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Federal Communications Commission

Before the
Federal Communications Bar Association
Monthly Luncheon

Washington, DC
October 28, 1998

"Bewitched, Bothered and Bewildered"

(As Prepared For Delivery)

Good afternoon.

Thank you, first of all, for inviting me to speak today. I think it is fitting that this speech occurs so close to Halloween. (I know this is not immediately obvious, but bear with me, I needed a theme). Halloween is known in many cultures as "The Day of the Dead." It is a moment when we are urged to confront spirits and souls that stalk the earth long after their mortal selves have left this world. I think it is fitting, as well, to discuss the real world of communications and to confront the demons, ghosts and goblins of a time long past that still haunt the industry and regulatory policy. I submit that it is time for all of us to exorcise the regulatory poltergeists that threaten the welfare of the dynamic and vibrant telecommunications world. First, let me say a bit about this world.

I. The Living World of Communications

Emily Dickinson once wrote "that it will never come again is what makes life so sweet." Fittingly, the excitement we all feel about communications stems in part from our sense that technology has introduced a force into this industry that will change it forever. In fact, the only thing we can be assured of is that the communications industry will never again stand still--destined to remake itself constantly and chaotically, producing new innovations, new services, new winners and new losers.

A. The Digital Revolution.

The two most driving breakthroughs are the advent of digital technology and the sudden and momentous rise of the Internet paradigm. These two forces, more than any piece of legislation, more than any regulatory policy, more than any legal construct, will shape the character and direct the evolution of our industry.

Who could imagine that human communication could ultimately be reduced to two numerical digits, zero and one. Yet, these are the building blocks of the digital revolution. Place the zeros and ones in one order and get a picture, in another, hear a voice, in another, receive text. Advances in digital compression and processing have exploded on the heels of microprocessing power that presently doubles every 18 months. This, in turn, has begun to redraw or remove the traditional boundaries that have long segregated markets, customers and regulatory policies.

The consequences are becoming obvious. Companies that were formed to provide one type of service, say video, now have the possibility of providing a different service, say voice, that once would have required a different infrastructure and different technology. In short, market segments are crumbling. Companies are being introduced to new competitors and industries that once held no interest for them. Previous competitors are becoming new partners. And, important to all of us, the balkanized regulatory structure that was constructed in the pre-digital era is crumbling under the assault of the zeros and ones.

B. The Rise of the Internet Paradigm

The second revolution in communications is the arrival of the Internet and what it has done to traditional network architecture. In the words of John Hindle, the Internet "is the birthplace of the future." Unlike the networks of old, the value of the IP switched packet network is not in the underlying boxes and wires. In that regard it is quite ordinary. Its genius is that it provides a "logical network structure" that is totally independent of the "physical network infrastructure" used (not unlike a spirit that hovers above its cold corpse.)

The intelligence of this network architecture of the future will not reside in the center of the network, in the full control of providers -- often monopoly providers. Instead, it will rest with users. Instead of large computers and switches that configure the network and direct traffic across it, users employing computing devices of all types will have the power to define and implement communications services themselves. Innovation will no longer rest in the hands of a few, but instead will rest in the hands and imaginations of millions who can easily stroll across all boundaries -- physical, social, political and organizational.

George Gilder aptly described the new law of the network -- the "microcosm," he called it -- in discussing the explosive growth of microcomputing power:

"The law of the microcosm is a centrifuge, inexorably pushing intelligence to the edges of the networks. Telecom equipment suppliers can no more trap it in the central switch than IBM could monopolize it in mainframes."

The pressing of intelligence to the periphery of networks and to users turns existing networks on their heads. And, it mocks and defies traditional regulatory structures that were crafted on assumptions surrounding legacy networks.

The greatest danger for regulators is our inability to keep pace with the speed of developments and innovations that the new networks will unleash. The network will be ever-more abstract and dynamic. In the words of Mitchell Waldrop, the Internet (and similar network configurations) are at "the edge of chaos--where the components of a system never quite lock into place, and yet never quite dissolve into turbulence, either." This is a long way from sophisticated tin cans and string and will be extremely difficult to regulate responsibly.

II. Cognitive Dissonance

Our collective sense that technology has forever transformed communications leads to a growing cognitive dissonance between our regulatory policies and the reality of the industries we regulate and the technologies that drive them. We wince uneasily each time we sense this dissonance between regulatory fictions and reality, as though we've heard the sudden shrieking of an angry cat while walking alone at night. And because, increasingly, we are unable or unwilling to address this dissonance, we attempt to explain it away or promise to address it later, as though we were whistling a happy tune to cover the cat's shriek on that lonely, benighted walk.

