Friday, February 12, 2010

When Gorillas Make Nice

Verizon and Google’s recent joint FCC filing about the values and governance of the internet largely echoes the conclusions of a Silicon Flatirons summit in August 2008 (PDF): that self-governing institutions are the best way to manage day-to-day questions of network neutrality, with the government acting as a backstop when market forces and self-regulation fail.

The filing seems to come in two parts: a statement of principles, and a sketch of how self-governance might work. I’ll largely ignore the first part, since clearly Google and Verizon found little to agree on. The three key principles are motherhood (consumer transparency and control), Google’s non-negotiable (openness) and Verizon’s (encouraging investment), respectively; it’s hard to argue with any of this, except to observe that the hard work lies in achieving them simultaneously.

The most useful resource on self-regulation in communications I’ve seen is Ofcom’s 2008 statement on “Identifying appropriate regulatory solutions: principles for analysing self- and co-regulation” (PDF). It concluded that self-regulation is most likely to work when “industry collectively has an interest in solving the issue; industry is able to establish clear objectives for a potential scheme; and the likely industry solution matches the legitimate needs of citizens and consumers.”

If their effort is to succeed, the companies will have to build an institution that represents all interests. Let's stipulate that the three main stakeholder groups are content players, network operators and consumers; Google and Verizon fall in the first two groups. On the network side, they’ll need to add the cable industry (always much more leery of network neutrality than the long-regulated telcos), and on the content side, the studios. The trickiest part will be finding a “consumer voice” with some legitimacy; everybody, not least these companies, claims to have the consumer’s best interest at heart.

The filing is predictably vague about the basis on which government would become involved, and is silent about how its proposed institution would enforce its own norms. That’s a mistake. It’s in the companies’ best interest to declare which sword they want hanging over their heads. If they don’t, there won’t be sufficient incentive to Do the Right Thing in the short term (the CEO will ask, “If I’m not breaking a law, why should I go the extra mile?”), which means that eventually a mountain of punctilious rules will be imposed on them. (It’s my understanding that this is what happened over the last decade with accessibility to the internet for those with disabilities: tech companies promised a decade ago they’d solve the problem, didn’t do all that much, and now Rep. Markey is writing detailed rules.)

It’s not clear to me whether the filing is proposing self- or co-regulation, defined by Ofcom (2008) as follows:

Self-regulation: Industry collectively administers a solution to address citizen or consumer issues, or other regulatory objectives, without formal oversight from government or regulator. There are no explicit ex ante legal backstops in relation to rules agreed by the scheme (although general obligations may still apply to providers in this area).

Co-regulation: Schemes that involve elements of self- and statutory regulation, with public authorities and industry collectively administering a solution to an identified issue. The split of responsibilities may vary, but typically government or regulators have legal backstop powers to secure desired objectives.
I think co-regulation is indicated here. Without a backstop there will not be sufficient incentive for good behavior. Politically, too, the term “self-regulation” has become anathema in Washington DC because the financial melt-down is deemed to have been due to a failure in the same. (Not that it matters, but I think this assessment is incorrect on two counts: self-regulation is only part of a much larger problem in the financial crisis; and even if it weren’t, the lessons learned are not easily transposable to communications policy. Still, it’s probably best to use another term, like shared regulation, supervised delegation or bounded autonomy.)

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