by

Michael J. Horney   

Whether you are an entrepreneur, a venture capitalist, or an economist, it is almost impossible to envision with any certainty what a given market will look like one, five, or ten years down the road. And it is especially difficult to do so for a highly innovative and dynamic market such as broadband. Successful entrepreneurs need to have vision and alertness about consumer demands, but it is fair to say that even successful entrepreneurs cannot predict the future. But more importantly for my purposes, regulators and politicians cannot predict the future either.

In a recent Perspectives from FSF Scholars, Gus Hurwitz wrote a piece entitled "Open Internet and the Law, or Removing the Cart from Afore the Horse." He makes the point that ex ante rules which will "protect the Open Internet" are a solution in search of a problem. He says that whether the appropriate legal framework for regulating the broadband market is Section 706, Title II, neither, both, or something else, "until we know the rules' purpose, we cannot speak to the appropriate authority."

Professor Hurwitz emphasizes that ex ante bright-line rules, or rules that would prohibit specific conduct that has yet to occur, are not needed because they do not consider that such conduct may not be problematic for consumers in some circumstances. In other words, if it is unknown how the broadband market will look in one, five, or ten years, how can the Federal Communications Commission (FCC) definitively say that specific conduct from Internet Service Providers (ISPs) is wrong if such conduct has yet to occur in a manner that is detrimental to consumers? And even if such conduct would be foreseeably problematic in most circumstances, it does not mean it would be problematic in all circumstances.

For that reason, Professor Hurwitz suggests that the FCC issue guidelines with flexible standards rather than mandatory rules:

These guidelines should reiterate what the D.C. Circuit in Verizon made clear, that the Commission has substantial authority in this area under Section 706. And the Commission should say that, if Section 706 proves insufficient to curtail problematic conduct, it will explore other tools for protecting consumers from harmful conduct - including Title II or seeking greater Congressional involvement. And it should say what everyone knows -- that the world is watching - that the Commission, aided by a concerned Congress and an army of public interest lawyers and an agitated Silicon Valley, is watching, and that it won't hesitate to bring swift action against any firm that engages in problematic conduct.

The guidelines would act as market norms. So while disregarding the guidelines may not get an ISP in trouble with the law, per se, the firm could lose out on consumers and/or market share. But guidelines, as opposed to rules, allow for case-by-case interpretation of situations where the market norms are broken. Of course, the FCC could have the authority to "bring swift action against any firm that engages in problematic conduct." But a competitive market should need an overseeing enforcer of market norms only infrequently. Competitive markets allow for consumers to choose if an ISP's disregard for market norms is warranted or not.

In other words, increasing competition is almost always the best market regulator because ISPs are motivated to satisfy consumer demands. So while ISPs do not have the incentive to engage in conduct detrimental to consumers, if an ISP does engage in such conduct consumers can choose to subscribe to a different ISP.

So, ultimately, regulators at the FCC should spend much less time trying to predict market outcomes or attempting to predict how they think ISPs might act in the future. Regulatory costs create barriers to entry into the market and likely lead to less competition, lower levels of investment and deployment, and higher prices for consumers. Instead, regulators should spend time paving the way for even more competition by reducing regulatory impediments. This would put more of the "regulating power" in the hands of consumers.