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Legislation can't keep pace with technology

Industry observers say outdated regulations a drag on innovation

By Manav Tanneeru
CNN

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While technology seemingly changes almost overnight, the laws surrounding innovation move at a slower pace.

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(CNN) -- Technological innovation has always ignited a debate over how much government should be involved in its development, and it seems to be no different with broadband.

The Telecommunications Act of 1996 mandated that phone companies share their lines to allow long distance firms to enter local markets and vice versa -- the idea being that the consumer then would have more choices.

The act, signed nearly 10 years ago by President Clinton, had unintended consequences for broadband development, and industry observers contend an overhaul of the act would be an important step toward clarifying the legislative landscape.

"The '96 act, when it regulates the telephone system, imagined a world [where new telephone companies] would compete with existing telephone companies," said Douglas Lichtman, a professor who specializes in telecommunications law and policy at the University of Chicago Law School.

"It built all these regulations about shared access to existing phone networks on the theory that you'd need a new telephone company to compete with an old telephone company, so you have to share access to some part of the existing network."

Though the act did have provisions for emerging technologies, it did not fully anticipate that cable companies would one day offer voice services, phone companies would offer video services, and that there would be Web and wireless services that offer a hybrid of both.

"There are two ways the '96 act is outdated: One is that it doesn't regulate these new technologies themselves, and some of them maybe would benefit from a little guidance and regulation," Lichtman said.

"But two, it regulates the phone system kind of ignoring these new technologies, and even the old technology would be regulated differently once we understood these new technologies would come into the fore."

The 1996 act, though it deals primarily with the phone industry, allowed for a framework to address nascent technologies, Lichtman said.

Guided in part by the 1996 act, the Federal Communications Commission now classifies broadband into two categories: an unregulated information service or a regulated telecommunications service.

The former is generally applied to broadband services offered by cable companies, while the latter is applied to DSL services offered by phone companies.

The distinction is important on several levels. Because of the 1996 act, the phone companies had to share their wires, whereas the cable services did not. The rates for services that are described as "telecommunications" are regulated, whereas those classified as "information" are not.

"The key there is that cable didn't have to worry about making an investment and sharing it with their competitors. We've been subject to that kind of framework since the '96 act was implemented," said Gregg Morton, vice president of legislative affairs for BellSouth Corp.

The FCC earlier this year issued an order placing telephone and cable companies offering broadband services under the same banner.

"Probably the biggest legacy of the act is litigation," Morton said. "We have had challenge after challenge after challenge to the rules that implemented the act, and we still don't have final rules in place, and that brings uncertainty, and uncertainty is not good for any industry, including the telecom industry."

U.S. lags behind other countries

Due to that uncertainty, critics say, the United States now lags behind countries such as South Korea and Japan in Internet and wireless development, where it once was the leader.

"Today, most U.S. homes can access only 'basic' broadband, among the slowest, most expensive and least reliable in the developed world, and the United States has fallen even further behind in mobile phone-based Internet access," Thomas Bleha wrote in a May/June 2005 article in Foreign Affairs magazine.

Industry observers say there are reasons why those countries have surged ahead, primarily government subsidization, the way the population has settled in those countries, and large segments of residents who have bypassed traditional telephony services in favor of broadband access, spurring the market.

With the U.S. market lagging behind, some municipalities such as Philadelphia, Pennsylvania, have acted on their own.

Philadelphia has picked Earthlink Inc. to build a wireless network that will cover 135 miles. The city aims to offer free wireless access in public parks and spaces as part of the plan.

In Utah, 14 cities, frustrated by the lack of access, have come together to create the Utah Telecommunication Open Infrastructure Agency, or UTOPIA, a project working on constructing the infrastructure needed to offer broadband services in those localities. The project began in 2002, and construction started in six of the cities in August 2004.

"By January of next year, we should have 40,000 homes and businesses that should get the service in six of those 14 cities, and we hope to continuously construct over the next three years," said Paul Morris, executive director of UTOPIA.

Municipalities, however, face several obstacles in trying to offer broadband services, including opposition from state legislatures. Some 20 states have either passed or are considering legislation barring municipalities from planning broadband initiatives.

The legislatures may be worried the municipalities could stifle market competition, or that they may be overwhelmed by the demands of sustaining the services, said Lichtman, the law professor.

The industry is also wary of municipalities taking the lead, arguing that offering such access is a complicated matter.

"There are a number of examples of municipalities getting into the telecommunications business and failing miserably," BellSouth's Morton said. "It's been a waste of taxpayer money, and it requires a certain level of expertise that municipalities often don't have."

But UTOPIA's Morris disagrees.

"Municipalities are run by elected officials just like congressmen are elected, and they can make those decisions, and if the citizens are unhappy they can boot them out. So, why would you pre-empt the whole country, when you've got these individual needs for cities that are not getting served adequately?" Morris argued, citing that the Utah Legislature has approved the public-private project he heads.

Solutions for broadband development

Several government-related solutions have been proposed to help in pushing broadband development.

Some observers suggest a new communications act ought to be enacted, especially to change the way the FCC regulates the market.

The FCC ought to become more like the Federal Trade Commission and only intervene when the consumer is threatened by the market, argued Randolph J. May in a July 2005 article for CNET.

"Under the new competition-based standard, the FCC's focus would shift to protecting consumers, rather than competitors, which too often in the past has been its preoccupation," wrote May of the Progress and Freedom Foundation, a self-described "market-oriented" think tank.

Some critics say changing the way the United States allocates its digital spectrum may help development, especially the wireless sector.

"There's a limited amount of stuff that we can put into the air. Right now, we've given a lot of the space to normal television signals," Lichtman said.

"We've given more recently to ABC, CBS and NBC because of high-definition television. So, right now, more than ever before, we've got tons of spectrum locked up in television, and it is right to say that if we didn't have that for television, we might have it for other things, and if it were available for other things, those things might take off faster."

Others have suggested the government should become more active in pushing broadband innovation.

"To move forward, the [Bush] administration should quickly take two steps. First, it should explain clearly the profound ways in which broadband will change work, learning and leisure in the United States," Bleha wrote. "Second, the administration should push the President's Information Technology Advisory Committee (PITAC), a group of private-sector IT leaders and academics, to play a key leadership role in advancing broadband deployment."

But Robert Crandall, an economist at the Brookings Institution, a nonpartisan think tank, advocates a more laissez-faire approach.

"The technology is too uncertain to figure out what to invest in, and it's unclear which companies and competitors should receive government subsidies," he said.

The debate over how much government should be involved in developing the infrastructure for broadband services is not likely to end any time soon.

"The Internet, I think you could argue, is the greatest free market success in the history of man," Morton said. "That has all evolved without one ounce of government regulation, and it is a tremendous success, and it works. We think that's a pretty good model to follow when you look at continuing to get broadband deployed initially, and getting greater speeds deployed after that."

Lichtman added, "It depends on where you put your confidence. Is there a reason you think the market will do a bad job, either under-investing or over-investing in these cases? On the other side, do you have any reason to think the government is going to be good at figuring out how much to invest in a new technology?"

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