The FCC in Context
The FCC is tasked with implementing a complex and increasingly contradictory regulatory regimen. If we simply look at the FCC as another bureaucracy we miss the larger picture. It is important to think about the FCC in the context of the regulatory infrastructure.
Examining the FCC decisions in terms of winners and losers misses the point. As long as it is constrained to support the telecommunications infrastructure as it exists, and thus frustrate change, we are all losers. Instead, we must help the FCC act as the agent of change and steward of the industry as it passes through a necessary, even if traumatic, change.
The change is happening anyway as witnessed by the increasingly troubled industry. The sooner we complete this transition the sooner we can again focus on the new opportunities rather nostalgia for the one true and perfect telephone company.
This essay started out as a simple response to a Forbes article (Commander of the Airwaves). The article itself was one of many articles about public policy that treat politics as spectator. This makes sense when things are so complicated that we can't tell what is really happening. But the FCC is a special case in that we can examine the underlying principles. We can and we must because the current telecommunications policies are not longer justified and are already acting as a brake on the economy.
The Internet seemed to come out of nowhere in the 1990's and suddenly we found ourselves in a highly connected world casually browsing web sites jumping from Australia to South Africa to Japan with the click of a mouse. We could even look at live video over the Internet. It was not only possible, but easy to do all this because the Internet was built on a simple concept�Connectivity.
Suddenly we were confronted with the fact that the telecommunications services were now minor applications.
Not only that, the ability to define new services at the edge meant that we could do a lot more than just recreate the existing services. The World Wide Web was just one of the many possible new services. The principles of connectivity also apply when we don't have wires. The whole concept of spectrum allocation is a naive and wasteful approach. It was adopted because it was simple and doable with the technology of the early 1900's. The scarcity created by applying the property model to wireless communications and the scarcity implicit in the "natural monopoly" for telephony seemed to make sense because we are used to thinking in terms of limited physical resources.
Thus the scarcity-based assumptions of telecommunications led us to accept policies that limited our free speech and made any investment that depended upon communications very expensive. Despite this, the Internet happened and it grew very rapidly until it collided with the telecommunication industry. While the rest of the computing and Internet boomed, the first mile of connectivity became more expensive! While there were some concessions for DSL and Cable Modem access, these have grown little in capacity from the first deployment. After all, the first mile is owned by companies whose only business is selling services that would have no value if sufficient connectivity were available.
Were it not it for the regulatory policies that the FCC is mandated to implement, the normal marketplace processes would have given these companies the incentive and opportunities to evolve to be connectivity providers. The price of maintaining the status quo is very high:
We have reached a tipping point. The Internet technologies can easily subsume the current telecommunications industry. What is different about the FCC is that it is tasked with imposing a regulatory system that no longer makes sense when we step back to reexamine it in light of our understanding of connectivity.
The Internet doesn't define any services. It just gives those connected to it the ability to define the services themselves. Thus the fundamental premise that one regulates services simply vanishes. We are left with connectivity which is a simple commodity that needs only simple regulation.
The simplest ideas are often the hardest to explain. How do we explain that an entire industry is no longer necessary? It's as if we tried adapt an industry built around horses to supporting auto-mobiles. Fortunately the horse industry didn't have the regulatory support that keeps the telecommunications industry from evolving into a connectivity industry.
The good news is that connectivity is indeed simple and our task is to remove barriers rather than create a new and ever more complex regulatory system. The key problem is that the first mile of connectivity is an artificial chokepoint created by modeling telecommunications after the railroads and granting privileged rights of way to companies providing a specific service. There is an inherent conflict between this service-based model and connectivity which gives the customer the ability to define the services.
The remedy of structurally separating the companies that provide connectivity from those that provide services and content may seem radical but it is not unprecedented. We've seen movie studios being forced to divest themselves of their theaters and the TV networks, in turn, couldn't own the production companies until a competitive industry developed.
In fact, separating two disparate parts of a business makes a lot of sense in its own right since it enables each to do what it does best. Many claim that the transport business is not viable without subsidies but this is a lame excuse for maintaining control. If it is a valuable service but not viable as a separate business, then it may need to be a municipal service like electricity or water.
As we learned with the Savings and Loan debacle, little is gained from waiting. The stakes are much higher this time as is the cost of delay.
In reading Commander of the Airwaves in the April 29th 2002 edition of Forbes I was struck by the tone of the article which treated the FCC as a sports team. This is, in fact, the style of much of the news reporting. After all, the issues are complicated and only indirectly relevant to most people's lives. All we can do is watch while titanic and mysterious forces are at work behind the scenes. We find ourselves spectators with only a limited ability to understand what is happening and even less ability to influence events.
