September 20th, 2018
Digital transformation and the digital economy are high on the agenda of policy-makers worldwide. Seeking to secure global leadership in future growth industries, such as 5G wireless communications, artificial intelligence, and the Internet of Things (IoT), an increasing number of countries are reassessing prevailing communications laws and policies. The urgency of the discussion is amplified by recent experiences in the digital economy that reveal some of its fundamental flaws and shortcomings. Increasing concerns about fake news, data security, privacy, winner-takes all effects, and the tilting of markets in an algorithm-driven economy in favor of large technology companies all invite intense controversy. Contrary to the trend toward more open market and less rigid and detailed regulation that permeated recent decades, responses to these present challenges are more varied and rebalance the roles or market players, government, and non-market players in a fresh way.
For example, in emerging 5G markets, three principal models are emerging: entrepreneurship (e.g., United States), regulated competition (e.g., Europe, with national variations), and state-driven (e.g., China, South Korea). Each model has strengths and weaknesses. Much of what we know suggests that the entrepreneurship model is best suited to explore the vast innovation space offered by 5G and to accelerate the rollout of network infrastructure. However, some Internet-based innovations are facilitated by non-discrimination and network openness. One challenge therefore will be to safeguard these goals in ways that do not quench entrepreneurship. Another is to overcome the cost of having to obtain rights of way from a multitude of local bodies with divergent interests that may delay network investment. Pending U.S. initiatives such as the STREAMLINE Small Cell Deployment Act and a pending FCC Order may mitigate this issue if passed.
As important as these issues are, the unfolding digital transformation requires more fundamental reassessment and redesign of information and communication technology policy. Three particularly important areas in the United States are a revision of communications law, the gradual introduction of new regulatory practices that are better aligned with the digital ecosystem, and a reconsideration of which complementary policies will be required to fully harness the potential benefits of advanced information and communication technologies. None of thee will be easy to tackle and in the current environment of partisan politics it will be difficult to find feasible and sustainable solutions. Even under the best policy conditions, it is not feasible, to achieve such broad reforms in a big sweep (and it might be risky to do so). However, it will be important to work in a piecemeal fashion toward such a framework.
It is most important to adopt a coherent policy model that is aligned with the overarching goals of a country and with the economic and technological conditions of the sector. The new value system is built around multi-sided platform markets and several types of complementary innovation processes. Modular and architectural innovations thrive under different conditions and the legal and regulatory framework needs to be sufficiently elastic to allow both. In this interdependent value systems, almost any policy intervention has direct and indirect effects not just on the regulated players but also on non-regulated players. Unless policies are carefully designed, these indirect effects may undermine achieving the envisioned policy goal. Recent examples of poorly designed policies with potentially far-reaching economic consequences are unbundling rules in Europe that delayed upgrades to next-generation network infrastructure or present net neutrality regulations that are either too stringent (Europe) or too lax (United States) to support the diversity of innovation characteristic of the Internet.
At the legislative level, it would be desirable to overhaul the Communications Act of 1934 as amended. Value generation in the in the new digital ecosystem requires a new balance between securing non-discrimination and interoperability and the ability to differentiate network qualities of service and cooperate across network and application layers. This will support different types of innovation to interact in a synergistic, virtuous cycle that allows orchestrating the different elements of complementary innovations in areas such as logistics, health, and energy. Preserving the desirable goals of non-discrimination in a framework requires a new legislative model that avoids the complications of traditional common carrier regulation. It would allow network operators to offer innovative and differentiated services while safeguarding complementary innovations that benefit from an interoperable, open and transparent network infrastructure. The current choice between Title I and Title II regulation does not offer an effective set of options to achieve these goals and the effectiveness of the Federal Trade Commission (FTC) and antitrust policy is questionable and largely untested in digital markets.
The past three decades of reforms have generated clear evidence that public policy provides an important complement to private sector activity. Markets do not exist in a vacuum but need to be supported by formal and non-formal institutional arrangements to fully unfold their considerable benefits. In addition to updating the legal and regulatory framework of communication markets, recent observations also show that the public and non-profit sectors have important roles that often cannot be accomplished by market players but enhance the working of markets. A primary example is basic research organized with the goal to address some of humanities biggest challenges, all of which will require significant contributions from advanced communications technology (as, for example, evidenced in the 17 Sustainable Development Goals). During recent years, the United States has only demonstrated lukewarm and stagnant commitment to investing into basic research and higher funding would be desirable.
A second area are innovations with high public good benefits that cannot easily be monetized and, therefore, will not be pursued by market players. This may include extending infrastructures to disadvantaged areas, it may involve community informatics services that build stronger civic engagement, or it will include educational measure across the lifespan to allow inclusive digital participation. Non-profit organizations also play an important role in advancing these objectives. Policy needs to create an environment that deliberately supports, rather than quenches, institutional and organizational diversity in the provision of ICT services. Rather than prohibiting the involvement of such players (e.g., of municipalities in the provision of broadband access), policy would be well advised to allow for-profit, non-profit, and public sector players to co-exist. This will allow harnessing the benefits of advanced communications more fully than reliance on any single one of them. Alfred E. Kahn, one of the great visionaries of regulation, clearly recognized the need to foster such institutional diversity and it may be time to heed this advice.