Like a witch's familiar, the dissonance between the fictions of our regulatory structures and policies and the realities of communications technologies may take many troubling forms. Perhaps it is the cackling we hear when regulators try to impose or extend policies designed for a particular transmission medium, on other media that begin to provide similar services, all in the name of "competitively neutral" regulation.

Perhaps this dissonance materializes as unyielding spirits who roam the earth as on the "Day of the Dead," flagrantly ignoring the arbitrary geographic boundaries that drive much of regulatory policy -- LATAs, franchise areas, even state and national boundaries -- despite the so-called "death of distance" and increasing economic globalization.

Perhaps this dissonance appears as the powerful, sometimes conflicting technological winds that blow relentlessly against the spider's web of network paradigms. The force of such winds will inevitably result in the "creative destruction" of those paradigms, yielding new network forms.

III. Bewitched by the Past

Understandably, these forces of change and the dissonance between our regulatory policies and tools put us on edge. We have a sense that things are slipping from our control. This anxiety threatens, not to push us into the future, but to drive us into what appear to be the warm, protective arms of the past. Like one afraid of the dark, we fear what we do not understand and we favor the known over the unknown.

But by quelling our immediate fears in this way, we make it all the more likely that we will never venture out of the safe confines of regulation to create an environment in which competition and innovation in communications can truly thrive. The regulatory edifice that has housed us and kept us warm does not provide the safe haven we once thought. Rather, that edifice is collapsing around us, under the crushing weight of technological change. We must heed the warning of the haunted house in "The Amityville Horror" and "get out!" Little by little it becomes clear that the main virtue of that edifice is that it is familiar. This false sense of comfort in past actions is bewitching all of us, policymakers and industry alike.

IV. The Curse of Stare Decisis

Our inability to get free and to escape the demons of the past is compounded by a tendency that should be of particular interest to this audience -- incrementalism. At a time of change that defies description, regulators, companies and the bar remain under a spell that I would call the "curse of stare decisis" in communications regulation. Those of us engaged in regulating or representing communications companies tend to argue incrementally, always tying what we advocate or decide now with something policymakers have done before. Our goal is almost never to champion a paradigm-shattering, new approach but to persuade others that our approach is, at most, an extension of business as usual.

This, of course, is our training as attorneys. We are taught to rely on precedent. We are taught to draw analogies with the past. We distinguish contrary precedent or evidence. Can you imagine arguing in the Court of Appeals: "This case is a complete break with precedent and established law, but I should win anyway?" We are conservative, risk averse incrementalists.

This sort of incrementalism sometimes makes the process of releasing the reins of regulation like pulling teeth -- almost so painful that you think: "maybe it's better to leave that decayed tooth right where it is." At least under regulation, you know what pain to expect in terms of missed efficiencies, lower prices and fewer products. If lawyers are to provide any real assistance in pushing competition, deregulation and innovation in communications to the next level, I submit that we must propose and adopt bold, decisive, and creative new approaches. In short, enough talk about "thinking outside the box," it is time to "get out of the box" altogether!

V. Exorcising the Demons Who Bewitch Us

So where do we start? Well, first of all, we must learn to recognize and accept the important trends that will drive the development of communications technology, rather than paying only false tribute to those trends.

But acceptance of the power of technology is only the first step. To cast off the demons who would enslave us to the past, we must learn to chant our own counter-incantations. Specifically, before perpetuating dated assumptions, tools and policies we should rigorously challenge them: First, we should revisit the historical roots behind traditional principles to understand what goals these principles were intended to address; Second, we need to consider whether the facts, circumstances and concerns that existed at a rule's inception are still with us today; Third, if many of the original concerns persist, how can we adapt and revalidate a rule or policy so as to have real meaning in light of today's reality. We should, in essence, turn the notion of precedent on its head; rather than assume we should preserve the status quo, we should drop old policies unless we can re-validate them in light of both current conditions in the marketplace and changes that will soon be with us.

Let me offer a few examples of regulatory policies or principles that might be subject to this type of challenge:

A. Common Carrier Regulation.

First, one could argue that the whole concept of common carrier regulation itself needs to be re-validated in light of the coming demise of legally-sanctioned monopoly in telecommunications.

Common carrier principles date back to a time when the Crown would confer on a party the exclusive right to provide transportation service across the lands and waters of the realm, in exchange for an obligation to carry all the Queen's subjects on equal terms. You know, ferry-boat crossings, (and more recently) railroads, trucks, and eventually, by extension, telegraphs and telephones. As we, today, replace the government's (that is what we Americans call "the Crown") grant of exclusivity and monopoly with competition, one must concede that the rationale for legally requiring the incumbent to serve all comers is undermined. I make no broad conclusions here, but only suggest that such questions must be asked and the relevance of common carrier principles tested in light of competitive markets.

