Panel Tackles Prickly Issue of FCC Regulation

WASHINGTON, March 9, 2010 – Public Knowledge, Silicon Flatirons and the Information Technology and Innovation Foundation last week sponsored a half-day conference to discuss the Federal Communications Commission and its efforts in reform, regulatory responsibility and standard setting.

The panel “Regulatory Reform: Standard Setting and Mediating Institutions” moderated by ITIF President Rob Atkinson took a philosophical approach on regulatory responsibility, how to frame certain problems and where the FCC should regulate, co-regulate or self-regulate.

Examining the Internet Ecosystem
Pierre DeVries, Silicon Flatirons’ senior adjunct fellow at the University of Colorado, started the panel by introducing the idea of an internet ecosystem. He questioned whether the two terms really fit together and why they are used so much.  He compared the question of whether the internet is an ecosystem to that of whether a whale was an elephant. They clearly are not the same but “if you want to know more about a whale, knowing a little about an elephant will help because they are both very large social mammals,” he explained.

There are two major common features between the internet and ecosystems, according to DeVries. First, in both cases there is a responsibility to manage and regulate, but because they are so large it is very difficult to do so.  Second, both are examples of complex adaptive systems, built up of subsystems that interact and adapt.  He provides the example of an immune system.  For example, people can make changes in life style or diet that will help our immune system but it does most of the work on its own.

DeVries asks what to do with these complex adaptive systems in order to regulate them. He asserts that it is important to rid ourselves of the “illusion of one right answer…it is not applicable to complex reality.”  He believes that if we used a physicist or economist’s approach to deal with complex systems we would look for an answer at the efficient minimum, which is unstable.

By using an ecosystem management approach, we look for the point of resistance where there will be crashes and booms but they will stay within certain bounds and return toward the middle. The principles behind ecosystem management involve being flexible, delegating responsibility and preserving diversity.

To apply this theory to the panel, DeVries said the challenge for how one should organize regulatory institutions is “how do you keep learning, how do you learn as you go…We are seeing that principles are more appropriate than rules.”

Is Self-Regulation a Dirty Word?
Rick Whitt, Google’s Washington telecom and media counsel, has written on the topics of new growth thinking affecting policy makers and adaptive policymaking. He states that a key problem for policy makers is in determining which framework and tools to employee in different situations. Policy makers often overlook tools they can use to achieve their agenda, especially those that rest outside the agency, he said.

Whitt added that while self-regulation has a dirty connotation, co-regulation means having a government back stop while allowing the unloading of complex technical issues to experts in engineering and other bodies. Without any standards there will be maximum uncertainty for the players to find out appropriate and inappropriate ways to behave. Ideal regulation would balance adaptability, accountability, and some form of enforceability, he said.

Atkinson contrasted the co-regulation and adaptive systems idea to the earlier panel that touted rigid views on openness with numerous filings and notices of proposed rule making. He asked Kathryn Brown, Verizon senior vice president, public policy and corporate responsibility, if those views are reconcilable.

Brown used privacy issues and wireless technology compatibility examples that demonstrate how standards have been set in two very important areas without any actual rule of law or government regulation.

These solutions required a technical dialogue and understanding of compatibility. As we look at how to govern this space through a rule of law…Verizon and Google have sat down to discuss principles for governance and how to determine what would be appropriate oversight, Brown said.

Kathleen Wallman, CEO of Wallman Strategic Consulting, asked if protecting public interests is done outside of government regulation.

The standard-setting process is completely chaotic, she said.

“The public’s interest is things have to work…things have to be not too expensive…we want things to be dazzling and new on a regular and cyclical basis,” she said.

Wallman explained that the current standard setting process is moving toward “ad hoc-ism,” where companies come together opportunistically to set standards for what they need to do in the near future.

This ad hocism works for the first two objectives but how to protect the public interest of innovation is the real question.

She added: “Maybe there are places where we don’t need standard setting, just a platform to mix it up and figure it out” and hoped that the agency figures out many of its broadband issues that way.

Innovation in a Digital Age
Atkinson then asked Paul de Sa, chief of the FCC’s Office of Strategic Planning and Policy Analysis, about the future of innovation in the digital age.

De Sa began by noting that it is very difficult for the government to get the valuable information from parties that are part of a proceeding. He continued that the agency has been careful about trying to define the problems to solve before they gather data and burden others. In order to set standards, they need to examine the ecosystem and try to determine the problem, and then ask who should be setting the standards and how they should be done.

De Sa added that standards are important because they give users confidence and provide more information for better choices. He mentioned that internet service standards downstream ought to be set for delivery at a certain speeds.

