Michael K. Powell
Federal Communications Commission
D.C. Bar Association Computer and Telecommunications Law Section
and The Federal Communications Bar Association
September 29, 1999
"Law in the Internet Age"
Good morning, ladies and gentlemen. It is my pleasure to be here with you today and to participate in the D.C. Bar Association's fifth annual technology law conference on "The Challenge of Regulating the Digital Marketplace While Advancing E-Commerce."
ALL HAIL THE INTERNET
Interestingly, a few years ago, many of you in the audience, lawyers and such, probably were not thinking of or discussing the Internet, electronic commerce and the digital marketplace. It was the exclusive domain of engineers, principally in Silicon Valley. But everything today is the Internet, the Internet and more Internet. Our world is one where every billboard, bus sign and advertisement is stamped with some URL. The Internet, in a relatively small amount of time, now captures so much of our collective attention and interest. The advent of the telephone was ushered in when Alexander Graham Bell uttered the first words to be carried over wire: "Mr. Watson, come here, I want you." Close to a hundred years after those words, in October 1969, a similar moment transpired when the University of California at Los Angeles linked a computer over ordinary telephone lines to a computer installed in Menlo Park, California. Once the line was opened, UCLA typed the dry message "login" to activate the line. Although the system crashed moments later, it was a defining moment for networked computers and heralded the arrival of the Internet.
Today, this technological development is changing nearly every aspect of our lives, faster and perhaps more profoundly than any preceding development: including the railroad, the telephone, electricity, air travel, radio & television, and even plastics.
Now I am not one to tick off statistics normally, especially when hyperbole is so often used to color artificially the importance of a given technology or service. However, the magnitude and frenetic pace of Internet change is so plainly revealed by the gravity of the numbers, and probably even understated because we are so slow to capture the relevant data, that I must convey what I find truly impressive:
Consider that in 1969, with the advent of Arpanet, the precursor to the Internet, there were four interconnecting university networks. By 1980, the number of Internet users expanded to 10,000. By June 1999, there were 100 million worldwide users in June 1999. Today, there are 200 million users. And, given the fact that the Internet doubles every 100 days, that figure may have been eclipsed already. Put another way: According to the Department of Commerce's 1998 report on "The Emerging Digital Economy," the Internet has shattered the penetration rates of all previous technologies. Radio was in existence 38 years before 50 million people tuned in. Television took 13 years. PCs took 16 years. The Internet hit the ticker tape in 4 years and is still going strong. A recent University of Texas study estimates that the Internet engine already generates $301 billion if you include online sales of industrial and consumer goods and services as well as equipment and software to support e-commerce. Major industry commentators forecast that e-commerce revenues could soar as high as $1 trillion by 2005. And users of e-mail, the lifeblood that pulses through the veins of the Internet, has exploded. In 1995, the number of e-mail messages sent on an average day was 300 million. That number will reach 3.5 billion this year, and is expected to be 8 billion by 2002.
The Irish poet John O'Donohue once remarked that "E-mail is like coming home at night after a long day and finding 70 people in your kitchen."
The Internet, clearly is one of the most profound developments of our time, for it affects the most fundamental tenet of human civilization-communication. How we talk, how we love, how we buy, how we sell, how we fight, and how we build. Communities are molded by our method and manner of communications.
The Internet is all things, at once, that we need and use: it is a communications medium, it is a market, it is a library, it is a bank, it is a grocery store, it is a movie theatre, it is a government, and, regrettably, it is also a crime scene.
Because this zone of activity is where commerce will be found, where privacy will be violated, where money is transferred and contracts made, and where fraud is practiced, it is unquestionable that government and the rule of law, too, will ultimately be found, though perhaps in very different forms.
And, because the FCC has had historical regulatory responsibility for the underlying infrastructure (the "rails") on which communications ride, such fundamental changes in communications will raise serious questions for policymakers as well. Perhaps not directly, but we most definitely do, and will increasingly, regulate aspects of the Internet.
The important public policy question is not whether to regulate the Internet or not, as if that were a realistic choice. Rather, it is how to regulate it responsibly in a manner that maximizes consumer welfare and does not stunt its infinite growth and innovation potential.
GUIDING PRINCIPLES OF REGULATION IN AN INTERNET WORLD
In reflecting on the Internet, I have come to believe that a responsible regulatory model must weave into its philosophy, its organization, and its rules certain key guiding principles, which I would like to outline.
