• United States

What are regulators good for?

Oct 27, 20033 mins

Local and federal telecom regulators sure want to be helpful. On the federal side, the FCC is assuming the only reason anyone would want to buy a computer is to steal movies. At the same time, the FCC is trying to help incumbent carriers rid themselves of the pesky requirement to share infrastructures installed while they were legally empowered monopolies.

On the state level, regulators are trying to protect the public from confusion over different phone-service options.

Because there is no apparent benefit for normal humans in these and many other regulatory actions, the question pops to mind: What benefit do regulators provide?

In some areas it is clear to almost everyone that regulations and regulators are needed. Only a few people think we do not need regulations designed to protect life and health by making sure that restaurant food or prescription drugs will not kill you.

These people think the market will punish restaurants that kill their customers and that regulations are not needed. (I exaggerate only a little bit – this is exactly the argument I have heard about drug regulations.)

But in other areas, it is less clear. A lot seems to be written about the purpose of regulations – I got 5.6 million hits on Google for “purpose of regulation,” but the rationale for regulations still eludes me in much of the telecom space. A number of state regulators seem to be determined to show that regulations are not only no longer needed, but are a clear and present danger to innovation.

U.S district court stopped Minnesota – at least temporally- from trying to regulate voice-over-IP (VoIP) provider Vonage as if it were a traditional telephone company. But regulators in California say they are not backing down from their demand that six VoIP companies submit to being regulated as telephone carriers.

When I wrote recently about the Minnesota case, I got some reader response disagreeing with my opinion. A few felt it was reasonable to demand that VoIP providers offer services such as enhanced 911 and ensure high-quality voice. I strongly disagree. We would have no cell phones today if wireless carriers had to provide enhanced-911 functionality before they could have started to offer their service. And it’s not clear that we could ever have cell phone service if the providers had to guarantee high voice quality. Some people might complain that I’m not being fair because the E911 and quality regulations refer to the basic phone service for a home and not an add-on service like cell phones. But that argument is becoming less true as more people decide to use a cell phone as their only phone. About the only clear issue to me is that of taxes. You pay taxes for phone services; you do not (yet?) pay them on instant messages, even if an instant message contains voice.

I can see a rationale for a regulator to insist that a VoIP provider be clear on what services it does offer, but I have a hard time understanding what other value regulators add. Telecom regulators are a vestige of an era of monopoly telecom carriers. They should only ensure that those monopolies do not kill their competitors, then the regulators should fade away.

Disclaimer: Harvard does not understand the concept of “fade away,” so the above must be my own opinion.