In the past, the regulation of telecommunications had been essential, partly to protect against the various forms of network monopoly, partly to protect monopolists themselves. In the transition to competition, what was left was seen as temporary, as s hrinking reciprocally with the growth of competition.

But can we really expect the future network of networks to be totally self-regulating, with no rules by government? On the one hand, the more complex and advanced any network system becomes, the less one can guide it centrally. On the other hand, diver sity does not assure social

or operational optimality when different participants pursue different strategies, and as private and public objectives diverge. Issues of free flow of information, interconnectivity, universality of service, and international asymmetry will not vanis h with competition.₁ Thus, rules and regulations will change but not entirely disappear. Liberalization does not mean libertarianism. If so, what kind of rules should we expect to provide a legal linkage to the emerging "network of networks" interconnecting presently widely disparate types of communications systems?

In the world of computers, a hierarchy of control instructions exists -- assembly language, machine language, and programming languages. When it comes to societal rules, it is useful to think in terms of a hierarchy. In telecommunications there are regulations of detail; for example, what price can be charged for a local call after 5 p.m. Then there are fundamental societal tenets such as freedom of speech or property rights. In between are the intermediate rules of public policy, usually codified by statutes of varying specificity.

The United States has been fairly successful in framing regulations of detail. Although its participants tend to castigate the American regulatory system, its positives need also be acknowledged, especially in contrast to the alternatives practiced els ewhere. Regulations in America tend to be developed and practiced openly, with opportunity for the public and for contending stakeholders to contribute their views and challenges. There are due process and rights of appeal. The independent and bi-partisan system of regulatory commissions helps to create some political insulation and policy continuity, yet without a total separation from the democratic and economic forces in society. The process is capable of adapting to changing circumstances, as the shif t in telecommunications from pro-monopoly to pro-competition regulation demonstrates.

The fundamental rules of governance have also been quite successfully drafted, a legacy from brief but creative historic periods when big-picture issues were taken seriously. But the weak link in the American hierarchy of rules, at least for telecommun ications, is the intermediate range of rules of public policy. Here, the basic documents are the creaky 1934 Communications Act; the controversial 1984 and 1994 Cable Acts; and the motley collection of state utility laws.

The basic 1934 Communications Act was written before TV was out of the labs; before microwave transmission; before satellites; before micro-electronics; before computers; before digital data communications; and before transatlantic telephone cables. So me of its rules are even older than the New Deal-era enactment date suggests, going back to 1910 Mann-Elkins Act provisions that applied to telephony principles of railroad regulation, which in turn date back to 1887 on the Federal level, and even further for some of the states.

Given the dynamic telecommunications environment, the 1934 Act is at its best when its provisions are fairly general, with details provided by the regulations of the specialized Federal Communications Commission that the Act creates. It is least effect ive where it is overly specific, almost assuring problems a few years later, because it is usually more difficult to change a law than to modify a regulation.₂

In telecommunications, Congress is at its legitimate best when it sets national rules of public policy. It has been at its procedural worst when it assumes the role of quasi-regulatory agency and writes into law numerous rules of detail. This happens w hen it distrusts an agency controlled by another party; when a transitional leadership vacuum exists at an agency; and when it is enticed to arbitrate nettlesome power struggles among stakeholders.

The Need for New Principles

But what should these principles of telecommunications be? In the past decade, policy was correctly focused on creating competitive openness by reducing barriers and permitting entry. But with the fragmentation of the monopoly telecommunications enviro nment proceeding apace, the primary policy responsibility is to assure an integration that permits the functioning of the emerging "network of networks".

On the conduit side, such integration requires interconnectivity, interoperability, privacy protection, financial compensation, and network universality. On the content side, different approaches govern the different segments of the communications syst em, such as common and private carriage. The difference in regulatory status is sustainable only as long as the underlying transmission media are kept apart. But as these grow together and interconnect, the differing rules of content status come into conf lict.

