Monday, November 12, 2007

Why Manage?

Bruce Owen recently published an article in Cato's Regulation, entitled "Antecedents to Net Neutrality". Owen's central point is that net neutrality is simply a recapitulation of the failed telecommunications policy of common carriage. According to him, history shows that regulatory structures are subject to capture and that they do a worse job at enhancing social welfare than market forces—even when those forces create at best a Schumpeterian monopoly. Owen's article reads as though this is a new argument, but in reality it's just the latest salvo in the broadband access back and forth that he and Lessig have already had in the publication. (Incidentally, Owen's article is essentially a copy-paste from this earlier AEI-Brookings/Stanford working paper/Free State Foundation cross-post that has footnotes not present in the article version).

The fundamental question is whether history indeed shows that regulation of communications infrastructure fails and that alternatives provide greater benefit for the public. In short, why use regulatory rulemaking to manage communications when property or antitrust can manage it better?

The title of this blog comes from LBJ's remarks upon signing the Public Broadcasting Act of 1967. He explained that, "today our problem is not making miracles—but managing miracles. We might well ponder a different question: What hath man wrought—and how will man use his inventions?" He was speaking in the context of mass media dominated by the broadcast model, and governed by now-abandoned principles like the Fairness Doctrine. At the same time, he spoke of "a great network for knowledge—not just a broadcast system, but one that employs every means of sending and storing information that the individual can use." As predictions of the future go, this is pretty good. But, what about this notion of managing our communications miracles?

To begin with, we need to recognize that property-like rights assignment or antitrust oversight amounts to management just as much as regulatory rulemaking. The rhetoric of restrictive government regulation vs. free property markets is at best a false dichotomy and at worst a justification for arbitrarily picking winners. When it comes to media, and especially broadband access, we are not anywhere near the point at which scarcity has disappeared or at which competition has generated widespread consumer choice. In the interim, we are left with the difficult but necessary task of managing this remarkable invention—one way or another.

Owen posits that common carriage has been an historical failure, and that antitrust should intervene where markets fail. To be sure, net neutrality derives some of its power from the legacy common carriage. But is he right that common carriage in communications law has empirically failed?

Owens' retelling of history is remarkably selective. He begins with railroad regulation, the statutory source these principles. After concluding that over a century of railroad common carriage regulation resulted in "a series of highly discriminatory and dysfunctional regional transport cartels," he begins to discuss common carriage in the context of the U.S. v. AT&T antitrust proceedings in the early 1980's. It is not surprising that he locates his analysis in these proceedings, given his personal connection with the Department of Justice during that period, but such an angle hardly offers a representative view of the doctrine. All we truly learn from his account is that the DoJ analysis of AT&T was difficult, and that the antitrust-based remedies were imperfect.

One might seek instead to start with Title II of the Communications Act, the regulatory home of telecommunications common carriage, and then to focus on the most relevant examples. Most notable are the Computer Inquiry proceedings, which dealt with the interaction of long-held common carriage requirements and newly developing information services. In particular, the Computer II rulemaking sought to retain common carriage at the "basic" services layer (ie. placing a phone call) while allowing less controlled competition at the "enhanced" services layer (ie. ISPs and other dial-up services). Whereas most scholars recognize that Computer II allowed the discrimination-free operation of dial-up ISPs that facilitated the explosion of the internet, Owen inexplicably concludes that the rulemakings ended in "morasses of complex, unworkable, and ineffective or self-defeating regulations."

Perhaps Owen is thinking of other elements of the Computer Inquiries, or perhaps his assessment of the enhanced/basic distinction differs radically from prevailing opinion. He doesn't explain. Nevertheless, he assures us that in any event market competition will give consumers better services at lower costs. After all, telephone companies and cable companies already compete in the broadband market. On his telling, vertical integration and exclusive control over the "pipes" only increase providers' incentives to invest and improve market efficiency. Whether or not his claims about broadband competition hold water is a topic for another day, but either way this argument does little to bolster his weak historical account.

Of course, Computer II is only one example of the negotiation between common carriage and competition. A more nuanced analysis might seek to separate the particular discrimination-oriented policies from the monopoly-contingent clauses. Although net neutrality, in all its variations, derives much from common carriage, it is not synonymous with it. In fact, proponents themselves have criticized the technologically siloed regulatory system in which common carriage operates. The historical success and durability of Computer II contributes to that critique. Owen's accusation that advocates have "apparent ignorance of more than a century of economic and regulatory history" might well be turned back on him.

Why manage? In reality there is no choice. The question instead becomes "How to manage?" Certainly one approach is to defer judgment at all network layers to a market that is deemed to be "well functioning." Antitrust might serve as a backstop in this scenario. In order to decide whether this is the best approach, the policymaker must have a robust understanding of history as well as a nuanced conception of present circumstances. In this post I've addressed the particular historical claim that Owen makes. A richer reading of history would not only tell the full story of common carriage, but would probe the boundaries between the sometimes-competing and sometimes-complementary approaches. It would reference landmark cases like Brand X and Trinko. It would recognize that the debate involves even the device layer.

In future posts, I'll examine some of these cases and spend more time with the contemporary details. My simple motivation is the fact that communications policy affects how we communicate. As such, it is concerned with more than just the efficient exchange of goods and services. It is susceptible to ideological wrangling. It both sparks rhetoric and shapes the platform by which rhetoric is exchanged. The fact that communications is central to our nature as human beings is not only why we manage, but also why informed management matters.

[Update 12/29: I noticed via TLF that in this 2006 NYT Op-Ed Tim Lee made arguments similar to those made by Owens. I respect Tim's work and read most of his stuff, but on this issue his vision is just as myopic as Owens'.]

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