If there are no standards for these speeds, it is hard for consumers to make choices, he said. Furthermore, if infrastructure standard settings change constantly it will be impossible for application developers to create new products. Standards that are too tight will constrain innovation. However, many different standards will prompt innovators to customize their product for the myriad standards. That will impede the ability of small players and innovators to compete with those that have greater resources.

De Sa also noted the importance of facilitating interoperability.  He added that it does not have to be done through the FCC but there needs to be a format and platform for setting standards.

“We don’t want to be asleep at the switch,” he said. “It would be a mistake to pretend that interests are always aligned, and that innovators and new entrants can always compete with incumbents in terms of resources and abilities to enter markets.”

Atkinson asked which kinds of problems are best suited to which kinds of approach.

DeVries brought up standards as a notion for engineers, when engineers hear standards there is a defined problem and they need to decide which solution is best. He said self-regulation should be used “when there is a fair degree of homogeneity in the culture of people working on the problem.” At that point, “strong norms will lead to enforcement and therefore it is unlikely that there will be bad actors.”

“The next step up in terms of what we mean by standards is standards of behavior, norms, how different players interact and how they are going to divide up the pie,” he said. DeVries noted that while regulators traditionally thought this was their role, in a fast paced industry, it makes sense for companies to decide how they want to divide it up.

The Net Neutrality Equation
DeVries uses the net neutrality debate as an example. At the engineer level, the issue is between Verizon, Comcast and AT&T as to how they run the networks and what makes up reasonable network management.

DeVries continued that the discussion is then kicked up to what he considers the commissars.  They discuss how to divide up the rents.  This he believes is where co-regulation works.

“Normally there is a conflict and a threat of a stick in the background, if you do not solve the problem we will solve it for you,” he said,

For this part of the process to work, content providers and participants must be clear about the type of stick they want held over their heads.  Regulators will then play a backstop role.  If there is an insolvable problem with well-demonstrated harm to a stable industry, they will need to step in and write the rules.

Brown believed that DeVries’ discussion lacks the central force of the users.  She said that applications are changing in the face of consumers’ expectations, which put pressure on network providers.

She touted the partnership between Google and Verizon on the Droid smart phone: “There are no user manuals…the users will build their own experience.”  Brown did not disagree that there aren’t issues at the engineering level, but she thinks that consumers play a much larger role now.

De Sa had some issues with co-regulation.  He believes it is not obvious to pin down what the in-between is in an internet ecosystem.  Businesses and innovators would like to avoid Washington, he said..

“If co-regulation means lots of meetings then that inherently favors the larger player and excludes many of those without the resources,” argued de Sa.

Atkinson asked the panelists to think of disclosure of bandwidth practices and ask about how the process works on a co regulation basis. Who is included, who organizes and manages, how you deal with conflicts and bad actors?

Whitt wanted to clarify the notion of regulation. He said the common law process, which basically says what the agency uses is a good idea as long as it is transparent and expeditious. Co-regulation would be useful in defining network management and transparency.

He said either the agency can come up with a standards or rule that can then be developed though the complaint process, or a broad based group of users, developers and industry can adopt standards of what transparency means to them.

Through the use of online tools, sharing of ideas and discussion, this co-regulation would provide for a much richer environment for standard setting to happen. The FCC would either agree with the standards or see if they were going too far and in that way they would be acting with a stick in case of communications break down.

Whitt added that these co-regulation entities could be created through advisory groups for each issue, or there could be different groups setting acceptable standards from each of the players’ perspectives.  Whitt believed that this is the tough question.

Wallman worried that in creating new advisory committees, “we would be creating another meeting to go to, a new barrier to overcome.”

Brown added that with the explosion of new technologies, regulation might become a whirlwind for anyone in this space. She did not want to see a government framework imposed on the ethos of freethinking and innovation.

DeVries countered that there are non-engineering problems that need to be addressed. “What does openness mean in practice? What is allowable price discrimination and what isn’t?  When you give advance notice of terms, what is advanced, what is notice and what are terms?  These all need to be addressed through some form of regulation or standard setting.  DeVries is not sure that industry and competitors are solving these problems every day.

In response to DeVries, Brown stated that with regard to market definition, she does not believe that academia has caught up with reality as to who are the real competitors.

In response to Brown’s comment, Whitt clarified that Verizon and Google frame the issues surrounding the notion of the internet ecosystem very differently.  Google does not believe that everyone in an internet ecosystem should be treated the same and likewise, does not believe that the internet eco system is truly a self-regulating system.

Brown and Whitt agreed that the lowest common denominator approach is not what is needed. The metric has to be, can we live with it and develop to the next level. They agreed that the government should not force parties together and that the public plays a large part of the regulatory equation.

De Sa ended by stating that he is optimistic about the productivity that will be created through Washington.