But are the issues really complicated, or are they simple?
Before continuing I need to make it very clear that the FCC is not really the villain here. The people inside the FCC are trying their best to serve the public good but are constrained by the mandates from Congress and the myriad other parties that setup the constraints they live under. One unfortunate side effect is that these constraints select for regulatory expertise rather than technical expertise. They aren't necessarily exclusive but only the regulatory skills get honed. The article quoted George Gilder as recommending eliminating the FCC. But the FCC is not the cause of the problems. It is defined and constrained by Congress and its own history. I am impressed by Mike Powell's capabilities, Bob Pepper's technical insights and other very qualified people at the FCC. We need to give these people an opportunity to move the FCC forward rather than trapping them within a regulatory quagmire. I use the term "The Regulatorium" for this closed system of self-perpetuating complexity.
Operationally, the FCC is no different than most governmental agencies. What is different is that its mission was defined by the technologies of the 1930's. We now have deeper understanding of the technologies. The Internet demonstrates and gives us practical experience with alternatives. The FCC is unique in the degree to which we can now cut through complexities to simple underlying principles and understand the consequences of the choices the FCC faces. It's not like a baseball game in which it doesn't really matter which team wins or loses. The longer the FCC continues business as usual, the longer society pays the price. It isn't just that I have the expertise to understand the issues; it is that I feel I can explain the basic issues to others without a technical background. The difficulty is in getting people to accept the idea that the issues are indeed simple.
In the movie, Raiders of the Lost Ark, there is a scene in which Indiana Jones is confronted with an opponent swinging a large sword. The audience is setup to see him respond with his whip or a comparable weapon but he simply gets out his gun and shoots his foe. The humor comes from violating our expectations.
The regulatory complexities of the FCC set us up in the same way. We assume that we must deal with it on its own terms. If we do, we find that we are caught a tangle of regulations, political considerations and a dollop of technology that adds a patina of plausibility.
But the FCC is like a mass of seaweed in the Sargasso Sea. It may seem like solid land but there is nothing underneath. The premises that underlie the FCC s rules and even its legitimacy are no longer true. The Internet has been a major factor in demonstrating that the basic assumption of scarcity that gives the FCC a role in allotting resources is no longer true. In fact, it is the FCC s rules themselves that assure the scarcity!
The major change is the discovery of connectivity. For details see my essay on connectivity. While the EPA may be like the FCC in the dominance of regulations over technology, it doesn't have the advantage of a simple unifying concept like connectivity that unifies a wide range of technologies.
Key premises based on 1930's communications technology were codified into law in the 1934 Communications Act:
It is now obvious that none of these premises are true!
The real tragedy is that the FCC's existence and mandate has created an artificial and unnecessary chokepoint in the first mile of connectivity. Those whose businesses are premised on the 1934 assumptions of scarcity have control over this connectivity and have an inherent conflict of interest. If they enlarge the commons they lose the scarcity that defines their businesses.
By locking the concept of spectrum allocation into legislation we have taken what is an essentially unlimited capacity for wireless communications and have treated it like property with exclusive ownership and thus minimizes the potential value and societal benefit.
These practices take potentially unlimited resources and create scarcity. And this artificial scarcity gives the FCC and those it charters an extraordinary ability to regulate speech! How can we justify putting television networks in the position of deciding what we are allowed to watch and when? We shouldn't be surprised that the choice is limited to offerings from these networks. It's as if we could only use our telephones to listen to radio stations and not talk to each other.
This all sounds interesting and futuristic but what does this have to do with the pragmatic world of the FCC? What about the complexities of telecom regulation? Is a DSL modem an information service or a basic offering? Is voice over IP (the Internet) allowed on a dialup line if we have a reciprocal compensation agreement between the CLEC (Competitive Local Exchange Carriers) and the local incumbent? Do these rules apply to an IntraLATA carrier (as opposed to the local carrier or the interLATA carrier) using Voice of DSL? How do the Telrec calculations apply and do we pay the full universal service fee if the second phone line is used for a FAX machine? Is a cell phone counted as a first line if used for lifeline service? And not only do we need to deal with all of these complex issues but the FCC is now asked to take responsibility for a key element of homeland security.
That's the crux of the problem. We are taught to respect expertise and credentials. And we develop a mystique about things that seem to complex to understand. And I'm no different and find that I simply accept many of the claims of experts.
But the telecommunications as embodied by the FCC is different. It is not a case a of amateurs vs experts.
