Why stovepipe regulation no longer works: an essay on the need for a new market-oriented communications policy.

• Author: May, Randolph J.

1. INTRODUCTION II. THE EXISTING REGULATORY FRAMEWORK: VERTICAL STOVEPIPES BASED ON TECHNO-FUNCTIONAL DISTINCTIONS III. THE PROBLEM: DIGITAL TECHNOLOGY AND ABUNDANT BANDWlTH UNDERMINE THE STOVEPIPES IV. THE CONSEQUENCES: COMPARABLE SERVICES ARE REGULATED DIFFERENTLY UNDER THE STOVEPIPE REGIME V. THE SOLUTION: A NEW MARKET-ORIENTED MARKET PARADIGM I. INTRODUCTION

   As we approach the ten year anniversary of the enactment of the Telecommunications Act of 1996 ("1996 Act"), (1) a fairly broad consensus has emerged that the existing "stovepipe" regulatory framework contained in the statute is woefully outdated and an impediment to the development of sound communications policy. (2) So, Congress is beginning to consider whether new communications legislation is needed to supplant the 1996 Act. In light of the profound technological and marketplace changes that have occurred in the last decade, especially those attributable to the accelerating proliferation of digital technologies and services, any new legislative reform effort should include an examination of the division between federal and state regulatory authority, the amalgam of subsidies known as the Universal Service system, and management of the spectrum.

   But there is nothing more important to the project to conceive a new act than the replacement of the existing statute's stovepipe regulatory model with a new framework that reflects today's digital age competitive marketplace realities. Indeed, this effort has to be at the heart of any serious effort to write what one might call a new Digital Age Communications Act.

   The purpose of this brief essay is to show why a replacement regulatory regime is needed. Its purpose is not to prescribe what the new model should look like, although I will conclude by suggesting that some form of market-oriented model should be adopted.

2. THE EXISTING REGULATORY FRAMEWORK: VERTICAL STOVEPIPES BASED ON TECHNO-FUNCTIONAL DISTINCTIONS

   Stovepipe regulation refers to the fact that (1) the act contains definitions for variously denominated communications services, such as "telecommunications," "information services," "cable service," "mobile service," "broadcasting," and "open video system," and (2) different regulations apply depending upon a service offering's classification. Hence, the stovepipes, or vertical "silos" or "smokestacks" as some prefer, refer to the distinct sets of regulations that attach to a service offering once it is classified under one definition or the other.

   The existing stovepipe regulatory framework no longer makes sense. With a bit of poetic license, you might say the fires of the digital revolution have destroyed the stovepipes. In any event, the point is that the old stovepipe paradigm, with its origins rooted in the original Communications Act enacted in 1934 ("1934 Act"), is now obsolete.

   The current regime is obsolete because the statutory definitions found in the 1996 Act that are the foundation of the existing regulatory model rest upon what I have called "techno-functional constructs." (3) These techno-functional constructs simply no longer work well in a digital world. (4) These particular techno-functional constructs are necessarily implicated in many of today's most hotly contested regulatory battles, for example, those involving the statutory definitions of "telecommunications" and "information service."

   Telecommunications is defined as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." (5) An information service is "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications ... but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service." (6) Now, these definitions are nothing if not grounded firmly in techno-functional constructions: transmitting information among points "specified by the user," (7) "without a change in form or content," "generating," "storing," "processing," "retrieving," "transforming" information, and so on. (8)

   Think for a moment about the meaning these words convey. What does it mean to say "transforming" information, or transmitting information between two points "without change in the form or content" of the information? For example, I send you an instant message, or "IM," typing a letter in one font on my keyboard. As a result of your or my terminal settings or Internet Service Provider's protocols, the letter appears on your screen in another font, or without the smiley face I attached to it. Has there been a change in form or content of the information sent or received? Has there been a transformation of the information?

   This surely is the stuff of digital age philosophers. That is why, in early 2004 in connection with thinking about the then just-over-the-horizon but sure-to-come fights regarding the new Internet telephony, or Voice over Internet Protocol ("VoIP") services, I referred to the distinctions to be suggested and argued for purposes of regulatory classification as metaphysical. Certainly, the statute's definitions are in accord with Webster's definition of metaphysics: (1) "of or relating to what is conceived as transcendent, supersensible, or transcendental;" (2) "highly abstract or abstruse;" (3) "expressions of attitudes about which rational argument is impossible." (9) In fact, so convinced was I of the importance of hastening an understanding that the current techno-functional regulatory regime rested on collapsing ground that I could not resist dashing off a brief commentary entitled, only half facetiously, The Metaphysics of VoIP. (10)

   It is...