century regulatory framework.

The result of such legislation would probably be depressingly familiar to those who followed telecom policy over the last decade: regulators would quickly find that many of the new services being developed don’t really fit into the Congressionally-mandated categories. Companies would begin bickering and litigating over how they and their competitors should be classified. Not only would this be a jobs program for telecom lawyers, but the resulting regulatory uncertainty would probably discourage investments in new infrastructure.

There’s little reason to think that future revisions of the telecom bill will be any better. Indeed, the best outcome of the telecom debate would probably be for Congress to do nothing. Ironically, the 1996 legislation is now so out of touch with technological reality that the broadband industry has effectively become deregulated. After the Brand X decision, the FCC essentially threw up its hands, exempting both the cable industry and the Baby Bells from many of the provisions of the Act. And because the Act’s authors didn’t anticipate the growth of the Internet, the FCC has has very little authority over Internet-only services like Google, Skype, and Apple’s iTunes.

The FCC hasn’t entirely abandoned its efforts to impose outdated regulatory requirements on new technologies. For example, in May, the FCC ruled that VoIP providers must offer emergency-911 service that allows police dispatchers to determine the physical location of callers. The FCC relaxed the requirement somewhat in November, but the rules still create a large barrier to entry, because E-911 services require large investments in physical infrastructure that would not otherwise be necessary to offer VoIP service.

But overall, the current regulatory environment is surprisingly favorable to high-tech innovation. A new telecom bill would probably make things worse. Not only would it kick off another decade of litigation and regulatory uncertainty, it also is likely to expand the authority of federal regulators over “pure” Internet companies like Google, Yahoo, and Skype.

In short, for supporters of free markets, the best telecom bill is probably no telecom bill.

Tim Lee is the science and technology editor of Brainwash and the editor at the Show-Me Institute, a Missouri think tank. His website is www.binarybits.org.