We have worlds in collision.
One on side we have the traditional world of telecommunications. This is a world that is coming apart at the seams and the FCC is put in the position of trying to keep this industry alive and actually extend the old thinking. The seemingly futuristic DTV (Digital TV) and HDTV (High Definition TV) are already technologically obsolescent.
Those of us who seem to be upstarts are part of industries that have been wildly successful and are changing the world. The problem is that it seems too easy and obvious. Just take a PC, add a little software and, voila, there's the World Wide Web. Of course, if we take a hard look we do find that a new chip plant might cost a billion dollars. But these investments are still small compared with a single spectrum auction. If you take a hard look you will see some government investment that has helped the industry. For example, the aerospace and military investments in the 1960's and 1970's provided some key enabling technology. But these investments were starting points and didn't define the limits and rules of the industry.
The regulatorium has failed to grow and is still stuck in 1934. The FCC is like a promising student who had to drop out of school to support his family. At some point he finds his options limited by the lack of education. Congress abets this process by it's own lack of technical understanding that leads it to pander to its constituents expectations. As Clayton Christiansen has shown in The Innovator's Dilemma, you shouldn't be indifferent to your customers but you won't succeed unless you have a vision to translate expectations couched in the moment into what will meet the needs in the future.
Those of us who grew up with Computers and the Internet are the real experts! But for the spectators and those reporting on the politics as a sport, why does it make a difference?
It makes a big difference. While we worry about oil shortages, we really are in an information economy and current policies assure that we have a scarcity of the resource that drives the information economy � connectivity.
The other road.
Those of us working with computers weren't concerned with all of these issues. We had a simple goal of improving our computers and connecting them. In computing Gordon Moore observed that the price/performance of computers increased very rapidly, in fact it doubled every 18 months. To be fair, he actually used this model for setting Intel's prices and thus he had some control but the effect was real. In fact, recent studies have shown that the pace of change has actually been increasing. This rapid change was a by-product of an industry structure that allowed hardware and software developers to proceed without waiting for each other. This allowed for a rapid pace of change since each industry had very different characteristics. Software people would find ways of working around hardware limitations while the hardware group found it easier to add features at their pace and sometimes even ahead of what the software people could use.
Computer networking developed along two lines. There was the traditional telecommunications infrastructure that created protocols for reliable connectivity between pairs of systems. More interesting were the experiments in packet networking funded by ARPA (Advanced Research Projects Agency) under the auspices of JCR Licklider and others. Licklider was a psychologist specializing in psychoacoustics who became interested in interactions between people and computers. He was also a found of MIT's Project MAC. MIT, along with other universities participated the ARPANet. At the same time, Bob Metcalfe was inspired by the AlohaNet in Hawaii. The Aloha net was a packet radio network without the central control of a traditional network and had to deal with packet collisions. Bob took this principle but contained the signal in a wire as the ether. Hence the name, Ethernet. The Ethernet demonstrated that one could implemented a very simple network without promising that every packet would be delivered. This principle was fundamental in defining the successor to the ARPANet, the Internet. The goal was to interconnect the many local area networks (often Ethernets). Since the research community lacked the ability to define a dedicated "Internet" infrastructure it used the Ethernet principles. The intermediate networks acted as simple "Ethers". This allowed the Internet to take advantage of opportunities even if the intermediate networks weren't fully reliable. In fact, the network grew despite the concerns of a number of the existing phone companies. Modems simply used the voice path to send data and thus avoided the need for new infrastructure.
The Internet was based on the design principles proven in the ARPANet and the Ethernet but it wasn't obvious how well it would work in the real world. During the 1980's the official networking groups and the Internet Engineering Task Force continued their design efforts. The IETF was able to do very simple designs because they were interim protocols until the official ISO protocols were fully defined and deployed.
But something went strangely right. The ability to innovate at the edges is a very powerful idea. Just like hardware and software could proceed apace because they didn't have to wait for the other, the ability to create new services without waiting for others meant that even when the phone companies started to offer a data service within their advanced digital network (ISDN � Integrated Services Data Network) modem innovations allowed us to carry data over standard analog lines almost as fast as ISDN and without having to deal with the limitations of ISDN.
