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Law and Disorder in Cyberspace:
Abolish the FCC and Let Common Law Rule the Telecosm

by Peter W. Huber


Chapter 1.  Introduction

     Until 1996 the telecosm was governed by laws written half a century ago. The rules for the telephone industry dated back to 1887. They had been written at a time when land, air, water, and energy all seemed abundant, while the telecosm seemed small and crowded, a place of scarcity, cartel, and monopoly, one that required strict rationing and tight, central control.

     In the last decade, however, glass and silicon have amplified beyond all prior recognition our power to communicate. Engineers double the capacity of the wires and the radios about every two years, again and again and again. New technology has replaced scarcity with abundance and cartels with competition.

     The electronic web of connection that is now being woven amongst us all is a catalyst for change more powerful than Gutenberg's press or Goebbels's radio. Every constraint of the old order is crumbling. The limitless, anarchic possibilities of the telecosm contrast sharply with the limits to growth we now encounter at every turn in the physical world.

     In early 1996 Congress passed the most important piece of economic legislation of the twentieth century. The Telecommunications Act of 1996 runs some one hundred pages. The Act's ostensible purpose is to open markets to competition and deregulate them. It may eventually have that effect. The process of deregulating, however, seems to require more regulation than ever. The FCC no longer aspires to immortality through its work. Like Woody Allen, it aspires to immortality through not dying.

     It is time for fundamental change. It is time for the Federal Communications Commission to go.

The Future and the Past

     The telecosm -- the universe of communications and computers -- is expanding faster than any other technocosm has ever expanded before. It is the telephone unleashed, the personal computer connected, and the television brought down to human scale at last. Its capacity to carry information has expanded a millionfold in the last decade or two. It will expand another millionfold in our lifetime -- or perhaps a billionfold. No one really knows. The only certainty is that the change will be enormous.

     This change is characterized by a paradox: It is both fragmentation and convergence.

     The old integrated, centralized media are being broken apart. Terminals -- dumb endpoints to the network -- are giving way to "seminals" -- nodes of equal rank that can process, switch, store, and retrieve information with a power that was once lodged exclusively in the massive switches and mainframe computers housed in fortifed basements. This is the fragmentation.

     At the same time the functions of these nodes are coming together. In digital systems a bit is a bit, whether it represents a hiccup in a voice conversation, a digit in a stock quote, or a pixel of light in a rerun of I Love Lucy. This is the convergence.

     Then there is the law. Until 1996 most of telephony was viewed as a "natural monopoly." The high cost of fixed plant, the steadily declining average cost of service, and the need for all customers to interconnect with one another made monopoly seem inevitable. The broadcast industry was viewed as a natural oligopoly. It depended on inherently "scarce" airwaves and was therefore populated by a small, government-appointed elite.

     The FCC and comparable state-level commissions were established in the 1920s and 1930s to ration the scarcity and police the monopoly. The administrative structures, their statutory mandates, and the whole logic of commission control reflected the political attitudes of the New Deal. Markets didn't work; government did. Competition was wasteful; central planning was efficient. A fateful choice was made: Marketplace and common law were rejected. Central planning and the commission were embraced.

     The common law evolves from the bottom up. Private action comes first. Rules follow, when private conflicts arise and are brought to court. Commission law was to be top-down. A government corps of managers, lawyers, economists, and technicians would settle in at the FCC first. Private action would follow later, when authorized. Common law is created by the accretion of small rulings in discrete, crystallized controversies. Commission law would be published in elaborate statutes and ten-thousand-page rule books; while these were being written, the world would wait. Common law centers on contract and property, legal concepts that are themselves creations of the common law. Commission law would center on public edicts, licenses, and permits. Common law is developed and enforced largely by private litigants. Commission law would come to court only at the end of the process, when public prosecutors filed suits against private miscreants.

