Funferal

Dr Pepper at NCA “Policies for the broadband and digital migration: lessons from the internet”

I was in Chicago at the National Communications Convention, and on Saturday I had an opportunity to have lunch with, and then hear a talk by, Robert Pepper, the Senior Policy Analyst of the FCC. An affable, engaging, and obviously intelligent man, he’s a persuasive speaker.

At lunch he talked in part about the desire of the FCC to embrace and encourage participation from the social sciences, and referred to his belief that social sciences were either doing less research relevant to communications policy or had absented themselves from the policy-forming process than was the case when he was a graduate student and faculty member. He mentioned various attempts to involve social scientists, such as a conference/seminar this coming December.
His talk dealt with challenges to regulation in light of the advent of what he called ‘EoIP’ or ‘everything over IP.’ In essence, he claimed, existing regulation was “written when the conduit told you something about the content” and recent changes problematize this approach.
To illustrate this he provided a graphic based on a (simplified) OSI stack. He claimed that the services regulated by the FCC mapped to the lower layers of the stack, while the FCC had taken a conscious decision to ‘unregulate the internet’ and not subject the ‘higher layers’ to regulation. The complication, as he described it, is that speech – telephone calls – has been understood as sitting low in the stack. However, with VoIP, voice moves up the stack, to the application layer or similar. So, how do we justify continued regulation of voice?
He went on to show some of the absurdities of regulating ‘voice’ as an application, giving a mixture of actual and hypothetical applications of VoIP, such as in networked games, using ‘access to 911 services’ as his example of regulation.
Listening to his talk, I found myself impressed by some of his arguments, but still troubled by his conclusions. I felt at times that I was watching a shell game, where justification of ‘regulation’ was disappearing before our eyes. So, what are the bases on which we can take issue with his arguments? And further, what are the lessons for those who wish to engage with the FCC in the future, but whose arguments do not fit tidily within an economic or legal approach?
First, 911 access is just one of the many areas in which telecoms are – or could be – regulated. While Pepper did list various categories of regulation on one slide, the concentration on this one regulation may have been somewhat misleading. Obviously there’s a need in a situation such as this to simplify matters, and concentrate on one or two examples. However, emergency access is notably a non-economic regulation. Similarly, later in his talk Pepper asked the (interesting) question as to whether ‘must carry’ would make sense in the future, if the ‘special’ status of broadcasting were to be abandoned.
It’s no wonder that Pepper was able to advocate separating regulation from social goals (of which more later). Since ’emergency access’ is in essence an application, it could easily be seen as separate from telco access as an issue.
What was interesting, though, was to see the his attitude towards price regulation for telcos (at least to me, given my background in the area). After establishing that most of the audience had cellphones, he asked, rhetorically, why there was such a fuss when New York telephone rental was to rise from $16 to $18, when so many people were paying far greater sums for cellphone rental. Did it make sense to control rental, at this level, when people were obviously willing to pay far more for a similar service?
I was actually somewhat surprised at this example, because the answer is actually rather simple. Controls on the basic tier of service are meant to ensure that everybody (or as much of the population as possible) can afford some form of telecommunications service, since the centrality and utility of the telephone is recognised. In Europe, ability to access basic telecoms services would be included in measures of social inclusion. So the fact that 58% or so of Americans have cell phones, and spend significantly more than $16 per month, is irrelevant. At least some of the 42% who don’t have cell phones would not be able to afford them. They are the ones this regulation protects.
To suggest to a room of professors and grad students that the fact that they can afford cell phones makes price controls irrelevant is to trade in a fallacy. [I should mention here that cost is a factor in my not having a cell phone. Since landline rental is included in my apartment rent, I cannot justify the extra cost of a cellphone on utilitarian grounds, particularly given my restricted income.] What it assumes is that having a range of possible services will solve most basic problems. It is on this basis that Dr. Pepper suggested that antitrust protections are the only regulatory controls still having a legitimate basis (with the implication that any other aims are ‘social goals’ that operate on a different level from the ‘natural law’ that mandates anti-trust regulation).
So why do we have antitrust regulation? Antitrust laws work to prevent market dominance, or to prevent the mis-use of power that occurs when a company has dominance. At the risk of over simplification, there are two main reasons why dominance is seen as undesirable:

• It inhibits other companies from entering the market. Companies can leverage their market power to create ‘artificial’ additional barriers to entry to the market.
• By unfairly influencing the market, causing customers to pay more than they would in a fair, open market scenario.

