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I recently read a wonderful tribute by George Will, saluting Meg Greenfield, the long time editor of the Washington Post's editorial page and Newsweek magazine, who recently lost her battle with cancer. Her passing is a great loss for us all.
Will's contention was that Ms. Greenfield had a powerful influence on Washington because she brought "judicious intelligence" to bear on complex questions of policy. He praised her wisdom and her insistence on intellectual rigor. One passage particularly struck a chord with me because it seemed to touch on something I encounter too often in debates about communications policy. Will wrote: "Intellectual rigor annoys people because it interferes with the pleasure they derive from allowing their wishes to be the fathers of their thoughts. That failing is common to humankind, but is especially prevalent in a company town where the company's business is politics."
The passage resonates with me because I find that regulators often are invited or tempted to take actions and promulgate rules based on sunny or stormy pictures painted by the advocates of action, without digging below the rhetoric and testing whether our intervention will really benefit the public. One area that risks having that character is that of advanced services and the associated bevy of issues, including the question of the day: government-mandated access to cable by Internet Service Providers (ISPs). As we begin to consider whether and how regulators should decide the question, I would like to push past the semantic food fight that has been going on with respect to this issue and offer some considerations, which I believe frame the Commission's current approach and which I can only hope would bring a smile of satisfaction to Ms. Greenfield's face.
II.MANDATED CABLE ACCESS: LENSES OF EVALUATION
I believe there are several lenses through which we can bring to bear "judicious intelligence" on the question of mandated cable access. Two of the most important of these lenses involve matters of technology and competitive policy.
I attended a wonderful briefing on the Internet economy, hosted by Cisco Systems. A government official asked CEO John Chambers what it was that government could do to help hasten, rather than hinder, the Internet economy. He answered that, above all else, regulators should understand the technology and the market before we act.
I believe we have much more work to do in this regard. The danger is that we have an intimate understanding of phone systems and cable provision of video services, but we do not have much experience with the two-way cable data infrastructure. There are very significant differences and the risk is that, if we are not careful, we could clumsily apply regulatory devices that have been developed on the technological assumptions of phone service.
There are clear and potentially very important differences between telephone dial up and cable modem Internet access services. For example, dial up connections offer a dedicated circuit for reaching the Internet. The cable configuration requires clusters of consumers to share access, much like a local area network (LAN). Consequently, the issues associated with shared access among competitors might be much more complicated. Rather than handing over a loop to a competing service, cable interconnection would require unprecedented joint/multi-provider coordination and cooperation that may prove too daunting.
Additionally, one needs to take into account the very unique nature of providing an Internet Protocol-based service, rather than the traditional provision of voice circuits. In the Internet Protocol (IP) world, unlike the circuit-switched world, the brilliance is in the fact that the intelligence is not in the center of the network. Instead, the user can employ her computing device and IP protocols to dynamically demand only the capacity she needs, and to specify the route and destination of her communication without constraint. In this model, the provider has less ability to control access to content that is available on the open web.
Given the flexibility of IP protocols, those who suggest that the cable plant represents a technological barrier to content must be able to demonstrate why the open IP protocol is insufficient to ensure access. Is a firm's control of cable plant an actual barrier to competition (an essential facility), or is such control just a more efficient way for that firm to provide services to its customers? The former may be a competitive problem, deserving of government attention. The latter may be an acceptable competitive advantage.
Competitive Policy Considerations
The second lens for examining the access issue is competitive policy. In peering through this lens, the threshold question we regulators must ask ourselves is whether government intervention is appropriate. Sadly, we too often fail to live up to Greenfield's model of "judicious intelligence" here, opting instead to apply ideological or partisan labels where clearly none is useful. Either you are "pro-market" or "pro-consumer." But Greenfield, whom George Will suggests is more liberal than not, probably would not have let us hide in such oversimplifications. So let us look a little closer.
1.History Has Reached A Verdict: It Finds For The Market
It is now established, without much question, that free markets work better than any other economic form ever tried by mankind to allocate resources, to inspire innovation, to maximize public welfare, and even to protect and empower individuals. Government in virtually every nation tried forms of state-centered regulation, believing they could hatch national blueprints, models and programs that beat the market.
