Heartland Institute Statement on Stevens-Inouye Telecom Reform Bill

Published May 2, 2006

(Chicago, IL – May 2, 2006) Sens. Ted Stevens (R-AK) and Daniel Inouye (D-HI) made public today a draft telecom reform bill they are cosponsoring.

The following statement in response to that measure can be attributed to Steven Titch, managing editor of IT&T News and senior fellow – IT and telecom policy for The Heartland Institute, a 22-year-old nonprofit research organization based in Chicago. Titch can be contacted for further information by telephone at 281/571-4322 (office) or 312/925-0464 (cell), or by email at [email protected].

The draft telecom reform bill sponsored by Sens. Ted Stevens (R-AK) and Daniel Inouye (D-HI) and made public today is disappointing to those who believe the nation’s telecom industry needs to be deregulated, not simply regulated in a different way.

While giving the most limited of nods to issues of video franchising and network neutrality, the bill does little more than extend into broadband the current costly, unproductive, and largely unworkable regulatory regime. It fails to acknowledge, as previous state and federal reform bills have, that much of the digital economy–the Internet, PCs, e-commerce, wireless networking, and new media–thrives in the absence of regulation and legislation. Instead, this bill perversely does its best to search out new areas to regulate.

The bill fails to address inherent problems in the funding, administration, and transparency of the Universal Service Fund. In fact, the bill expands the fund’s size, complexity, and mandate. For example, under the bill, revenues from cable modem and Voice over Internet Protocol (VoIP) services would now be part of the contribution formula, a provision that will only add to the cost of these services to consumers.

Meanwhile, the bill plainly states that not all carriers paying into the Universal Service Fund would be eligible for payouts. Most payouts would be reserved for rural telephone companies, which would be allowed to collect broadband subsidies for as long as five years–an eternity in Internet time–before they would have to make any investment in broadband infrastructure.

Instead of clarifying and streamlining video franchising provisions to allow for speedier entry of competitors into the market, the bill offers a mish-mash of rules that invites bureaucratic conflict between federal and local jurisdictions.

Instead of authorizing a process for nationwide video franchising–a change that would save cable consumers billions of dollars a year and dramatically speed up the roll-out of Internet-based television by telephone companies–the bill leaves video franchising in local government hands. It requires local government officials to use an FCC-created standard franchise application form and requires a decision on applications within 30 days, but it allows appeals that would set off further rounds of delay and negotiation. It’s difficult to see how this convoluted process could be of any help in getting competitive broadband services to more people.

Finally, the bill opens the door to content regulation. The so-called ‘sports freedom’ provision will no doubt be popular because it prevents one local video competitor from carrying exclusive coverage of a sporting event. But this sets a precedent for the future regulation of content agreements–which are a natural part of the competitive mix.

What if a service provider wants to strike an exclusive deal with a movie studio to premiere a big movie–say, ‘The Da Vinci Code’– on pay-per-view the same day it opens in theaters? Studios and distributors have already experimented with this. Ideas like these make broadband more attractive and differentiated. We don’t need government regulation of cooperative marketing. This bill sets a dangerous precedent by doing so.

While some proponents of reform have pointed to the bill’s federal oversight of video franchise reform as well as the cautious approach the bill takes to network neutrality–the bill does not mandate it, but merely asks the FCC to issue annual reports to determine if there is actual abuse–they risk falling into the trap of thinking that ‘any reform is good reform.’

As it is drafted, the Stevens-Inouye bill falls far short of the true reform that’s needed to unleash the power of the broadband economy. Instead of freeing the industry from the burdensome regulations that have hindered broadband penetration growth, it piles on more. It would open the door to greater economic, market, and content regulation in the entire broadband value chain. It would impose a massive new regulatory structure on services that have, to date, thrived without them.

It is, in short, a huge step backward.

Steven Titch ([email protected]) is senior fellow – IT and telecom policy for The Heartland Institute, a national nonprofit organization based in Chicago. Among other publications, Heartland publishes IT&T News, a monthly newsletter addressing technology and telecommunications policy issues. For more information, call Michael Van Winkle, media affairs assistant, 312/377-4000, or email him at [email protected].