Wednesday, December 10, 2008

Reforming the FCC: Etiology

In Reforming the FCC: Diagnosis, I argued that the FCC must these days supervise a much more complex and adaptive situation. This post examines the causes of this situation. I’ll consider responses in a subsequent post.

As an exercise, consider whether the following attributes apply to 21st century communications (which I’ll also refer to as ICT, for lack of a better term): the absence of a global controller; nested, hierarchical organization; dispersed interactions; never-ending novelty; constant selection among candidate solutions; and rapid adaptation to new circumstances. I believe they definitely describe the internet/web – and they are much less applicable to the silo’d world of telecommunications and analog broadcasting of only a few decades ago.

These attributes are the hallmarks of complexity and adaptive, non-linear systems. 21st Century communications is a complex adaptive social system, but the FCC was set up to manage a 20th century industry which was complicated but not complex. This is the deep reason why the institution needs to change.

The adaptive cycle

A key attribute of complex adaptive systems is that they cycle through distinct stages. I’ll describe it here using the example of ecosystems (where it was introduced) before turning to ICT.

During the growth stage, there is rapid colonization of recently disturbed areas, for example after a fire or wind storm has removed large amounts of biomass in a forest. The connectedness between organisms is low, which leads to high resilience; the loss of one species doesn’t lead to the loss of another. As the forest matures, it moves into the maturity phase of the cycle, which is dominated by the accumulation of material. The network of connections between biomass and nutrients becomes increasingly tight, and fragile; every niche in the forest is filled, and every resource is used. Organisms become much more interdependent; food chains become dense and interconnected. The maturity phase is followed by a dramatic release, triggered in a forest by fire, drought, insect pests, etc. A lot of energy is unbound, and networks are broken up. This sets the scene for the fourth phase, reorganization: opportunistic species that have been suppressed by the stable configuration of the maturity phase move in. This is a time of innovation and restructuring, laying the groundwork for a return to another growth phase.

The behavior of managed ecosystems is shaped by three properties: the accumulation of potential, the degree of connectedness between elements, and the resilience of the system in the face of shocks. The same properties apply to complex human enterprises like modern communications.

The adaptive cycle alternates periods of gradual accumulation of potential (e.g. biomass, socio-economic capital or know-how, depending on the kind of system) with sudden and often unexpected disruptions that reorganize that potential. Connectedness is high at maturity, but that is also the time when resilience to shocks is at its lowest. This cycle of aggregation followed by restructuring leads to innovation; but the release phase is often a surprise, and frequently an unpleasant one for those who were successful in the maturity phase. It is thus often experienced as a crisis.

Decision Environments

One can recognize the phases of the adaptive cycle in the internet/web, and in the larger system of communications governance. It is helpful to parse the system into four decision environments that represent different hierarchical layers:
  • Political system: local, state and federal politicians seeking to advance their causes
  • Inter-organizational system: peer agencies with partially overlapping responsibilities, such as the FCC, FTC and NTIA
  • Organizational system: an agency, in our case the FCC, acting on its “subject” layer, and other organizations, in a context provided by the political systems
  • Market/culture system: companies and citizen/consumers using technology (goods and services) to achieve their various ends, often at odds with each other and other levels of system
Each decision environment has its own adaptive cycle which interacts with the others:

  • Political: The political system went through a release phase with the 2008 election, and will spend 2009 in reorganization as players who have been out of office for eight years move into newly opened positions of power (cf. ecological niches), bringing new perspectives with them.
  • Inter-organizational: The new Administration will bring necessarily bring changes at the top of the FTC and NTIA as well, but the consequences may not be as dramatic as those at the FCC, providing some stability at this layer
  • Organizational: The FCC is due for “release” with the appointment of new Commissioners and Chairman in 2009. There is anecdotal evidence that large-scale departures of long-serving career staff in the last couple of years represent a release in itself, with the breakup of long-standing networks of expertise and the dissipation of institutional knowledge.
  • Market/culture: The productive parts of the communication system are in or near maturity. Traditional content industries like news, music publishing and TV at maturity, and some are entering release. Telecoms went through a re-organization following the Telecoms Act of 1996, and is in a growth stage, judging by the consolidation of AT&T and Verizon. Similarly, the disruptive market-oriented allocation of spectrum through auctions has been absorbed, and there are signs of maturity in the concentration of spectrum in a few hands. There are still pockets of reorganization left over from the last cycle, e.g. cable taking voice share from wire line telcos, and telcos threatening cable’s video business. For all the hype, the PC/internet/web subsystem is well along in the growth phase and nearing maturity (e.g. Microsoft, Cisco, Google). Consumer habits have adapted to internet and the web, and have become mature.