     Common law would have suited the American ethic of governance far better, particularly in matters so directly related to free speech. But between 1927 and 1934, when the FCC was erected, the winds of history were blowing in the opposite direction. National socialism, right-wing or left, seemed more efficient, the only workable approach to modern industrialism. Around the globe, people in power persuaded themselves that the technical complexities of broadcasting, and the natural-monopoly economics of telephony, had to be managed through centralized control. The night of totalitarian government, always said to be descending on America, came to earth only in Europe. But America was darkened by some of the same shadows. One was the FCC.

     Once in place, the FCC grew and grew. Today it has 2,200 full-time employees and a $200 million budget -- more offices, more employees, and more money than at any other time in its history. As competition increases, monopolies fade, and the supposed scarcity of spectrum is engineered into vast abundance, the Commission just gets bigger. An institution created to ration scarcity now thrives by brokering plenty. It is an Alice-in-Wonderland sort of world, in which the less reason the Queen has to exist at all, the more corpulent and powerful she becomes.

     For the next several years at least, the FCC will have the most important mission in Washington. Wireline and wireless telephony, broadcasting, cable, and significant aspects of network computing together generate some $200 billion in revenues a year. For better or worse, the FCC will profoundly influence how they all develop. And in so doing it will exert a pivotal influence over the entire infrastructure of the information age and thus the economy, culture, and society of the twenty-first century.

     The faster that power is dissipated, the better it will be for America.

Deconstructing the Telecosm

     The beginning of the end was cable television. Cable demonstrated that spectrum could be bottled, and made abundant. Cable refused to be merely "broadcaster" or merely "carrier." It threatened all the old regulatory paradigms. It was just too capacious and flexible for regulators, even with the relatively primitive technology it used at that time. Now, cable is moving into telephony. Meanwhile, by boosting the capacities of their wires, phone companies are poised to move into video. They already carry most of the Internet traffic, which is television in slow motion.

     Wireless services are changing even faster. Once dedicated largely to feeding the idiot box, wireless is now the booming center of cellular telephony, direct broadcast satellite, wireless cable, and personal communications services. Spectrum is gradually being privatized and dezoned. The new owners are using their wireless bandwidth to provide whatever services they like, to whichever customers they choose.

     The fundamentals of deregulation are now clear. The concepts are simple. They can be implemented quickly.

     First, throw open the markets. For wireless, this means privatizing the critical asset -- spectrum -- by giving it away or (better still) selling it. For wires, it means letting anyone deploy new metal and glass alongside the old. Contrary to what Congress assumed for half a century, no commission is needed to protect against "wasteful duplication," "ruinous competition," or "inefficient deployment of resources." Markets take care of that.

     Second, dezone the bandwidth. On wire or wireless, a bit is a bit. No government office should zone some bandwidth for pictures, some for voice, some for data. The market can work this out far better than any central planner.

     Won't new robber barons then buy up all the wires, corner the spectrum, jack up prices, ruin service, and impoverish consumers? With the entire industry in ferment, with engineers doubling the capacity of every medium every few years, and with the telecosm expanding at big-bang rates, these fears are utterly implausible. But in any event, the traditional antitrust laws will remain in place. For all practical purposes, antitrust law is common law. It addresses specific problems in courts, not commissions. It is decentralized, adaptable, and resilient. Sclerotic commissions just get in the way. Indeed, for decades the FCC has legitimized telecom practices that antitrust courts would never have tolerated in its absence.

     Ironically, the Commission can justify much of its current frenetic activity by blaming its predecessors. If the airwaves hadn't been nationalized in 1927, they wouldn't have to be sold off today. If the FCC hadn't spent half a century protecting telephone monopolies, it wouldn't have to dismantle them now. If the Commission hadn't spent so long separating carriage from broadcast, broadcast from cable, and cable from carriage, it wouldn't have to be desegregating those media today. If it hadn't worked so diligently to outlaw competitive entry back then, it wouldn't have to labor so hard to promote it now.

     I-broke-it-then-so-I'll-fix-it-now has a certain logic to it, even if the confession of past breaking is always much less emphatic than the promise of future fix. But the fixing somehow always seems to take as long, or longer, than the breaking. And while the Commission plans and plans for perfect competition, competition itself waits in the wings.