Now, it’s the second of these that interests members of the public [if it’s fair to say people don’t care about the OSI layer being used, it’s equally fair to say they don’t care about which company is providing the service, and strategies used to force out competitors can often be attractive, in the short run, to consumers].
But, again at the risk of being simplistic, this point presumes a market segment that could be better served – that is, have cheaper prices – in a more competitive market. That works – to take the example of mobile/cell phone service – where you’re concerned about people being able to easily move between competitors (which is why number portability was a priority for the Irish regulator). It doesn’t work where you’re talking about ensuring a low-income group has affordable service.
To be fair, Pepper did mention rural access. However, in lieu of USP rules, subventing roll-out to rural areas may be reasonable, and in line with the approach to other rural issues. When it comes to the poor however – and let’s stick with the urban poor to keep things simple – is subvention on an individual basis, which separation of regulation and social goals would imply, the best step?
To grapple with this, I thought back to my own experience. In Ireland we have two systems dealing with provision of basic access – and conveniently, they fall in the two categories (individual/regulatory). First, the government subvents rental and some call charges for a large group of customers, primarily pensioners living alone, by providing a block payment to eircom. Second, the price controls on eircom (the dominant provider) not only have a [Consumer Price Index]-X control for the residential telecommunications basket, but a separate limit for what is known as the ‘lower quartile basket’.
Why? Because, it’s assumed that companies may attempt to ‘balance’ their price-control requirements on the backs of less profitable customers. If you only use the subvention approach, you’ll continually be playing catch-up as companies try to shake off these customers. Having a prior control is necessary (if not as tightly targeted as the subvention).
So, this shows why it’s not always appropriate to separate ‘social goals’ from regulation – though it is always useful to interrogate the purpose of regulation. We came across this issue in Ireland when Emmet Stagg, a Labour TD, suggested a few years ago that when choosing between ownership and regulatory control – as governments have to do in the current EU environment – regulatory control is often the better option. In the context of telecommunications, for example, it can be easy to forget why governments own networks – and to realise how those goals can be best achieved through ceding ownership, and maintaining regulatory leverage. [Of course, quite often both ownership and regulatory power are lost….]
But this need for reflection cuts both ways, and as some friends have pointed out to me recently, this may be where the broad social sciences can best contribute to policy discussions – by identifying ‘externalities’ in economic analyses. That is, we can identify social effects that are not taken into account in standard economic analyses. The difficulty is, as Pepper himself observed over lunch, that you can end up trying to balance ‘apples and oranges.’ The benefit of politically engaged citizens cannot easily be quantified in dollars and cents.
However, I would argue that that does not mean such effects (positive or negative) can be ignored. For those who are involving themselves with the policy-making process, coming up with at least a first approximation of the quantification may be a useful step however. So, for instance, when looking at the benefits of community radio, calculate the value of volunteer input [hours*$cost], educational provision etc. rather than leaving them in other terms.
The urgency of this approach was driven home by a comment of Pepper over lunch that no (extra) data had been provided at the various ownership hearings run by the FCC. Having heard, from various mailing lists, of the testimony people had provided, often feeling they had given good factual information. You want proof?

• Prometheus’ Stubblefield list. 1 March 2003. Washington Post article (of 28 February)
  

  But David Croteau, a sociologist at Virginia Commonwealth University here, told the commission that Clear Channel’s domination of the Richmond market has meant “the loss of local content in favor of homogenized national programming,” including the “gutting” of WRVA, a local institution that had specialized in local news and talk until Clear Channel fired many of its local personalities and substituted national shows.

• Stubblefield list. 1 April 2003. Pete Tridish report.
  

  The two best panelists, I thought, were a managing editor from a local newspaper (he was added to the program last-minute, and I can’t find his name anywhere), who spoke on the news panel as a representative both of his paper and of the Association of Black Journalists, of which he is a member — and Tift Merrit, a local country/bluegrass musician who spoke on the diversity panel of her difficulties getting her songs played on the radio. Merrit was particularly well-spoken, passionate and effective.

These people – and others – believed they were providing useful information. They were providing concrete examples of the phenomena they were claiming to observe. However, because the examples weren’t set in a statistically significant context, Pepper (and presumably others) categorised such evidence as ‘political’ and not worthy of being considered in the mix. This is a legally conservative approach – since it presumes a reliance on ‘facts’ rather than commentary or possibly biased observations. Of course, the fact that such an approach might itself be biased towards certain parties – such as those with the resources to throw at large statistically-valid studies – or that there may not be a neutral set of ‘facts’ that can uncontrovertibly show the way forward is something that is ignored in this approach.
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