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Communications Reform and "Social" Obligations: Looking for Another Way

Progress Snapshot
Release 1.14 September 2005

by Kyle D. Dixon *

The draft communications reform bill released September 15th by the House Commerce Committee includes elements of promise and peril. On the one hand, the draft and the ensuing debate offer another chance to consider how to promote broadband by limiting regulation of these competitive services primarily to so-called "social" obligations. On the other hand, the bill misses an opportunity to avoid even those mandates where none may be needed.

One of the chief benefits of the draft bill is that it continues discussion of the need for meaningful communications reform. It attempts at least to minimize "economic" regulation of rates, terms and conditions for broadband and broadband-related services so as to promote their deployment. Moreover, the draft embraces the wisdom that such intrusive regulation of broadband Internet access itself may not be necessary to protect consumers, public safety and other social goals. The promise of this approach is that it focuses attention in the reform debate on achieving these social goals somewhat directly, rather than as a collateral benefit of soup-to-nuts economic regulation.

The peril arises because, in many places, the draft assumes too readily that social goals cannot be achieved in the absence of a government mandate. The draft takes the welcome step of requiring Internet voice providers to contribute to universal service contributions only if the FCC decides such contributions are appropriate. Yet the draft imposes several other obligations on Internet voice (e.g., "dial 911" emergency calling and disabilities access requirements) without any inquiry regarding whether these goals might be satisfied by market and technological developments or other voluntary actions by industry. Similarly, the draft would impose many traditional cable social obligations (e.g., public access channels, prohibitions on discriminating against poor consumers) on other providers of broadband video services before determining whether the expansion of video competition beyond cable and DBS merits a new approach.

The point is not that pursuing these social goals is a bad thing. The ultimate goal for communications regulation must be to maximize consumer welfare, and that may require government to play a central role. But market and technological developments often benefit consumers more than regulation, not just by maximizing incentives for companies to compete on price and service but also to innovate. Thus, although the draft's attempts to eschew the most onerous forms of economic regulation are laudable, its decision not to consider whether several mandates are necessary, particularly with respect to social policies, likely deserves further thought.

The peril implied by assuming mandates are necessary to achieve social policies is dramatized further by its impact on the overall framework for regulating communications. Many of these policies emerged when communications services were provided over distinct networks in separate markets with their own economic characteristics and regulatory schemes. But as convergence melds communications functionalities and provides them over increasingly multi-purpose broadband networks, it makes less and less sense to regulate services differently and thereby risk distorting what gets offered and sold in the marketplace.

Admittedly, Congress likely cannot (or perhaps should not) impose social mandates without regulating services and technologies separately. In applying such mandates, a "Hobson's choice" is inevitable: Policymakers can apply the mandates to services "like" traditional services and thereby keep regulating services differently (e.g., apply 911 requirements only to Internet voice). Alternatively, they can apply the mandates to a broader array of services (e.g., extending 911 requirements to Internet video games that include a voice feature). Either way, the mandates will dampen and/or distort investment, impose costs and otherwise make it more difficult for companies to provide service to their customers.

To its credit, the draft bill picks the lesser of these two evils, limiting obligations that already apply to voice to competing Internet voice services, and limiting obligations that apply to cable to other broadband video service providers. Thus, its decision to continue the tradition of regulating different services and technologies separately must be viewed through that favorable lens.

That said, this Hobson's choice can be avoided to the extent government pursues social policies without imposing mandates, such as when policymakers articulate broad goals for industry to achieve flexibly, or when regulators discover that market forces are already achieving desired goals. In these situations, separate regulatory treatments are not necessary because there is no "treatment" at all.

In cases of true "market failure," of course, the government may need to insist that the private sector provide benefits for which it does not face adequate incentives. But the government won't know whether the market has failed unless it asks.

Thus, as debate surrounding the draft bill percolates in the coming weeks and months, one can hope that Congress will think harder about whether some of the social policies to which it appears committed can be promoted without regulatory mandates. If Congress does that, it will shift the bill's impact on the debate and on any whatever becomes law more decidedly toward promise and away from peril.

* Kyle D. Dixon is a Senior Fellow and Director of the Federal Institute for Regulatory Law and Economics at The Progress & Freedom Foundation. The views expressed here are his own and do not necessarily reflect those of The Progress & Freedom Foundation, its officers or Board Members.



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