One of the 1934 Act's major problems, from tomorrow's perspective, is that it deals with separate transmission media differently. It is not transmission-path neutral. This was workable in the past, but is not where technology and applications are takin g us.₃

Let us therefore think of ourselves as a kind of electronic legislative convention for the Communications Act of 2034. What should its principles be?

1. Preamble

Congress, in order to create a more perfect union of various transmission and content media, establishes principles by which all electronic communications should be governed, with the goals of encouraging the production of information of many types, sources, and destinations; assuring the existence of multiple pathways of information; encouraging their spread across society, the economy, and the world; and enhancing social and economic well-being, technology, and education.

2. Free Flow of Information

All electronic bits are created equal, and freedom of speech is technology neutral. Government shall not prohibit the exercise of communications or abridge electronic speech, or content provided by the electronic press, or the right of the people to peaceably assemble electronically.

Freedom of speech, as applied to telecommunications, must assure a legal parity of electronic speech with traditional forms of communication. The First Amendment protects speech against governmental restrictions but not against private constraints. He re, the legal institution of common carriage established free information flows over some telecommunications networks. Common carriage is a frequently misunderstood concept. It does not mean universal service, regulated monopoly, or rate-of-return regulat ion. It means non-discriminatory conduit service by a carrier, neutral as to content, users and usage.₄

Common carriage is not only a free speech matter. The reason for common carriage generally, whether in transportation or communication, is to reduce transaction costs in the use of infrastructure, and hence to benefit its development. Information trave ls across numerous subnetworks until it reaches its destination. If each of these networks sets its own rules about which information is carried and which is not, information cannot flow easily. While it may be in the interest of every carrier to maintain full control over "its" segment, in the aggregate this would be as dysfunctional as if each commercial bank issued and used its own money rather than a common legal tender.

At present, who is a common carrier? Basically, the providers of the "public switched telecommunications network." Other carriers operate as private contract carriers, subject to their own discretion on access and use. But with competition, it is diffi cult to designate some networks as common carriers and others not. One alternative is to abolish all private carriage. Yet that would violate principles of property and freedom of association. Another alternative is to abolish all common carrier obligatio ns of non-discrimination. This may be, in the long run, the outcome of head-to-head competition between common and private carriers.₅ The ability of a private carrier to price differentiate, to select cus tomers, and to use its rival's conduits whenever it needs to, will all make it superior in head-to-head-competition to common carriage. Hence, the latter will fade away as common carriers will increasingly be permitted to enter into customer-specific cont racts and deals. Nor would hybrid solutions that try to assure the coexistence of common and private carriage be stable in a dynamic environment.

What is needed therefore is to reconcile an essentially private-carrier based communications system with the free flow of information. The way to do so is by replacing the principle of common carriage by a new principle of third-party-neutral interc onnection. A carrier can elect to be private by running its own end-to-end infrastructure, thus having full control over its content, use and access. But if it interconnects into other networks and accepts transmission traffic from them, it cannot scr een the traffic and pick some bits over other bits. This means that while a private carrier can be selective in its choice of its direct customers -- whether end-users, content providers, or carriers -- it cannot differentiate among its customers' custome rs. For example, if some content A is carried by a carrier B that is interconnected into carrier C, C cannot screen out that content, nor can any other carrier do so that is interconnected to C and to which A is being passed on. To exclude A would require tha t not a single carrier of type B would be willing to accept it, and that such a carrier would not be granted interconnection by any other carrier type C. While such containment is possible, it is not particularly likely. Such a principle is similar to arr angements in commercial paper, sales, and legal tender, where the law discourages restraints on alienation.

The common carriage goals of informational free-flow and low transaction cost are preserved by a such system of third-party neutral traffic interconnection. This principle does not require transmission on economically equal terms, as in the case of com mon carriage. But they establish the possibility of arbitrage if differentiated pricing occurs.

Competitive transmission segments need not be common carriers, but among interconnected carriers, no carrier can transmit selectively traffic passed on to it by another carrier, based on content, uses, or usage.