Another hallmark of complex adaptive systems – and one of the hardest challenges for a regulator – is unexpected novelty. Changes in the state of a complex system are usually unexpected, in part because many dynamics are invisible. Surprises are particularly noticeable when they lead to release.

Here are some recent reminders that the innovation that we expect from complex systems usually comes as a surprise:

  • Digital satellite radio expected to compete with traditional radio, not to be swamped by the iPod
  • Digital video as an alternative to broadcast TV came to prominence as low-quality, user-originated content on YouTube, rather than as high quality Video on Demand via cable or DSL
  • The explosion of Wi-Fi (and CDMA cellular telephony) was the consequence of esoteric decisions about unlicensed rules by the FCC in the mid 1980’s
  • The collapse of music publishing – the industry lost a third of its revenues between 1999 and 2006
  • The eclipse of commercial encyclopedias by user-produced content on Wikipedia

Many surprises come from contagion between problem domains that were previously considered distinct. XM/Sirius’s problems came at the intersection of personal computing devices with broadcasting; music publishing’s crisis arose from software and networking innovations that led to the P2P distribution of digital content; and the open source software movement informed Wikipedia.

Problem scope

A consequence of interlocking decision environments and intersecting problem domains is that the unit of analysis for the FCC is no longer a distinct, largely independent, well-defined industry associated with a particular technology and its own Title in the Communications Act.

Attention needs to shift from industries to problem domains, and away from solutions for a particular industry, technology and even institution or statute. For example, a policy imperative like lawful intercept is no longer limited to telephony, which leads to conflicts such as the competing definitions of information services in CALEA and the Communications Act. This is an example of the importance of the Big Picture principle for managing adaptive system. (I’ll review this principle and its three companions – Delegation, Flexibility and Diversity – in the next post.)

However, simply broadening some existing statute to cover all new possibilities is counter-productive. It conflicts with the other three principles, and falls victim to the fallacy that narrow-minded control of a single variable leads to a healthy outcome; in adaptive systems, it leads eventually to an even worse crisis.

In conclusion, the FCC is really facing a system problem, not an institutional one. Even if today’s procedural problems within the Commission were completely solved, it would not address the challenges of a qualitatively more complex and unpredictable regulation “subject”, that is, the market/culture system where innovation and growth takes place. Nor would it speak to the problems faced at the political level where the social acceleration of time poses existential challenges to the rule of law, and profoundly complicates the separation of powers between the legislature, executive, and judiciary market capitalism, and liberal democracy.

I’ll turn to the question of how the FCC should respond in the next post.

Further reading

The adaptive cycle:
Holling, C S, Lance H Gunderson and Donald Ludwig, “In Quest of a Theory of Adaptive Change”, Ch 1 of Gunderson, Lance H and C S Holling, Panarchy: Understanding transformations in human and natural systems, Island Press (2002). PDF

Ten Conclusions from the Resilience Project
Decision environments and the challenges individuals face in managing adaptive systems:
Westley, Frances, “The Devil in the Dynamics: Adaptive Management on the Front Line”, Ch. 13 in Gunderson, Lance H and C S Holling, Panarchy: Understanding transformations in human and natural systems, Island Press (2002)
A discussion of the intersection between system resilience, the rule of law, and Scheuerman’s notion of the social acceleration time
Cherry, Barbara A (2008), “Institutional Governance for Essential Industries Under Complexity: Providing Resilience Within the Rule of Law” CommLaw Conspectus (forthcoming)
An account of the early history of civil spread spectrum
Early Civil Spread Spectrum History, Mike Marcus web site
Collapse of the music industry
Growth of cable voice traffic

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