B. Discrimination.

Second, much has been made of the non-discrimination principle that is set out in the 1996 Telecommunications Act. Indeed, the Commission has interpreted that term to mean outright parity in most instances. Privately, I have questioned whether such a standard is really attainable among competitors with different business plans, assets and skill sets. Indeed, I have wondered whether there may not only be a defensible basis for treating different commercial interests differently, but that some differentiation, or discrimination might even be pro-competitive.

My curiosity in this question was heightened when I noticed that section 202(a) of the original 1934 Act prohibits common carriers from "unjust or unreasonable discrimination." The 1934 Act does not use the term "non-discrimination," as does 1996 Act. Might there have been an understanding in 1934 that there is such a thing as "just" or "reasonable" discrimination? If so, what has changed?

If you will indulge me a moment, I have a theory as to what has changed. I caution you it is unfounded, but is intended to provoke thought with regard to this principle. I suspect that over the years since 1934, our concept of discrimination in the ordering of economic, commercial relationships has been tainted or reshaped in light of our collective experience with discrimination in the context of civil and human rights. Rightly, we have come to reject any reasoned basis for discrimination among people based on race, gender, religion or national origin. Those who would suggest such a basis might rightfully be labeled a bigot.

I suspect we have transferred some of the beliefs of human relationships to commercial relationships. We assume a company is "bad" or "evil" if it treats another differently than itself. But, it is worth questioning whether economic, commercial relationships should be governed or subject to the same standard as human relations. It may in some instances be inefficient and ill-advised not to take cognizance of reasonable bases to make distinctions among seemingly like commercial firms, as the Commission has sometimes recognized. Common carrier law is not civil rights, and one should never suggest, even rhetorically, that discrimination by one telephone company against another deserves the same moral outrage reserved for race or gender discrimination. Folks, it's just phones.

C. Geographic Boundaries.

Third, the new telecosm built on IP networks knows no boundaries nor, increasingly, are its characteristics defined by distance. Yet, we continue to develop telecommunications policy around artificial boundaries. Let's, for example, question whether, from a policy perspective, LATAs are still relevant. They certainly are questionable for the purposes for which they were crafted by a judge who was breaking up a single monopoly phone company. Will BOC regions have any meaning in the future? Even state and national boundaries are ignored by the new networks and we must be careful how rigidly we adhere to policies designed around these boundaries. The borderless world ushered in by dramatic global improvements in fiber optics and other transmission media make it increasingly difficult to justify maintaining lines that were drawn for reasons few of us remember or understand.

D. Public Interest Standard.

Fourth, let me say a word about the venerable public interest standard. It too should not be above question. This standard was first introduced in a time when scholars and Congress believed in the supremacy of regulatory bodies and regulators in ordering economic relationships. We have made a national decision to move more decisions from the "enlightened regulator" to the market. It is hard to imagine a U.S. Senator today expressing the view expressed by Senator Clarence Dill, in the 1927 Radio Act debates, that the public interest standard would gain meaning by the staffing of the Commission with "men of big abilities and big vision." Nor, would you quickly find a defense of Dean James Landis' view that vague standards administered by enlightened wisemen was the best form for an administrative agency. We have left that world.

Consequently, I believe we need to reassess the Commission's application of the public interest standard. Specifically, I believe it is imperative that we try to enunciate principles that will discipline the broad discretion we have held historically, and therefore assist dealmakers in the market in guessing what we will do even before we do it.

Although I would love for every one of you here to embrace the guiding principles that I have offered in other speeches and writings, it is more important that we adopt some limiting principles. Only by looking to such principles can the Commission, in my view, reach conclusions that are relatively predictable, reasoned applications of the public interest standard and not just the result of the most effective lobbying or political pressure, or our unguided subjective judgment. More importantly, by adopting such principles, we may release from the "black box" the regulatory fears of private actors in the market, who understandably assume that what they don't know about regulators' future decisions may hurt them.

VI. From Bewitchment to Bravery

In closing, I concede that it will be very difficult for all of us involved in communications to avoid being bewitched by our regulatory past. I also concede that exorcising the demons who bewitch us does not mean that there will be no useful purpose for regulation in the foreseeable future. The great challenge will be to determine when regulation is necessary and when even a new approach to regulating will fail to keep pace with competition and innovation.

In light of such daunting challenges, I leave you with the words of Athenian General and statesman Pericles, by way of Thucydides' Peloponnesian War, which were uttered at a ceremony for the dead. Pericles said:

"The bravest are surely those who have the clearest vision of what is before them, glory and danger alike, and yet notwithstanding go out to meet it."

Translation: don't let the danger of abandoning the past and leaping into the future in communications regulation keep you from attaining the glory of doing so. Be Brave!