Yet, today, one looks around the world and sees barely a whiff of state-planned economic thinking. Governments in nearly every capital are de-regulating and putting private markets in place, are privatizing commercial activity, are allowing private capital to flow more freely as the market sees fit. This, more than anything else, is the triumph of the 20th century. This is well-documented by Daniel Yergin in his exceptional book, Commanding Heights, which is just one of the many scholarly works proliferating bookshelves and web pages that lay out the triumph of market dynamics for improving the lives of our citizens.
This triumph is exemplified by the handling of our own economy by the Clinton administration. Robert Rubin, who recently stepped down as Secretary of the Treasury, is widely, and rightly, hailed for his commitment to market forces and governmental restraint. One commentator described this commitment:
"[R]estraint was the watchword of Rubin's tenure. He avoided grand, costly initiatives, emphasizing instead the discipline of balanced budgets and the efficiency of the private markets. . . Respect for market forces more than governmental interference was Rubin's guiding theme."
This, in a nutshell, identifies the secret of Secretary Rubin's success in guiding this economy through one of its most sustained growth periods ever.
Notwithstanding Rubin's achievements, healthy restraint and respect for market forces are not mere character traits, but are the necessary attitudes for stewardship of sound economic policy. Larry Summers, who will replace Rubin, has demonstrated that he, too, shares these views about the proper relationship between government and the economy. Summers recently talked about the change in people's thinking around the world about this relationship. He said:
"First, they have seen how badly the public sector can mess things up. With competition, things seem to go better. Innovation happens. The world is more focused on variety than quantity. Secondly, markets are able to do things that people used to think required government coordination. Markets make it possible to rent videos in every town in America, with no public involvement. There is now skepticism about the view that you have to have the public sector to get things done."
Moreover, when asked "What's the single most important thing to learn from an economics course today?" Summers replied, "That the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts, without direction, controls, plans. That is the consensus among economists."
But markets are not merely superior in maximizing wealth and innovation. By empowering individuals and corporations to engage in mutually beneficial exchanges free of government coercion, markets also maximize personal and political freedom. It is not a coincidence that the freest places on earth, with the highest standards of living, are where markets reign. This century, in large measure, has been consumed by discourse, debate, and even war over central planning versus markets. Wealth is power, and one of the cornerstones of a free and democratic society is that too much power should not be allowed to reside in the government. For that reason, much of our Constitutional system is designed to prevent the government from undermining individual rights.
I am reminded of a wonderful book I read recently by P.J. O'Rourke called Eat the Rich. It is a humorous look at economics and economic systems that rightly concludes that the market is moral and essential to consumer well-being. In the book, O'Rourke relates one of the most enduring lessons of free society: "Never let the people with all the money and the people with all the guns be the same people." Sure, the government can always step in to force individuals to make deals other than those they would freely make. In cases where there is true, identifiable market power, such intervention arguably costs individuals and society nothing, as consumers did not have a real choice anyway. In the absence of actual market power, however, we must recognize that government intervention comes at the expense of our freedom and welfare.
In the case of free markets versus government intervention, history has rendered a verdict, and that verdict is decidedly in favor of markets and against intervention. Although we have seen that markets do not at any moment deploy resources in precisely the ways regulators prefer, markets unquestionably deploy resources better and more consistently than does the state. Thus, restraint should be the watchword for governments in any new economy driven by unrelenting currents of technological change and innovation, such as communications and advanced services.
2."To the winner goes the spoils"
Once we accept the superiority of markets over government intervention, our competitive inquiry is still not done. We still have the challenge of deciding whether the cries for government intervention result from real risks to competition. Let us look at a few competitive principles and test the competitive landscape.
One fundamental premise of the competitive market is that if one invests, takes risk to develop superior goods and services, they should be allowed to enjoy exclusively the fruits of their efforts. The government should not be quick to step in and redistribute those benefits to other firms that could themselves have taken the same steps. For example, the firms seeking open access to cable systems could have bought their own such systems. Others could have made the decision to spend vast sums of money and take significant risk to build and deploy these systems. If they did not, or if they misread the market, arguably that is their problem. As we think about whether and how to decide the cable open access question, we should not dismiss lightly this fundamental tenet of free market, entrepreneurial capitalism.
