Facing Down Lobbyists the Principled Way

Published July 1, 2005

Many who speculated that AT&T’s post-merger demise would be the most important change in communications lobbying this year may be surprised by the sound and fury generated by a potentially greater development: the emerging battle between telephone and cable companies to provide video service.

Telephone companies seek to persuade Congress, states, and the Federal Communications Commission (FCC) to speed their entry into video markets by eliminating or reducing regulatory burdens such as obligations to obtain local franchises.

Cable companies insist their would-be competitors must be required to satisfy the same obligations to serve all customers that cable had to satisfy back when obtaining a local franchise meant it was the only provider in town.

This latest iteration of “regulate my new competitors like me” has echoes in previous regulatory tussles. When long distance competition came, AT&T argued vociferously that new entrants like Sprint and MCI were “cream-skimming” its best customers, and that regulatory burdens undermined AT&T’s ability to compete.

Just a few years later, AT&T (now on the same side as MCI) became the new entrant into local telephone markets. It became the Bells’ turn to argue against “cream-skimming” and “redlining” by the new entrants, and they often pressed that new entrants be forced to serve all the corners of the Bells’ service territory so competition would be “fair.”

Lobbyists grew fat and campaigns were financed, but these orgies of influence did little to help determine what’s best for consumers. Indeed, even when combatants offered seemingly inviolable principles for regulating, they turned out to be more expedient than enduring.

Today, cable companies insist that, like them, phone companies obtain local franchises to provide video service. It seems unlikely, however, that cable would support similar equal treatment if courts ultimately give them the option to provide cable modem service without regulation, but deny that option to competing DSL providers.

Policymakers need principles for deciding when and how to regulate–principles that transcend parties’ self-interested arguments of the moment. These principles should maximize progress in the private-sector development of new communications networks, services, and content while ruthlessly stamping out abuses that constrain consumers’ freedom to obtain and use these new offerings in a marketplace that maximizes consumer welfare.

Policymakers should never respond to appeals for equal regulatory treatment in isolation. Proponents of “regulatory parity” and “technological neutrality”–who argue that providers of competing services should be regulated similarly, regardless of the technology used–have a point. These approaches tend to avoid distorting how companies invest their resources because they avoid favoring one offering over another.

These approaches say nothing, however, about whether the rules in question do more harm to consumers than good, particularly in the long run. This shortcoming is especially worrisome in the world of digital communications, where the burdens of regulation can deter new investment and competition that might eliminate the need for regulation in the first place. Consumer welfare, not competitor welfare, should be the touchstone for policy.

Policymakers should avoid imposing rules where market forces can achieve the same result. Companies’ pleas to “regulate unto others but not unto me” distract policymakers from a simple truth: The same technological developments that brought another round of lobbyists to their offices also increase the potential for competition. Policymakers should remain focused on this potential, assessing whether the market forces technology has unleashed can achieve the underlying goals of regulation while forcing incumbents and entrants alike to invest in more and better offerings for consumers.

Policymakers should recognize the importance of stable, well-protected property rights in continuing the upward spiral of investment and innovation in digital communications. Consumers win as their choice of offerings expands. Companies will be reluctant to provide these choices, however, if government requires or allows the fruits of their investments to be taken unfairly or without adequate compensation. This is true whether it is an uneconomic build-out requirement or an uneconomic forced-access policy. For consumers to benefit, the property of producers needs to be respected, be that physical ownership of networks or the freedom to integrate (or not) service offerings involving content, services, and physical platform provision.

Of course, mere recitation of these principles will not resolve emerging regulatory issues such as whether video service providers should obtain local franchises. But if applied in a balanced way, probing deeply into the relevant facts, these principles at least can help policymakers transcend parties’ convenient positions and empty slogans to dwell on matters more central to responsible policymaking.

The final metric has to be what is best for consumers. While regulatory handicapping (favorably or unfavorably) is unavoidable during a transition from discrete, separately regulated markets to converged, competing markets, for consumers the call for competition should be that of Oliver Twist to Bumble the Beadle: “Please, sir, I want some more.”

Ray Gifford ([email protected]) is president and senior fellow at The Progress & Freedom Foundation (PFF). Kyle Dixon ([email protected]) is a PFF senior fellow and director of the Federal Institute for Regulatory Law and Economics. This article is adapted from “Progress, Freedom and Regulatory Transcendence: Video Service Debate Illustrates Importance of Core Regulatory Principles.” The full article is available at http://www.pff.org.