All Commentary
Thursday, October 1, 1998

Law and Disorder in Cyberspace

Innovation Is Our Best Hope for a Free Telecommunications Market

Solveig Singleton is director of information studies at the Cato Institute.

The subtitle of Peter Huber’s Law and Disorder in Cyberspace proudly proclaims the book’s main theme: “Abolish the FCC and Let Common Law Rule the Telecosm.” Huber proposes a free-market revolution for telephone, broadcasting, cable television, satellite, and Internet services, tempered with a few compromises. The book is well worth reading, particularly for his dramatic conclusion—that the Constitution has failed.

Huber begins by telling the story of the telephone and radio, showing how regulatory theory became a self-fulfilling prophecy of monopoly for phone markets and “scarcity” of the airwaves for broadcasters. Then cable television, satellite, and wireless telephony brought competition to shatter the old regulatory paradigms. “The broadcasters,” he says, “were taken aback, much as someone humming in the bath would be taken aback to be suddenly joined by the massed choirs of the Russian Army.” Regulators often treated new technology as an enemy of the “public interest” they were charged with preserving.

In the core of the book, Huber analyzes the problems facing regulators today—price regulation, universal service subsidies for rural and low-income consumers, and the duties of the common carriers. Finally, he considers content regulation, from copyright to privacy.

As he traces this tale of regulatory wrongs in compressed but readable fashion, Huber offers an alternative to bureaucratic control. The FCC, he argues, should be abolished. The airwaves should be sold to private owners. Interference should be a boundary issue to be resolved by common-law courts. Common-law rules should supplant regulation in every sector of the telecommunications industry. Price regulation should be abandoned. Universal service subsidies are incompatible with competition, and are futile in any case, since, Huber concludes, “telecom technology is advancing much faster than the Commission can make policy. . . . And, most important, unleashing free markets will deliver more goods to more consumers.”

But how free would the markets that Huber envisions be? Not entirely. In Huber’s view, antitrust law is part of the “common law.” Thus, any telecommunications carrier would be subject to the guiding hand of the Department of Justice. This recalls the days when the Bell companies, the local phone companies formed after the breakup of AT&T in 1984, needed a judge’s approval for new ventures—leading to delays of months or years—under the consent decree negotiated between AT&T and the DOJ. For Huber, antitrust scrutiny by courts is preferable to the FCC regulation.

Huber’s view of antitrust squarely presents the old problem (for classical liberals) of whether markets should be defined by common law or by more pure theories of exclusive property rights. Common law, especially as broadened and twisted by statute, can subvert markets, but Huber does not address this problem. The economic and philosophical case for antitrust, however, is weak.

Huber agrees that common law is “uncertain,” but believes that the cautious case-by-case proceedings of judges is preferable to bureaucratic regulation. Cable companies, whose rates were regulated in the ’70s, deregulated in 1984, reregulated in 1992, deregulated again in 1996, and now which are threatened with further regulation by the FCC, would probably agree.

In Huber’s discussion of content controls, he argues that the problem of censorship will be solved by giving audiences more technical control over what they view. He explains that a consenting audience cannot complain about content they have agreed to receive. This conclusion is too optimistic. People do complain bitterly about content they have consented to view—and legislators listen. Even the courts rationalize censorship by saying that broadcasters (for example) invade our homes with their programming, though common sense protests that turning a radio or television set on is an invitation to the broadcast content. Government power over media content will be defeated by the sheer amount of content that can now be carried point-to-point or broadcast.

This leads us to Huber’s astounding and saddening conclusion. We must, he believes, put our trust in a common-law “people’s constitution,” because the Constitution has failed. With respect to telecommunications law, he is correct. The Constitution has done little to check the FCC’s growing power and broad discretion over the years. As Huber probably understands but does not say, technology has done more, far more, to erode the power of government. The battle now is to preserve the common-law framework that permits innovation to continue. Innovation is our best hope for defeating the government’s efforts to control the telecommunications market.