O'Rourke describes how elementary this concept is in his book. In the last chapter of Eat the Rich, he relays that he has been thinking about the Bible, and particularly the Tenth Commandment, in socioeconomic terms. Let me read the passage to you. He begins:
"Thou shalt not covet thy neighbor's house, thou shalt not covet thy neighbors wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor anything that is thy neighbor's." Here are God's basic rules about how we should live, a very brief list of sacred obligations and solemn moral precepts, and right at the end of it is, "Don't envy your buddy's cow." What is it doing there? Why would God, with just ten things to tell Moses, choose, as one of them, jealousy about the livestock next door? And yet, think about how important to the well-being of a community this Commandment is. If you want a donkey, if you want a pot roast, if you want a cleaning lady, don't complain about what the people across the street have. Get your own.
The moral of the story is that a fundamental premise of competition and markets is that the general rule is that you are supposed to "Get your own cow." This dynamic of individualism and pursuit of self-interest is what drives the proper functioning of a market, and we should not take the cow from its owner, chop it up into steaks and distribute them to his neighbors without a compelling case for doing so. For all we know, everyone would have been better off (except perhaps the cow) had we let the owner keep the cow alive and sell its milk to his thirsty neighbors.
Is there a clear anticompetitive effect on consumers?
As regulators, our charge is to serve the public. Competition policy should focus on the benefits and harms to consumers, not the effect on firms. For those of you who have been lulled into believing the rhetoric that the free market and consumer protection are at odds with each other: Surprise! The market has a heart (sort of). As I have said, in the absence of real, identifiable market power, the market allows consumers to make themselves better off. The market also allows consumers to protect themselves by selecting a new provider that the consumer, rather than regulators, believes offers an adequate substitute or even superior product or service.
Although it is easy to identify what risks cable Internet access may pose to some firms, such as narrowband ISPs and other providers of broadband service, it seems less clear that there are substantial anticompetitive effects on consumers. By most estimates, the developments in cable over the last year have been a great boon for consumers. By any estimate, the efforts undertaken by AT&T, Cox, Cablevision and so many others, have hastened the day in which average Americans will have available to them high speed, broadband capacity to access the Internet and to make phone calls at affordable rates. Furthermore, upgrades to cable plant have intensified a potential competitive threat that has led, I believe, to heightened investment in alternative broadband technologies by other firms. We should be skeptical of the protestations from those who now feel the heat of a viable competitive threat and who themselves did not take successful steps to bring these benefits to the public. These developments, arguably, present a very high value proposition for consumers, and we should pause long before monkey-ing around with this overall increase in welfare.
Perhaps the only way developments like those we see in cable broadband deployment could harm consumers of Internet access services is if cable firms also have market power in the provision of Internet access. But I have seen no evidence to suggest cable has developed any such market power. There are scarcely 600,000 residential subscribers of cable modem services. That pales in comparison to the multi-millions that are currently accessing the Internet via narrowband technologies and phone services. It is true that the slow deployment of these services accounts for this disparity, but the fact remains we have little on which to base a conclusion that broadband service is a market segment distinct from narrowband Internet access.
How much bandwidth is enough? What are the killer applications that absolutely require great bandwidth and that are so indispensable that consumers should not be without them? If one takes note of the representations that many cable access proponents have made to Wall Street, you will find a continued assertion that broadband is not likely to overtake narrowband provision for quite some time, and that many consumers will opt for less expensive narrowband service for e-mail and basic applications, rather than pay more for capacity they will not use. Will broadband replace narrowband, or will there be two classes of service, sort of coach and first class? In my view, these questions may not need to be decided by regulators; rather, we should let that decision fall to consumers and the firms vying to serve them in the marketplace.