     The telecosm would be vastly more competitive today if Congress had just stayed out of session in 1927, in 1934, in 1984, and again in 1992 -- if Congress had never created the Federal Radio Commission, never folded it into the FCC, never extended the Commission's jurisdiction to cable, and never expanded the Commission's powers over cable further still. The 1996 legislation guarantees that the Commission will grow in size and influence for the rest of this decade while it uproots the anticompetitive vineyard planted and cultivated by its predecessors.

     But the uprooting should be done quickly. Five years is time enough; ten would be too long. And then? Then the Commission should shut its doors, once and for all, and never darken American liberty again.

Common Law for the Telecosm

     Who, then, will maintain order in all these areas when the Commission is gone? Private actors and private litigants, common-law courts, and the market. It is the Commission that must go, not the rule of law.

     We still need laws to defend the property rights of people who lay wires and build transmitters, to enforce contracts and carriage agreements, to defend the freedom to speak and to listen, and to protect copyright and privacy. Anarchy works no better in virtuality than in actuality. The question is not whether there will be rules of law, but where they will come from.

     Commissions proclaim the "public interest, convenience, and necessity." They issue general edicts. They publish rules in a massive Code of Federal Regulations. Common law, by contrast, evolves out of rulings handed down by many different judges in many different courtrooms. The good rules gain acceptance by the community at large, as people conform their conduct to rulings that make practical sense. In this kind of jurisprudence, constitutions and codes provide, at most, a broad, general mandate to develop the law by adjudication. They operate like the Bill of Rights or the Sherman Act.

     Commission law has been tried. Not just in the telecosm but in command-and-control economies around the globe. Like Communism, commission law has failed. It is rigid, slow, and --  despite all the earnest expertise of bureaucrats -- ignorant. Market forces, mediated by common law, elicit information faster and more reliably. Markets constantly probe new technology, try out new forms of supply, and assess demand with a determination, precision, and persistence that no commission can ever match. Property-centered, contract-centered, common-law markets allow people to get on with life first and litigate later, if they have to. Most of the time they don't. Rules evolve spontaneously in the marketplace and are mostly accepted by common consent. Common-law courts just keep things tidy at the edges.

     The one strength of commission law is that it reduces uncertainty all around. But only because the market must wait for the commission to invent a whole framework of law up front. That often takes years, and the framework is always rigid and inadequate. In a universe where technology transforms itself every few months, where supply and demand grow apace, where new trillion-dollar economies can emerge from thin air in a decade or so -- in such a universe, uncertainty is a sign of health and vigor. In a place like that, nothing except common law can keep up. The law must build itself the old-fashioned way, through action in the market first and reaction in the courts thereafter.

     If that suggestion seems outlandish, it is only because the FCC has been around so long that people can no longer imagine life without it. Once Henry the Eighth's licensing of printing presses had become routine, it would have seemed equally outlandish to suggest that such an unfamiliar, complicated, and important technology might be left to open markets and common-law courts. When it was created in 1887, the Interstate Commerce Commission seemed essential to proper management of railroads. But when it was abolished in early 1996, hardly anyone even noticed. We never did create a Federal Computer Commission. The computer industry has nonetheless developed interconnection rules and open systems, set reasonable prices, and delivered more hardware and more service to more people faster than any other industry in history.

     Now, in the 1990s, with the telecosm growing explosively all around us, with the cacophony of free markets already drowning out the reedy proclamations of a senescent Commission, the only outlandish proposal is that we should keep it.

     It is time to finish the job. The Commission must go.

Notes

runs some one hundred pages: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996). See Peter W. Huber, Michael Kellogg, and John Thorne, The Telecommunications Act of 1996 (1996).

$200 million budget: FCC, Fiscal Year 1996 Budget Estimates 6 (Feb. 1995). The Clinton administration proposed a budget for fiscal year 1996 of $224 million, a 62 percent increase over 1994 levels. FCC, Fiscal Year 1996 Budget Estimates 6 (Feb. 1995).


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© 1999 Peter W. Huber