A Free-Market National Broadband Policy

Published March 1, 2004

Grover Norquist, president of Americans for Tax Reform, recently sent a letter to President Bush casting aspersions on the need for a national broadband policy. Norquist is an indispensable foe of taxes, a position that puts him on the side of free-market advocates, but he knows very little about broadband.

The January 26 letter starts spectacularly. Writes Norquist:

It is with great concern that I learned of the attached letter you received from Senator Hillary Clinton and signed by several other Democratic Senators, calling on the White House to create a “national policy on broadband,” a specific catch phrase refined by a handful of union-dominated monopolies and government bureaucrats to micromanage broadband deployment.

The letter referred to by Norquist, dated January 16, was signed by Clinton and eight other Democratic Senators. The enthymeme here is, if these (bad) entities support deregulation, then all good Republicans should oppose them and by extension therefore support regulation. This Through the Looking Glass moment then slides into equating a call for broadband deregulation with industrial policy, the practice of government regulators deciding market outcomes:

Senator Clinton’s embrace of an industrial policy model for our technology and telecommunications economy should come as no surprise: many in the Clinton administration … were strong advocates of copying industrial policy models of our international competitors, such as Japan’s Ministry of International Trade and Industry (MITI).

To be sure, the Clinton FCC under Reed Hundt pursued an aggressive industrial policy of unbundling and market outcome manipulation in order to induce competitors into the narrowband communications markets. Indeed, the market is still trying to recover from the Hundt hangover. For my part, I do not know Senator Clinton’s full meaning when, in her letter, she states, “We fear that the absence of a clear government broadband policy is stifling capital investment and in many cases denying consumers the benefits of new technologies they want and need.” But that doesn’t sound like a call for government enacting preferences for broadband to me.

Norquist’s letter turns the issue on its head. The current hyper-regulatory mess is called the free market. Moves toward a less-regulated broadband regime are deemed industrial policy. Right now, a host of legal and regulatory actions have the broadband incentives in upheaval. The Brand X Internet case leaves the cable players uncertain; the Triennial Review and uncertain status of section 271 unbundling freezes Bell fiber plays. Though the rather grandiose title “National Broadband Policy” sounds industrial policy-ish, it turns out to be a rather straightforward retreat from pervasive administrative regulation toward a reliance on traditional market norms of contract and property.

The unfortunate reality in telecommunications is that policymakers don’t have a choice about making industrial policy. This country’s entire communications history is nothing but one big experiment in industrial policy, and a failed one at that. From the Kingsbury commitment in 1913 through Carterfone, the MFJ and the Telecommunications Act of 1996, Congress and the states have given one big fat industrial policy invitation: Do what is in the public interest. What does that mean? It used to mean regulate entry, regulate prices, regulate quality, order cross-subsidies. What do you get? A thriving market for regulatory favor, distorted rate structures to benefit favored rate classes.

Admittedly, the task of undoing formerly protected phone monopolies and working out the regulatory status of new technologies like broadband and VoIP is difficult and perilous. For better or worse, “industrial policy” must be made because the 1996 Act commands it. The question is whether this industrial policy points toward markets or sinks into the regulatory status quo. A move by the FCC to clear up cable modem’s status and eliminate unbundling requirements for fiber would go a long way to getting the forward-looking investment incentives.

The straw man rejoinder to this is that I want to deregulate everything and unleash depredatious monopolists on the land. Far from it. First of all, there is no monopolist in the broadband arena. It is a new market being vigorously contested by competing platforms. Second, I am not against the regulation contemplated by the ’96 Act. Indeed, I see a place for vigorous, narrow regulation of the interconnection relationship, and even the need for a modest, time-limited unbundling regime.

Norquist, who has been such a champion of so many worthy causes, needs to delve deeper into broadband policy. Here’s hoping that the White House continues to listen to him on taxes, but listens to other conservative voices on communications policy.

Ray Gifford ([email protected]) is president of the Progress and Freedom Foundation (http://www.pff.org). This is a slightly edited version of an essay originally posted on the PFF blog on February 5, 2004.

For more information …

Letters to President Bush on a national broadband policy by Grover Norquist, Sen. Hillary Rodham Clinton, and other Senators and members of Congress can be found on The Heartland Institute’s Web site at http://www.heartland.org.