There still is great innovation potential for alternative access
And even if broadband service becomes a market segment distinct from narrowband, it seems likely that alternative technologies will compete successfully with cable in the relatively near term. Contrary to what some suggest, there are a number of quite viable technologies and service providers in the broadband race, including DSL (AOL has deals with SBC and Bell Atlantic), narrowband dial up connections (numerous CLECs compete), ISDN, wireless (particularly after 3G—note the recent deal between Microsoft and Nextel), satellite (deals between Microsoft and Echostar and, recently announced, AOL and Direct TV), and electric utilities. Moreover, in such an innovation driven market, one cannot forget about the kid in the garage that undoubtedly is working on a new technology that will potentially open up many new possibilities.
One great fear is that if we ordain cable an essential facility and begin to mandate a right of access on favorable terms, it may well stifle aggressive attempts to develop competing methods of bypassing the cable plant. Interestingly enough, what got AT&T into cable in the first place is their recognition that it was unworkable to be dependent on the local facilities of an ILEC. They found a bypass. Indeed, the intense fear and anxiety over AT&T's cable play has led to more energy and action on the DSL and wireless fronts than we have ever seen. Competitors are responding. The market has identified the risks of cable monopoly and is working on a solution. Investment is flowing. The market may fail to find a solution and cable in fact may gain such control, but for now, the huge benefits of the market succeeding favor letting it run its course before cutting it off prematurely.
Of course, if a cable company were to monopolize the access market, there would be some loss of consumer choice, but this loss is probably overstated. As discussed above, consumers will retain in all likelihood, full choice of content. That, more than anything else, is what is critical. The real value of the Internet is that it allows users to visit any corner of the world, trade in virtually any market in the world, purchase from nearly any seller in the world, communicate with nearly anyone with the basic computing tools in the world. If these choices are fully maintained, the most critical risk associated with cable plant monopolization is averted.
Undoubtedly, a vertically-integrated cable Internet provider may have the ability and even some incentives to attempt to corral consumers into particular content choices, or bar them access to others, but I seriously question whether that business model will be sustainable in the long run. The day someone sees a web URL on the side of a bus for a cool store that sells a jacket they want, and the cable company's portal does not let them get there, or impedes their ability to get there, I would not want to be on the customer service line when the call came in. This kind of interference or blockage should become even less tolerable over time, as younger, more sophisticated generations become purchasers. This reasoning is consistent with the history of Microsoft Network and other firms whose near death experiences suggest that service providers may not succeed in the long run if they pursue a proprietary approach to computing and the Internet.
What is the public policy interest served by protecting competitors?
The flip-side of focusing government intervention on protecting consumers is that regulators should avoid intervening merely to protect competitors. As I have repeatedly stated, our job is normally not to protect competitors. And, to the extent appeals for regulatory intervention are premised on protecting particular competitors or classes of competitors we must demand to know why or how that is the appropriate focus of public policy.
Internet time is brutal. It is not surprising that in the relentless race to innovate, firms will seek to use government to slow the pace, gain an extra step on their competition, or hold back their competition.
But government should not allow itself to be used as leverage in business transactions, or to be used to remedy bad business decisions or mitigate untold risks. Nor should we act to preserve business segments or models that may have been transitional, or that do not add significant value to the distribution chain where new technologies have been introduced. For example, ISPs are critical in a dial up system. ISPs receive analog phone signals converted them to digital IP protocols and pass them through to the Internet. Yet, in a cable platform, ISPs' value may become diminished somewhat if the signal comes out of the home already converted to IP and passes to the Internet directly by the cable system.
This is not to say ISPs will disappear. They will continue to provide important services in dial up and will do so for the foreseeable future. Moreover, most of these providers have core competencies that I believe can be easily converted to other Internet and data based endeavors. But absent a clear anticompetitive effect on consumers, preserving a leading role for ISPs in cable platforms, where they may be less important, is arguably protectionist.
So what lessons for those who advocate or consider government intervention can we learn from this application of "judicious intelligence" to the question of mandated cable access?
