Legislators’ Guide to Telecom Policy

Published November 1, 2004

With regulatory sunset provisions scheduled to take effect in many states, new legislation aimed at better telecom industry regulation is on the agenda for 2005. There’s never been a better chance for state governments to foster market-based approaches to government-managed competition in this industry.

Regulation stifles the investment necessary to stimulate economic growth and job creation. Market-based competition, by contrast, is the hallmark of a consumer-focused marketplace where providers compete for customers on the basis of innovation, quality, price, and customer service.

Without doubt, the communications technologies that best deliver the products and services embraced by consumers are those operating in unregulated or lightly regulated environments. Deregulation would spur even more innovation, competition, and consumer satisfaction.

Our State Legislators Guide to Telecom Policy (2004), published in July by the Institute for Policy Innovation, explains in plain language the issues public policymakers face in considering the future of the U.S. telecommunications industry. It supplies legislators otherwise at the mercy of regulatory jargon with the tools they need to make intelligent, principled decisions. The Guide reflects a nonpartisan but distinctly free-market approach that will lead to investment, job creation, and new products and services for consumers.

The Guide offers several “guiding principles” for state legislators making telecom policy. Among those principles:

Eliminate Artificial Distinctions

Public policy should be based on reality, and the reality of the digital world is that bits are bits, whether they store or transmit voice, e-mail, or an instant message. Companies that once carried one-way video now compete with companies that once carried only two-way voice traffic, a phenomenon called convergence.

Convergence makes old legal distinctions among telecom services irrelevant. In the digital world, the distinction between local and long-distance phone service has no meaning. Regulations based on these invalid distinctions are bound to fail.

Substitution Is Competition

If consumers substitute one technology for another, this is competition. Wireless, cable telephony, VoIP, and even e-mail compete with traditional wireline phone service, just as public transportation competes with automobiles. Consumers choose among these media and substitute one for another. This is “intermodal” competition.

Neutrality Should Be the Goal

Tax and regulatory policy should be technologically neutral. Why should one method for accessing the Internet be highly taxed and regulated, while others are not?

Neutrality should not be achieved by applying pervasive regulation to new technologies. Rather, incumbent technologies should be deregulated.

Don’t Regulate What Can’t Be Regulated

Policymakers are sometimes tempted to enact unenforceable rules as political gestures. For example, laws aimed at regulating Internet content providers can be evaded simply by basing a server offshore. One U.S. Senator threatened to “pull the plug on the Internet” if his proposed legislation couldn’t be enforced. Such empty threats result in a cynical attitude toward all law.

Don’t Regulate What Doesn’t Require Regulation

Free innovation drives increased productivity, faster growth, and higher personal incomes. If something doesn’t need to be regulated, it shouldn’t be regulated. Regulations designed in an age of monopoly are actually harmful in today’s rapidly changing, competitive market. Regulations designed for old technologies should not be applied to new and emerging technologies.

Legislation Is Better than Regulation

The will of taxpayers is best reflected in the actions of their elected legislators, not in the decrees of a few appointed regulators. Legislation also creates a more predictable environment for business planning than does discretionary regulatory oversight. Whenever possible, elected legislators should determine and implement telecommunications policy.

The Consumer Should Be King

The legal ground rules for the telecom industry should respect consumer choice. If consumers want a bundle of services from a single provider, they should be allowed to have it. Existing “consumer protection” rules often protect companies from their competitors, rather than protecting consumers. Consumer protection regulations should be directed at real harms like fraud, not some vague potential for harm.

Barry Aarons ([email protected]) is a research fellow at the Institute for Policy Innovation. Solveig Singleton is an attorney and served as CEI’s senior policy analyst with its Project on Technology and Innovation. Their 28-page State Legislators Guide to Telecom Policy (2004) is available on the IPI Web site at http://www.ipi.org.