The Uncertainty Principle
The first lesson that must guide our understanding is that it is nearly impossible to predict where the Internet and digital convergence are going. Indeed, it has become a bit of a hobby of mine to collect quotes of learned individual's failed predictions about the future course of new technologies. (As an aside, if you like such things, I recommend Cerf and Navasky's book The Experts Speak: The Definitive Compendium of Authoritative Misinformation). Consider a few:
Thomas Edison's failed prediction that "The radio craze . . . will die out in time." Or Western Union's statement in 1876 that "This telephone has too many shortcomings to be seriously considered as a means of communication." Or, the statement that "640k ought to be enough for anybody" espoused by Bill Gates.
This point about uncertainty simply cautions us to heed the economist Friedrich von Hayek's warning that "it is high time. . .that we take our ignorance more seriously." Rules rest on assumptions-about technology, about costs, about markets, and about behavior. The stability and usefulness of our rules are dependant on these assumptions remaining valid for at least some reasonable interval of time. In Internet time, the assumptions can be fleeting, for the dynamic is one of swift, and at times, blistering change and evolution. Our rules and policies must recognize this and incorporate mechanisms for dealing with changing foundations.
In more practical terms, Robert Cringely, host of the PBS mini-series "Triumph of the Nerds," proffered 5 rules of prognostication:
First, we tend to overestimate change in the short term Second, we tend to underestimate change in the long term. Third, the more specific a prediction, the less likely it is to be correct. Fourth, past performance is a predictor of future result, but not a good one. Finally, the most reliable predictions are those that follow established trends.
Rulemaking requires some speculation about the future and change, but we would be wise to keep Cringely's rules in mind.
Speculations about markets and competitive developments are particularly challenging in Internet space. Long-held assumptions about monopoly and entry may themselves be evolving. For one, the near immediate dissemination of new ideas and concepts make protecting monopoly positions difficult to maintain. Consider Microsoft's competitive predicament, facing competitive attacks by upstarts from all quarters. Also, one may have to look for new entry by previously unimagined firms. Consider the company Global Crossing. This company was founded about 2 years ago, with $75 million. This year, they made an astonishing bid to buy USWest-one of the oldest most venerable old line institutions in our economy. US West was ultimately purchased by Qwest, a company not much older than Global Crossing. This is mind-boggling. A few short years ago it would have been thought to take generations to enter a market and subsume a company of US West's size and venerability. Similarly, could car dealers have imagined that one of their biggest competitors would be AOL or Microsoft? We must take account that previously unimaginable things have entered the realm of the possible.
Uncertainty also presents a challenge. The technology markets create enormous competitive opportunity, but great anxiety as well. Because of the pace of change and the quickness with which one can challenge established competitors, companies will naturally hunger for both regulatory assistance in inhibiting a competitor, and help in setting the direction of market developments (usually to the proponent's favor). Arguments to intervene often are couched as necessary to prevent anti-competitive behavior, even if such behavior has yet to occur. I strongly believe the Government has a role to play in stopping anti-competitive conduct, but it is a dicey business to do so based upon speculation about the future consequences in such a rapidly changing marketplace. Indeed, quite often, proponents of intervention are attempting to get the government to embrace a particular vision about the future and take actions in furtherance of that vision. This kind of activity used to go by the name of "industrial policy." I think such action is dangerous, because such a dynamic marketplace, driven by change and innovation, should not be tipped by government but should be allowed to play out.
The Spontaneous Generation Principle
A related principle is what I call the "spontaneous generation principle." This principle is akin to the "uncertainty principle," but with a key difference. Many people understand the perils of prediction, but they still assume that in the future that some destination will be reached and change will settle out, for at least awhile, as it has often done in prior revolutions.
In the Internet sphere, however, change may be more akin to biological evolution than to the concept of simply doing something differently. That is, the market never settles fully, but is in an un-ending state of flux and innovation, constantly re-making itself, sitting still for no one, no company and certainly no regulator. This is not a radically new idea. In fact, it is a slight variation on economist Joseph Schumpeter's concept of creative destruction, where entrepreneurship "incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."
But the catalyst of the Internet and digital convergence makes this regeneration more rapid and explosive than Schumpeter may have ever imagined. Moreover, the billions of interactions of ideas that are facilitated by the Internet mean that the genesis of entirely new species of products and solutions are now possible (perhaps inconceivable to any one person or institution before).
