PFF's Jeff Eisenach: "Time to Walk the Walk on Telecom Policy"

[Declan McCullagh <declan@well.com>]

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July 2,1997

Time to Walk the Walk on Telecom Policy

by Jeffrey A. Eisenach
The Progress & Freedom Foundation

Thanks to Ira Magaziner -- of all people -- the
Clinton Administration has finally learned to talk the
free market talk that brings joy to denizens of the
Internet. Now, as always with this Administration, the
question is whether it will also walk the walk.

Magaziner deserves real credit for crafting the
Administration's new "Framework for Global Electronic
Commerce." In language that could have come from the
Cato Institute (or my own Progress & Freedom
Foundation), it credits the amazing growth of the
Internet to the relative absence of intrusive
government regulation. And it concludes that the
Internet should remain "a market-driven arena, not one
that operates as a regulated industry."

The paper -- and the process that created it -- has
already had a salutary impact on Administration
policy. The White House has now backed away from its
previous support of the Communications Decency Act in
favor of "industry self-regulation, adoption of
competing rating systems and development of
easy-to-use technical solutions." And last month,
Treasury Undersecretary Larry Summers, reportedly at
Magaziner's urging, had very positive things to say
about the "no new taxes on the Internet" legislation
sponsored by Congressman Chris Cox and Senator Ron
Wyden.

The Administration's conversion to a free market view
of the Internet is, however, far from complete -- even
rhetorically. Most importantly, the Framework's
treatment of telecommunications regulation amounts to
an endorsement of the Federal Communications current
policies -- policies that are, if anything, more
regulatory than before passage of the supposedly
deregulatory Telecommunications Act of 1996.

Following the path laid out by Vice President Gore and
outgoing FCC Chairman Reed Hundt, the Framework
ignores the fact that technological innovation is
rapidly ending the "natural monopoly" characteristics
of the market for local telephone (and Internet)
access. What government should be doing in this
context is allowing marketplace incentives to work,
thereby encouraging new technologies and new
competitors to turn the potential for local access
competition into a reality.

What it is doing, under the FCC and with the apparent
blessing of the Framework, is continuing a price
regulatory regime that destroys marketplace incentives
for the development of new technologies and
competitors. The Framework, which begins by stating
that "government attempts to regulate are likely to be
outmoded by the time they are finally enacted," ends
up endorsing the idea of "implementing, by an
independent regulator, pro-competitive and flexible
regulation that keeps pace with technological
development." Nice fantasy -- but in contrast to the
reality of the FCC's implementation of the
Telecommunications Act, it comes off as nothing but a
bad joke.

Telecommunications is not the only problem area with
respect to policy. Most notable among the others:
Encryption, where the Administration stubbornly
adheres to its unworkable, privacy-invading notion of
"key escrow" for encryption software -- i.e., giving
the police the key to your house in advance in case
they decide later they want to conduct a search.

Still, problems aside, what we have from the Clinton
Administration is a real and laudable move -- partly
rhetorical and partly real -- in the direction of less
regulation of the Internet. For the most part, the
Administration is now talking the deregulatory talk.
Will it also walk the walk?

Here are three giant steps that would go along way to
proving the Administration means what it says.

First, will the Administration appoint a new FCC
(there are four vacancies, including the chairmanship)
that understands the idea of dynamic competition to
erode natural monopolies? The FCC's current "managed
competition" approach is inconsistent with the broader
principles of the Framework and hugely destructive to
the innovation and entrepreneurship the paper
emphasizes so strongly. A new Commission would no
doubt want to re-think the Commission's recent rulings
with respect to Interconnection and Universal Service,
both of which represent massively regulatory
approaches to problems the free market can largely
solve.

Secondly, will it specifically endorse the Cox-Wyden
legislation prohibiting discriminatory taxation of the
Internet? Saying nice things about the bill is one
thing; endorsing it and working for passage is
something else.

Third, will the Administration support the new
legislative agenda being developed and soon to be
introduced by Senator Conrad Burns and Congressman
Billy Tauzin (chairs of the Senate and House
telecommunications subcommittees)? Among other things,
this legislation is expected to declare "enhanced
services" (including broadband Internet access
services) an essentially regulation-free zone --
exactly the sort of thing the Framework says the
Administration should support.

Free marketers want to believe the Administration has
seen the light on regulating the Internet. Our message
now is simple: Take three giant steps -- and throw
away on the key on key escrow -- and show us you
really mean it.

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