The Simple Mail Transport Protocol become the norm for email while the official X.400 simply couldn't keep pace. To understand SMTP see my essay on how to send mail without a mail program. SMTP vs X.400 is also important for highlighting the difference in what the word "standard means". X.400 standards must be approved by committees and then each implementation must be certified and it can take years to make changes. The IETF doesn't really enforce standards (at least above the IP layer). Anyone can implement an SMTP server and it either works or doesn't. And if you don't SMTP you and your friends can use whatever protocols they want. This is a real marketplace process. And you don't need to wait for anyone to write a mail program -- you can start using the protocol before the software is available. Remember that the Web pages were created before there were any HTML editors. You just did the markup by hand. It is still easy. Just say <b>Bold</b> and you see Bold.
There is a bit of irony here since the Internet community is often derided as the enemy of Capitalism. In fact, it is the Internet that represents the vibrant marketplace while traditional telecommunications is based on a strong central authority. This is very evident in the FCC which mandates standards and the legislation which frustrates the marketplace.
These issues came to a head in 1993 when Tim Berners-Lee's prototype of the World Wide Web was implemented on a PC so that anyone could create a new service and the services could take advantage of the rich graphics of the personal computers. The US was fortunate in that the personal computers already had modems. While many people did use the early online services, most users had only a vague idea beyond the notion that you were supposed to have one. The availability of unmeasured local phone service (not free, just no clock ticking) allowed for people to take advantage of the new connections to the Internet.
The Internet had crossed a critical threshold but rather than slowing down, we found that the Moore's law principles of hardware and software applied to telecommunications with a vengeance. We had a telecommunications industry that viewed a normal change cycle as forty years and a computer communications industry that could deploy a new technology in a day!
The biggest surprise was yet to come. As capacity grew it became possible to use the Internet for carrying audio and video streams without any special engineering. The early implementations were tricky because they had to work around the capacity limitations but the Moore's law effect delivered abundant capacity. Capacity involved not only bandwidth but also latency � for interactions with remote services the travel time was critical.
Just like specialized word processors could not match the rapid pace of improvement in general purpose computing, special purpose networks were no match for the general purpose networking that the Internet provided.
And the fit hit the Shan.
OK, that's a phrase from a science fiction book that named the main character "Shan" just to be able to use that phrase. I am doing it here out of FCC reinforced prudishness. Humans aren't easily fooled yet the temptation to act the biddy is irresistible.
The Internet gave us something new � connectivity. Just like we use the same electrons for lighting and heating and power, we use connectrons to build any communications service we want. Connectron?? It's a cute term for the packets we use in networks like the Internet. It is the unit of connectivity that can be carried across any intermediate network. Like an electron, any connectron is like another. That is, until it reach the other end point and it is unwrapped.
With connectivity anyone can create telephone connections. Anyone can create television with nothing but a PC, an imaging chip and a connection. That's it. Period. Game over.
If the FCC didn't already exist we wouldn't even be able to conceive of inventing it because there is no central point of control. In fact, the more one attempts to control the chaotic packet networks the worse they work because control creates brittle dependencies. This is the kind of paradox that makes it difficult to "prove" that the Internet can work. It's the same problem we have proving that Capitalism can work since any centrally defined system will work much better for a short period of time since it is optimized for the time right up to the point it is defined.
But we cannot predict the future for if we could, then it would be too easy to game it. A simple example is Interactive Television. An utter failure against the real interaction of the Internet. But one of the foolish investments � DSL � has salvage value as a way to reuse the phone network for Internet connectivity.
But the FCC is not just a benign presence.
Without a doubt it has chosen sides by its insistence on preserving the existing telecommunications companies even though they are as dead as a company that builds words processing machines.
And worse, it has created a chokepoint in the communications infrastructure by strongly regulating the first mile of connectivity. Again, to be fair, it's not that the FCC set out to create this chokepoint. It arose because of the early "natural monopoly" that provided special right-of-way privileges to the "phone company". Now that we have competing companies, the regulatory legacy is felt in every local regulatory group that enforces it's own local policies that try to preserve the existing telecommunications services while making it difficult to create new ones.
The existing telecommunications industry is based on delivering valuable services. The value derived from scarcity � if there was only one way to get telephone services and television content the provider can charge high prices.
But the same right-of-way is now much more important as a medium for connectivity. Not only that, but a wire that used to carry a single phone call at 32kbps can now carry 100 times that using DSL technology and that's still a very conservative number compared to what is possible with more innovative approaches.
The problem is that the entire telecommunications industry is based on the ability to charge a high price for a service that no longer has any costs associated with it. Once you have an Internet connection the phone call is nothing but a fiction!
We have a classic inherent conflict of Interest.
The FCC is not only permitting but mandating a clear violation of anti-trust! But anti-trust is problematic since it is a creation of Congress and thus they can provide exceptions.
We also have a clear violation of the first amendment of the United States Constitution!
