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Executive Summary #1317es on Internet And Technology

September 2, 1999

September 2, 1999 | Executive Summary on Internet And Technology

Executive Summary: Broadband Telecommunications for the 21st Century: Five Principles for Reform

"Broadband telecommunications"-- technology and services that spur access to the Internet and high-speed telecommunications networks--is quickly becoming the hottest topic in the communications lexicon. This evolving industry promises to offer Americans increased online capabilities of higher quality and at more reasonable prices than they now enjoy. The demand for broadband services is skyrocketing, as Peter Huber, a Senior Fellow at the Manhattan Institute for Policy Research, explained to Congress last March: "Demand for digital bandwidth is increasing at annual rates in the range of 50 to 200 percent," and "[b]y every plausible projection, it will continue growing at those rates for the foreseeable future. It will increase at least five-fold over the next few years." Unfortunately, Huber also pointed out,

existing phone, cable, broadcast, wireless, and satellite networks still rely, in significant part, on yesterday's analog technology, and they are already stretched to capacity. Systems deployed a decade ago cannot begin to accommodate five-fold increases in traffic. So new networks must be built.... Which means, in turn, that 80 percent or more of the wires, trunks, cables, transmitters, receivers, switches, and routers that we will be using for digital transport five years from now will be built and put into commission between now and then. Nobody owns them yet. Hardware manufacturers have to build them. Phone, cable, broadcast, wireless, and satellite companies have to deploy them. Fast.

This growing "broadband crisis" is generating concern among policymakers, regulators, corporate officials, academics, and industry watchers who want to ensure that broadband services are rolled out in a timely fashion to as many Americans as possible. But not all of their proposals will help solve the problems Huber describes or spur investment in telecommunications. Indeed, several policymakers advocate continuing today's outdated and unworkable regulatory regime with its price controls, entry barriers, line-of-business controls, geographically divided markets, and restricted choice--practices that, to a large extent, created the very problems they seek to solve. (Note: A companion paper, "Broadband Telecommunications in the 21st Century: A Legislative Report Card," discusses the five bills introduced in Congress in 1999 that deal with broadband deployment.)

Instead of following the traditional regulatory model, policymakers should consider adopting the model of legal governance that allowed the computer industry to become so lucrative and successful in less than two decades. The government's "hands-off" approach incorporated simple, uniform, and time-tested standards for operating in a free market, such as strict contract enforcement, patent and trademark protection, property rights, voluntary common-law resolution of disputes, voluntary standard-setting, and open national markets for goods and services. The result has been stunning. The computer industry has grown--in just 15 to 20 years--into one of America's leading exporting and job-creating industrial sectors. Competition is vigorous, choices are plentiful, prices are low, and entrepreneurialism remains vibrant.

If Congress were to apply the lessons learned from the computer industry's experience to telecommunications policy, it would encounter great success with encouraging investment in and deployment of broadband services across America. To do so, Members of Congress should ensure that any bill proposing to reform the telecommunications sector embodies the following principles that were so evident in the development of the computer industry:

  1. Deregulation and free markets.
    Voluntary market-based applications should govern the development of this complex industry, not new forms of regulation or managed markets.

  2. Legal simplicity and stability.
    Complex, contradictory, and changing regulatory regimes deter innovation and entrepreneurship. Current rules and standards governing the telecommunications sector must be simplified.

  3. Uniformity and regulatory parity.
    The same rules must apply to all players, and archaic regulatory distinctions should be wiped off the books.

  4. A single open market system.
    Consumers must be free to purchase the services they want from any national provider. State and local regulations that interfere with interstate communications commerce must be prohibited.

  5. Agency constraint and downsizing.
    A free market should not be encumbered by constant micromanagement by federal bureaucrats. Regulatory interference must be reduced and agency missions and funding decreased, not expanded.

Change may well be the only constant in the telecommunications world today, and to keep up with the rapid technological changes in this industry, the legal environment governing the market must undergo rapid change as well. Most industry experts admit that there is no longer an "essential facility" or "bottleneck monopoly" in the communications sector, especially in the broadband data segment. Therefore, legislative attempts to micromanage the evolution of this market, or to pigeonhole broadband technologies or providers into the outdated and unworkable regulatory distinctions and regimes of the past, are little more than misguided policies that will thwart broadband investment, innovation, entrepreneurialism, and deployment. The hands-off approach that helped propel the computer industry to remarkable success is a superior alternative to regulation that Congress should embrace enthusiastically.

Adam D. Thierer is a former Alex C. Walker Fellow in Economic Policy in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.

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