Congress Must Give FCC Room to Maneuver if It Takes On New Telecom Act, Hundt Says

Reed Hundt, who implemented the provisions of the act as FCC chairman, said the law worked because it gave the agency freedom to act. The act “shows a really good way” for Congress to take on comprehensive changes to a major industry, he said. The act worked, leading to a national investment of some $800 billion in new networks, creating a net 2.1 million new jobs, Hundt said. “That growth was the catalyst of a great rise in GDP that in turn caused the [federal] budget to go into surplus.”

"The principle of the ‘96 Act is to regulate in order to open markets or create new markets,” Hundt said. “You deregulate if that’s a way to build a market. … It’s never all one or all the other.” For example, he said, the act deregulated wireless but regulated wireline in an attempt to create competition in local markets through CLECs. The law was approved before broadband, but was flexible enough that in its January decision in Verizon v. FCC, the U.S. Court of Appeals for the District of Columbia Circuit said the FCC could “apply the basic principles of the ‘96 Act to broadband,” Hundt said. “When Congress micromanages an industry through legislation, it almost always gets it wrong, because it can’t see the future.”

"One of the great things about the ‘96 Telecom Act was that its rules were shorter than the rules of Little League Baseball,” about a tenth as long as the Affordable Care Act or the cap-and-trade bill, Hundt said. “Congress should write short laws that establish principles and then delegate to the FCC the job of putting the principles in place,” he said. “The methods will change over the years. That’s why the ‘96 Act doesn’t need to be rewritten, because it’s still useful even though the technology has changed completely."

The shortest “and most visionary” principles in a law can end up having the most effect, Hundt said. “E-rate is one of the shortest passages, not even a couple dozen words, and has been fabulously successful, producing almost 100 percent Internet access in every library and every classroom in the United States,” he said. “It now needs to be reimagined, but you don’t need to rewrite the law to reimagine it because the law is supple enough that you can use it.” But Congress retains the ability to approve more tailored laws down the road when it needs to put in place corrections, he said. For example, Congress changed the digital TV rollout schedule and two years ago approved rules that will allow the first incentive auction of TV spectrum, he said.

Blair Levin, who helped Hundt implement the act as his chief of staff, questioned the need for comprehensive changes. “One of the lessons is to try to understand the problem you're trying to solve,” Levin said. “The more you know about what the problem is, the more specific you are, the more likely you're going to be able to solve it.”

"There’s a debate about whether we should have an act in which conservatives say, ‘Yes, we need an act to modernize,’ and more liberal people say ‘No, we don’t,'” Levin said. “Then there’s a debate about how is the United States doing, in which some liberal people … say ‘we're doing horribly’ and the conservatives say, ‘no, we're doing great.’ So my question to my conservative friends is if we're doing so great, why do we need to change the act? What’s the problem you're trying to solve? What’s the business that people should be getting into that they're not getting into? What is the barrier to innovation that’s really going on?”

Everything needs modernization eventually, Levin said, but pushing forward on any comprehensive legislation comes with a price. “The companies that were the subject of the bill kind of froze because all of their strategy was dependent on what Congress did and all of their CEOs were spending a huge amount of time lobbying in the Congress,” Levin said. “So there is a cost to saying, ‘we're thinking about changing it again.’ It is not cost-free. … You freeze investment, you freeze thinking, you freeze time, you focus on what we might think of as lobbying innovations as opposed to product innovations. If you don’t have a clear sense of the problem you're trying to solve, you might actually move things backwards.”

The part of the ‘96 Act that worked the best was adjacent market entry, Levin said. “It was cable entering the voice and Internet market, it was the telcos entering the multichannel video market and broadband market because they had previously been on dial-up,” he said. “It was the telcos becoming wireless companies and investing in wireless. It was Sprint, a wireline company, becoming a wireless company.” Levin said adjacent market strategy “has the highest probability of success when you're talking about competition.”

Time to Cut the FCC

Mark Fowler, FCC chairman for six years under former President Ronald Reagan, told us Congress can do the most good by getting rid of unnecessary regulation. “We have regulation after regulation, tumbling out of the FCC,” he said. “It’s hard to keep up with it.”

"The first thing that would be the most helpful thing would be for the Congress to go back and look at every statute that’s on the books that has to do with telecom and do a regulatory review, and in fact a statutory review, and ask itself, ‘Is this helpful or is it harmful or we don’t know,'” he said. “If it’s we don’t know or it’s harmful, I would chuck it, I would get rid of it. We did something similar to that in the ‘80s where we went through every regulation that was at the FCC and we weeded out I don’t know how many rules that either made no sense, didn’t do anything or were just plain stupid. It had a real salutary effect on the economy, I can tell you that.”