In a recent Business Week article, Robert Hof finds a good description of this phenomenon, by way of Jeffrey Bezos of Amazon.com, who suggests that one must go back deep in time to find an apt precedent for what is occurring. Bezos says, to the Cambrian period, 550 million years ago, where something snapped. In the space of less than 10 million years, there was an explosion of multi-celled organisms. Strange new life forms appeared. These species were so varied and numerous that their basic makeup underlies nearly all life today. Says Bezos: "Evolution tried every conceivable path-really fast."
Such a living market is not customary to regulators and it will be our supreme challenge to adapt to its demands.
The User Rules Principle
The third principle is the "user rules principle." Regulation has had the persistent character of being somewhat paternalistic. Consumers are often presumed to be naïve about the complexities of the industry and in need of a bit of protection from daddy and mommy regulator. In the freedom of contract era, before the dramatic rise of the regulatory state, we often left buyers to fend for themselves, cautioning caveat emptor. Regulation, in part, was designed to help protect and equalize the inequities of power in this relationship with good reason, because many companies viewed customer ignorance as a profit center.
But things have changed because of the Internet. For one, the network architecture itself has changed. Previously, the brains of the network were centralized, controlled by a handful of companies and institutions. On the periphery lived the customer, using dumb devices usually to receive that which was pushed to them by those in control-the ring and voice of a phone call, the images of broadcast or cable television.
The Internet is fundamentally different. It is the network that is stupid. The brains reside in the hands of the users on the outside of the network. On command, these users eventually will have the power to choose what they wish to hear and perhaps in what form and in what language. They will be able to view the movies and entertainment they want from a worldwide selection, when they want. And, they will be able to dynamically configure the network to their needs, without a call to the local phone company or bit provider.
Business is beginning to recognize this sea change. Again, Business Week noted, "A Copernican revolution of sorts is under way. Executives used to imagine their companies as the center of a solar system orbited by suppliers and customers. The Internet is changing that-dramatically. Now the customer is becoming the center of the entire business universe."
In short, the Internet model is shifting the balance of power further toward the consumer. The consumer will have new tools to protect their interests and maximize their welfare. There may be less of a need for a government nurse-made. Certainly not entirely, but I am convinced that rules and regulations will have to increasingly yield, or perhaps more appropriately liberate consumers to use the new tools to make personalized, tailored choices about goods, services and risk they want to assume, without the one-size-fits all interference of governmental rules.
The Borderless Principle
The fourth consideration for future regulation is the need to appreciate that the Internet and communications will know no borders and respect no limits. It will not respect the artificial boundaries of nations, states, or LATAs.
This poses significant challenges for the regulator. Traditionally, we have used distance as an organizational principle. There is long distance service, local service, and intra-LATA tolls. There is state and federal jurisdiction and regulations. There are rules for Europe, and different rules for Asia. The Internet, however, could care less just as, increasingly, could those who use it. Markets will become even more global.
Yet, traditionally, telecommunications regulation and law generally rest on borders. The challenges of jurisdiction alone are extremely thorny. Many of our rules use different cost assumptions and service assumptions based on their defined geographic scope. This will be less meaningful in the future.
The Futility Principle
Finally, I will conclude with what I call my "futility principle." In short, no matter how genuine our concern, or sincere our effort to address an imperfection in the market, we must stop and ask ourselves if it is futile to attempt to craft a meaningful rule in a timely manner.
We at the FCC are saddled with an organizational structure that may not be adept at efficiently addressing certain developments in the market. We have limited resources, a legacy bias and limited ability to keep pace with technological changes and trends. Therefore, we must constantly, and honestly, ask ourselves whether a proposed rule can be crafted quickly enough and clearly enough to make a positive contribution to the market, for a really good rule adopted too late may as well not have been adopted at all.
THE LAW WILL MATTER
Since I am speaking to a group of attorneys let me conclude by saying that law will matter in the Internet Era, despite the idyllic libertarian predictions to the contrary of some. The medium may change but humans and their relationships fundamentally will not.
Markets still desperately depend on the rule of law for their proper functioning. Contractual commitments still must be binding in cyberspace. Questions about whose law will govern in a borderless world will have to be answered. Private property still will have to be protected - in a space where it is easily trespassed or stolen. People still will be harmed by tortuous activity. And, bad actors will only find more creative ways to steal, cheat, deceive, injure and even kill.
Law will have to venture into this new world. Improved understanding and experimentation in self-governing will be necessary, and use of technological solutions may have to be explored and understood.
This is the challenge of our law schools and the bar. We must work diligently to adapt the curriculum, our statutes and the common law to this revolution. I predict-of course at my own peril-it will be our most important task for the foreseeable future.