Where no competition exists in an essential conduit, it must be offered on a common carrier basis on at least part of the capacity. Any interconnectivity requirements and charges must be symmetrical.

3. Market Structure and Prices

In the past, control over entry and prices was the major tool of regulation. For a network of network these restrictions are obsolete.

Government shall make no regulation establishing a network privileged in terms of territory, function, or national origin. Nor shall it burden any network more than its competitors, except with compensation.

Entry by any content or conduit provider is free. Competitive conduits and all content can be priced freely. Price or profit regulated segments must be provided in a separate fashion from unregulated ones.

4. Reliability and Security

Interconnected networks affect each other negatively if one of them inadequately protects security and privacy. Market forces can play an important role, but only if users and networks have information about foreseeable dangers.

Interconnected carriers in a chain of transmission must disclose foreseeable jeopardies to privacy and security.

5. Universality of Networks

At present, redistribution operates within the public network across its customers. This system cannot be stable in a competitive environment. Instead, these subsidies that are to be maintained need be explicit, and be neutrally distributed across comp etitors.

Where Congress mandates to support some users or usages for social and economic reasons, such support must be generated and allocated explicitly, and the burden be placed neutrally on all market competitors.

Where a new service is subscribed to by a wide majority of the population at market prices, a rebuttable presumption is created to connect the remainder of the population desiring it.

6. Jurisdiction

The traditional notion of jurisdictional separation was based on a linear, spatial concept of networks. Networks were configured to minimize transmission distance. But as transmission costs decline telecommunications becomes distance-insensitive, and d efinitions of interstate, intrastate and national services become increasingly irrelevant. Networks become relational, not locational.

Information should move freely across interstate and international borders, without unreasonable burdens by state or national jurisdictions. No content or carrier from abroad should be treated in the United States more restrictively than those by do mestic providers, provided meaningful reciprocity is given.

The federal jurisdiction sets basic national telecommunications policy where it can demonstrate that national solutions are necessary. It may delegate flexibility in application and implementation to lower-level governmental bodies, which may also set policy for functions of clearly local or regional nature.

Conclusion

These principles, in the aggregate, provide a framework that provides an integration of common and private carriage, of narrow and broadband networks, and of domestic and international providers. And they do so without the prerequisite of an official " public" network.

To return, therefore, to the original question whether telecommunications will operate effectively under the guidance of an invisible-hand mechanism--the answer is, to a large extent, yes--but only on a foundation of basic rules of the road, with less of a "retail approach" of detailed legislation and more of the "wholesale approach" of policy principles. As communications media converge, the invisible hand must ultimately be connected to a body of law. Ritualistically invoking competition is not enoug h. We need a principled superstructure to the technical infrastructure.

Note 1: This is analyzed in Eli M. Noam, Beyond Liberalization: from the Network of Networks to the System of Systems, Telecommunication Policy, 286 (1994). Back.

Note 2: Thus, few of the main changes in telecommunications policy over the past two decades that in the aggregate broke the monopoly system have originated in Congressional legislation. Back.

Note 3: Partly, for that reason, the Clinton Administration proposed in 1994 a new and voluntary regulatory classification (a new "Title VII" of the Communications Act) for switched interactive digital broadband transmission. This proposal, too, is not technology neutral. Administration White Paper on Communications Act Reforms 5 (Jan. 27, 1994) (copy on file with the Federal Communications Law Journal).Back.

Note 4: The FCC's concept of the video dial tone has such a common carrier orientation. In the Clinton Administration's 1994 Title VII proposal, "open access" was substituted as a term for common carriage, and defined to perm it "anyone, including end users and information service providers..., to transmit information including voice, data, and video programming, on a non-discriminatory basis.Back.

Note 5: Eli Noam, Beyond Liberalization: The Impending Doom of Common Carriage, Telecommunications Policy, 435 (1994). Back.