Fowler also said Congress should trim the size of the FCC, which is much bigger today than it was when he was chairman. “You've got all these people sitting around, dreaming up ways, guess what, to write regulations,” he said. “I'd have the Congress look at the size of the agency and I would downsize it dramatically. Most markets in telecommunications today … are workably competitive. I know they are.” Fowler would cut the agency by at least a third, he said. “And it would be more productive, not less productive.”

Comprehensive legislation isn’t needed, but Congress should tackle the four or five areas most in need of change, Fowler said. “Scrap the parts that are useless or get in the way,” he said. “If you could just go through a regulatory review at the FCC and scrap one-third of the regulations, it would have a powerfully tonic effect on our American economy, it would really jumpstart it in many ways in telecom.”

The ‘96 Act “was really a victim of timing,” said former FCC Chairman Richard Wiley of Wiley Rein, who led the agency in the mid-1970s. “It came before broadband and really the development of the Internet. I don’t think broadband is mentioned at all in the act and Internet barely. We're in a different environment now.” If Congress revises the act, it will be to create a statute “that deals with some of the major issues raised by those developments, like network neutrality,” he said.

"I'm not a huge critic of what was done in 1996,” Wiley said. “They made a good-faith effort. … I think that what should be applied here is a lighter regulatory touch,” he said. “The industries that have been most successful in our country, the wireless industry and the Internet-related, IP-related industries, are ones that have had great marketplaces and the ones that have been more heavily regulated like broadcasting and wireline telephone, I think you see less development.”

Act Was ‘Transitional’ Legislation

Former Commissioner Susan Ness, a Democrat who served with Hundt, views the ‘96 act as “transitional” legislation. “It provided a roadmap to open up competition in the marketplace, permitted greater media consolidation,” she said. “Many of the provisions were carrots to the warring factions to get their support for this omnibus legislation.” Industry was divided at the time into distinct sectors -- long-distance companies, local access providers, cable companies, satellite companies, she said. “They weren’t really all that integrated.”

Much of the act was “intentionally vague” and “it was left to the FCC to resolve these issues, sort of the sinew holding the bones of the legislation together,” Ness said. “Members of Congress could say to the various constituencies, ‘we took care of you,’ and then it was really up to the FCC to figure out how to parse the oftentimes inconclusive language or internally conflicting language to make sense of the act,” she said. “Congress did not significantly address the future of the Internet. That could be a good thing in as much as it was more looking forward and not necessarily predicting where the future was going to go.”

But Ness sees the act as a success story that led to competition. “As a result of the act, prices for telco services did drop,” she said. “Changes on the cable side probably did spur cable investment and I think that has been very helpful, but it was on a trend to go in that direction anyway by the time the act was passed.” The act launched the E-rate program, “which provided for the first time meaningful connection to the Internet for schools and libraries,” Ness said. But the act also had negative effects like allowing “massive consolidation” of the radio industry by eliminating the national cap on the number of stations any entity could own, she said. “In my personal view, it drained the radio industry of any innovation and spontaneity,” she said. “That was a bad thing and I suspect it was an unintended consequence."

Ness said she hoped Congress will draw some lessons from the act if it again moves forward on comprehensive changes. “Lesson number one would be keep the public first and foremost in mind,” she said. “Mostly the legislation was addressing issues that the warring factions had on the table and not necessarily what the public needed.” Ness noted that during the final stages of negotiations, the federal government was shut down for 27 days at the end of 1995 and beginning of 1996. That led to some “gaps” in the bill since the FCC could offer only limited advice. “That was to the detriment of the legislation,” she said.

"Part of the mission of the ‘96 act was to get phone companies to compete against cable and cable companies to compete [with] phone and to leave wireless alone,” said former FCC Commissioner Robert McDowell, a Republican who was an industry lobbyist during its writing. “It succeeded at all of those. But another goal was to insulate the Internet from regulation and that is up in the air due to efforts to implement net neutrality rules. A big ongoing question mark will be what is the future of Section 706, what authority does the FCC have, in reality, under that part of the ‘96 act."

Congress should reexamine the act, McDowell said. “More spectrum is needed and federal spectrum offers the best hope for getting large chunks, in a comprehensive way, into the hands of consumers,” he said. “It’s probably time for comprehensive revision of the act and to look at the markets through the lens of protection rather than legacy regulations based on the technologies used.”