Pai Pans Kingsbury Commitment
"The Kingsbury Commitment is not a model to be emulated,” FCC Commissioner Ajit Pai told a TechFreedom audience Thursday. The event focused on what a new Kingsbury commitment should look like, but Pai rejected the premise. The 1913 commitment -- in which AT&T agreed to divest its Western Union stock, stop buying up independent competitors, and allow interconnection on its long-distance network -- is best seen as “a cautionary tale about the dangers of regulatory capture and the folly of attempting to manage competition,” Pai said (http://bit.ly/1jmSZFw).
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"There shouldn’t be a new Kingsbury commitment,” Pai said. The agreement, although ostensibly good for competition, was really good for AT&T’s competitors, he said: AT&T and the independents divided up territory, resulting in the end of significant head-to-head competition between them. Even AT&T’s agreement to allow the independents to interconnect with its network was “problematic,” Pai said, because it “diminished the incentive for the independents to create a separate, competitive long-distance network."
The Kingsbury Commitment is best seen as an example of what not to do in an IP world, Pai said. The government shouldn’t try to manage competition, because true competition contains “unmanageable imperfections” that can lead to disruptive change benefiting consumers, Pai said. The government shouldn’t confuse the goal of protecting competitors with the objective of promoting competition, he said. “Our goal today should not be to preserve the position of any particular company in the marketplace or to help one segment of the industry gain regulatory advantages over its rivals,” Pai said. “It is not the government’s job to tilt the playing field."
It’s also important to “beware of businesses bearing commitments,” Pai said. Companies don’t make commitments “out of the goodness of their hearts,” but generally out of a desire to serve their own self-interest, he said. “Is a company trying to use a voluntary commitment that sounds good on paper to obtain a regulatory leg up on a competitor? What is couched as an attempt to serve the public interest is often in reality an attempt to further private interests and raise rivals’ costs of doing business."
Pai suggested regulating the telecom industry with something “more akin to an antitrust standard” in mind. Instead of thinking about worthy policy goals that would undermine competition, “if we infuse our decision-making with more of a sense of antitrust principles, we're going to be on much more solid ground,” he said in a Q-and-A session following his speech. Pai also criticized the structure of the Telecom Act of 1996. The different regulatory treatment of different technologies, even as convergence has become a reality, “hamstrings” the agency and makes it “more difficult for the FCC to be a 21st-century agency,” he said.
"Everything Commissioner Pai said is true, but there’s also a ‘yes, but’ to each one of these propositions,” Public Knowledge Senior Vice President Harold Feld said on a panel after Pai’s speech (http://bit.ly/1jmT8Ji). The Kingsbury Commitment set the template, both good and bad, for the evolution of the telecom network for most of the 20th century, Feld said. One part is private ownership with close government regulation had benefits, he said. What else could the government have done? he asked. Without settlement of the antitrust case, the result would have been an unchallenged AT&T monopoly in telephone and telegraph, Feld said. “Arguably the lesson of Kingsbury was the government didn’t hammer them enough” and should have had even tighter regulation of the dominant carrier, he said.
It’s hard to know what would have happened without the Kingsbury commitment, said Jeff Eisenach, managing director at Navigant Economics. It’s hard to rationalize the granting of monopoly status to telephone companies, he said. “For the time it wasn’t that bad a deal,” said Rob Atkinson, president of the Information Technology & Innovation Foundation. Other countries around the world ended up nationalizing the telecom networks, he said.
Some say values don’t change with different technology, but that notion can become problematic, said Fred Campbell, director of the Competitive Enterprise Institute’s Communications Liberty and Innovation Project. People got used to backup power over copper lines because of the technology used, he said. The “reflexive” approach would be to require telcos to provide backup batteries. It’s important to question the way things have always been done, he said: “Wait a second -- is that really the right way to go about this? Should power requirements be on them rather than on the power companies?” The industry needs to be “a little more open minded,” he said.