That is hard to ignore. A television network � be it over the air or, more common, via a cable � is in the position of choosing what we are allowed to watch and when we are allowed to watch it. It's bad enough that we have to go to a store to buy a movie when it could just as readily be available over the Internet. The selection in the store is artificially limited by distribution costs that would not exist on the Internet.
But the real violation comes because we are not allowed to contribute our own voices! It's as if we had radio before we had telephones and telephones only allowed us to call and listen to radio broadcasts. I make my family photo album available on the web � of course only to friends and family � but it is still difficult to provide my own video. Why can't I watch my kids perform at school when I'm traveling? Why can't they join a class even if they are sick at home?
I can do all this with the Web. The only issue is getting enough capacity.
And we cannot get the capacity as long as the companies that control the first mile of connectivity will fail if there is sufficient capacity!
The prices for the first mile of connectivity have gone up when everywhere else the price/performance has been dropping dramatically. There is something obviously wrong and the term "price fixing" is far too mild. But this the price we pay for trying to keep an industry alive past it's time.
But it is only a small part of the price. The higher price comes from starving us of the connectivity that was driving the economy. While many of the "Internet" companies were over-hyped, a large part of the reason for the economy hitting a wall is that we ran out of connectivity. It's as if we ran out of oil. But since we are so accustomed to scarcity it wasn't obvious that the lack of connectivity prevented the creation of many of the services we expected. They seemed like fantastic hype but not necessarily more so than any of the expectations that were met. There is no reason why innovative forms of entertainment wouldn't flourish. Instead we are trying to preserve business models that depend on very tight control over distribution. These benefit from the scarcity of connectivity by forcing us to by content on physical media.
The issues of the "other" IP (Intellectual Property) are important but let's focus on the legacy of 1934 and the FCC.
The Price of Delay or Savings and Loan Redux
Our economy is starved of connectivity. Not only is the capacity of the wired network limited but the spectrum allocation policy is based on a primitive tuning fork and a simple but very wrong notion that the spectrum is a form of exclusive property.
Our freedom is limited. Not only are we being denied our right to free speech. But our safety is being compromised by creating brittle dependencies.
What to do
Very simply, make up for lost time and move as quickly as possible to "go with the flow". There is little need for regulation when peoples interests are aligned.
The first step. Remedy the chokepoint in the first mile of connectivity by applying anti-trust enforcement. There is a precedent in the 1970's* when the FCC remedied the networks' control over the studio by requiring that one company cannot be in both businesses. A company can either be a connectivity provider or a content/service company but not both. At least not as long as the first mile is a chokepoint.
Actually, that's the biggest step since that sets in motion the market process and virtuous cycle we associate with Moore's law.
What we should not do is create another centrist policy like a broadband initiative. The market is a far better way to go.
The other step. Education. The principles of the Internet are not only simple but very important. Not just for understanding connectivity but for understanding the economy and for understanding how complex systems work.
The real issue is that we have a large set of new concepts:
I hope to explore these concepts in their own right in future essays but for now the focus is on telecommunications and the role of the FCC.
The FCC: Moving beyond regulatory stagnation
As I said at the start of this essay, the FCC is not the cause of the problems but it is the agent of the Regulatorium. It is stuck with the impossible mission of preserving a major industry that is obsolescent and its freedom is very much limited by a Congress that is not at all comfortable with rapid change. It is a Congress that is comfortable with concrete promises at a time when marketplaces operate very rapidly.
And this is not about the Internet as such. The Internet has forced the issues by delivering connectivity as a new resource and by demonstrating that we can indeed create all of the existing services using connectivity. But the effortlessness with which we can do this makes it seem unreal.
At 1970 prices the computer under my desk would cost a billion dollars just for the memory alone. Somehow that seems normal and no longer surprising.
But when we try to apply the same metrics to telecommunications we are ignored because it is unbelievable. It is simply too difficult for most people, especially the senior rule makers, to really believe in this kind of change.
The real question is why we tolerate those who deny us the benefits of such improvements. Where is the rage at what is nothing less than holding us hostage? At very least the egregious and blatantly illegal denial of our (US) constitutional rights to free speech demands immediate remedy.
* In the original version of this essay I said that the television remedy occurred in the 1950's. Bob Pepper (the senior technologist at the FCC) corrected by noting that the remedy was applied in the 1970's, long after television had been established. In the 1940's a similar approach was taken (though I'm not sure by which agency) to force the movie studios to divest themselves of their theaters. In both cases the vertical control was seen as a serious barrier to establishing an effective marketplace.