First, given the dynamic record of the Internet market dynamics, I start with a rule of decision—a burden of proof, if you will. I am of the view that anyone advocating the extension or intrusion of regulation into such a vibrant market bears a heavy burden of proving that the "public" will be harmed, absent doing so. Proffered arguments should be eyed skeptically and critically. We must have enough courage to test and cross-examine rhetorical appeals – "digital divide," "light touch," etc. are great sound bites, but are they truly meritorious arguments, or just clever window dressing for purely short-term self-interest? This is what we must examine.
Second, we should favor antitrust application to actual, substantial harms to consumers over industrial policy. Government-orchestrated industrial development may be unwise generally, but it is especially inappropriate in a market like the Internet. The Internet is driven aggressively by constant change. Predictive speculation is dangerous enough when practiced by experts steeped in this industry. It is completely fool-hardy (if not dangerous) when practiced by government. Moreover, government simply is not responsive enough to manage such rapid change. Every rule or ruling we issue is likely to be obsolete the day it is written.
Proponents of cable access regulation often sprinkle their arguments with a parade of speculative harms that will befall consumers or the market. If we truly are focused on addressing real, rather than speculative, harms, one must demand an answer as to why the existing antitrust laws are not sufficient to protect consumers. The advantage of such laws is that they do not impede market development in the early, more speculative stages of development. Rather, antitrust steps in when one can demonstrate, through a fact-intensive inquiry tested in court, that there are likely anticompetitive effects.
Third, we should carefully assess the costs of regulation, including direct costs, indirect costs and opportunity costs. It is not that difficult to identify a problem and suggest the answer in terms of a general rule or provision of law. In so doing, however, it is easy to ignore the enormous costs and complexities of trying to actually craft and implement rules that are clear, effective and efficient.
For example, as mightily as proponents resist the argument, it seems inescapable that if we mandate a right to equal access to cable plant, we will quickly find ourselves mired in "common carrier-like" regulation. Undoubtedly, the minute that an entrant asks to have access to a proprietary cable Internet system, there would be disputes over the price. It does not take much to imagine that dispute being brought back to the Agency or the courts with a demand for non-discriminatory pricing parameters, maybe even forward–looking pricing (TELRIC even!). Subsequently, one can imagine, an entrant (ISP) asking to interconnect at the CMAT, which would require placing equipment on the premises of the incumbent. Calls for collocation rules would soon follow. Disputes over ordering (OSS), disputes over maintenance and trouble ticketing, etc.
Every common carrier staffer knows the litany and the expense in terms of man-hours, litigation, cost of compliance, and most importantly in this new Internet world, LOSS OF TIME! Mandating open access to cable could unleash a never-ending regulatory exercise to catch up with change. One must ask if that exercise would be ultimately futile.
Government intervention may also engender opportunity costs. For example, if we intervene prematurely to mandate access to cable plant, the harm may be greater to consumers than they would incur if regulators waited until evidence of sustained market power develops. Such intervention could stifle the development of alternative paths to the home that are currently under development and which are attracting investment. Ironically pronouncing cable an essential asset and declaring regulation of that asset may risk condemning customers to regulated monopoly control of access. On the other hand, if we decline to mandate such access until we have something tangible to address, we would be in a position to surgically tailor government intervention in a manner that is least disruptive to the market. I generally reject the retort that it will be too late if we wait until then, for I believe that an access requirement now would only be marginally less complicated than one later.
In closing, I would note that whatever the answer to the question of mandated cable access is, I am skeptical that answer can be developed in hundreds of different ways by state and local franchise authorities. If, in the wake of the recent decision in Portland, we see a contagion of different approaches proliferate throughout the country we will end up with an incoherent, disjointed policy melange that seems sure to impede the development of advance services, in any form, for our citizens. Such concerns underlie the Constitutional commitment to interstate commerce and the federal supremacy clause.
But for now, I hope to focus the debate not on how or by whom access to cable should be mandated, but rather on whether mandated access is a wise policy at all. In sum, my current view is that the Commission has wisely chosen to follow the path revealed so often on the pages of Meg Greenfield's columns: the path of "judicious intelligence" and rigor. Though we remain open to the merits of mandated cable access, we have wisely, and affirmatively, elected to place a very high burden of proof on those who would have us supplant the market in such a robust and vibrant industry as the Internet.