Comm'r McDowell's Speech on Possible ITU Regulation of Internet
THE HONORABLE ROBERT M. MCDOWELL
FEDERAL COMMUNICATIONS COMMISSION
ASSOCIAZIONE EGO AND PUNTOIT
AULA DEI GRUPPI PARLAMENTARI
JUNE 28, 2012[AS PREPARED FOR DELIVERY]
The Siren Call of “Please Regulate My Rival”:
A Recipe for Regulatory Failure
Thank you, Gildo, for that kind introduction. It is a great pleasure to be back in
Rome, and an honor to be speaking before this impressive gathering of policy and
Although planned months ago, both the location and timing of this conference could
not have been more opportune. The Internet’s fate is, yet once again, at a crossroads. As
193 countries convene in Dubai later this year to renegotiate the International
Telecommunications Regulations (ITRs), Europe’s view of new Internet regulations
proposed by others will be pivotal to the outcome of this important debate. Furthermore,
Italy has a crucial role to play in shaping Europe’s position on these matters as we head
towards the World Conference on International Telecommunications (WCIT) treaty
negotiation this coming December.
As always, but especially with the world economy in such a weakened and
precarious position, governments should resist the temptation to regulate unnecessarily,
get out of the way of the Internet and allow it to continue to spread prosperity and
freedom across the globe. Internet connectivity, especially through mobile devices, is
improving the human condition like no other innovation in world history.
Take for example the profound effect the mobile Internet has had on the lives of Ali
Morrison and Isaac Assan.1 Ali and Isaac operate a small pineapple farm in Central
Ghana. In the past, all too often they had no choice but to sell their pineapples well
below market value due to a lack of accurate pricing information. Today, however,
through a new mobile application, Ali, Isaac and countless farmers just like them, can
instantly find the prevailing value of pineapples in surrounding markets and price their
product accordingly. What was previously impossible to accomplish is now easy and
quick, not to mention incredibly empowering. Earning more money from this new Web-
powered knowledge enables Ali and Isaac to own more property and increase their
1 See Ken Banks, In African Agriculture, Information is Power, NAT’L GEOGRAPHIC (Sept. 5, 2011),
standard of living – all while raising their expectations in both an economic and political
sense. In short, the mobile Internet empowers the sovereignty of the individual while
growing economies and fundamentally improving lives around the world.
Globally, upwards of 500,000 people become first-time Internet users each day
precisely because the Internet has migrated further away from government control since
its inception.2 As governmental barriers around the Internet melted away in the mid
1990s, Internet usage skyrocketed – from only 16 million worldwide users in 1995 to
over 2.3 billion today.3 In short, the absence of top-down government control of the
Internet sparked a powerful explosion of entrepreneurial brilliance which has not abated.
That could soon change, however.
As we meet here today, some Member States of the International
Telecommunication Union (ITU), as well as a few independent groups, are advocating
for expanded intergovernmental powers over the Internet.4 Some proposals are
seemingly small or innocuous while others are conspicuously large and radical. We
should be especially aware of incremental changes to the ITRs. With the potential to
grow larger quite rapidly, proposed ITR amendments that appear tiny today can be the
most insidious and lethal to the spread of prosperity and freedom tomorrow.
The proposals I am referring to are quite real, explicit and concrete. They are not
imagined. Nor are they the product of caricatures or distortion, as a few pro-regulation
proponents and some ITU leaders have alleged. The proposals speak for themselves. Or
as they may have said here in Ancient Rome, “Res ipsa loquitur.” So in the absence of
rhetoric and hyperbole, please allow me to briefly outline a few of them.
First, let us start with then-Russian Prime Minister Vladimir Putin’s proposal during
a meeting with the Secretary General of the ITU almost exactly one year ago. Last June,
he proclaimed that Member States should establish “international control over the
Internet using the monitoring and supervisory capabilities of the International
2 See Internet Growth Statistics, INTERNET WORLD STATS,
http://www.internetworldstats.com/emarketing.htm (last visited June 19, 2012). The estimated number of
new users per day, as calculated by determining the change in the number of Internet users over a year
divided by 365, has varied greatly over the last 5 years. Between March 2011 and March 2012, the
estimated number of new online users was 506,849 per day. Over the past 5 years, however, the average
daily increase in online users was approximately 630,685. Id.
4 See, e.g., Proposals for Revision of the International Telecommunication Regulations, ITU Member
States Belonging to the Regional Commonwealth in the Field of Communications (RCC), at 6 (Apr. 17,
2012) (“Member States shall ensure that administrations/operating agencies cooperate within the
framework of these Regulations to provide, by mutual agreement, a wide range of international
telecommunication services of any type, including . . . services for carrying Internet traffic and data
Telecommunication Union.”5 Again, these words speak for themselves and should be
True to Mr. Putin’s word, the Russian Federation subsequently put forth formal
proposals that would expand the jurisdiction of the ITU into the Internet sphere simply by
changing the definition of “telecommunications” to include “processing” and “data.”6 At
first glance, this proposed change seems small, but it is tectonic in scope. The
submission by the Arab States is almost identical, by the way.7
The Russian proposal would also explicitly give the ITU jurisdiction over IP
addresses, one of the most important components of the inner workings of the Net.8
Control of IP addresses is control of the Internet itself.
Although the Russian Federation claims to support “unrestricted use” of the Internet,
its submission calls for making a number of revealing exceptions, such as “in cases where
international telecommunication services are used for the purpose of interfering in the
internal affairs or undermining the sovereignty, national security, territorial integrity and
public safety of other States, or to divulge information of a sensitive nature.”9 In short,
the exceptions created by the Russian Federation’s proposal would allow for unlimited
intergovernmental control over the Internet’s affairs, in keeping with Mr. Putin’s vision.
5 Vladimir Putin, Prime Minister of the Russian Federation, Working Day, Prime Minister Vladimir Putin
meets with Secretary General of the International Telecommunication Union Hamadoun Touré, GOV’T OF
THE RUSSIAN FED’N (June 15, 2011), http://premier.gov.ru/eng/events/news/15601/.
6 Proposed Revisions to Individual Articles of the ITRs, Russian Federation, CWG-WCIT12 Contribution
95, at 2 (Apr. 13, 2012), http://www.itu.int/md/T09-CWG.WCIT12-C-0095/en (“Russian Federation
Contribution 95”) (defining telecommunication as “[a]ny transmission, emission, processing or reception of
signs, signals, writing, images and sounds or data of any nature by wire, radio, optical or other
7 Proposed Revisions, Arab States, CWG-WCIT12 Contribution 67, at 3 (Feb. 1, 2012),
http://www.itu.int/md/T09-CWG.WCIT12-C-0067/en (defining telecommunication as “[a]ny transmission,
emission, reception or processing of signs, signals, writing, images and sounds or intelligence of any nature
by wire, radio, optical or other electromagnetic system”); Proposal on Third Draft of the Future ITRs, Arab
States, CWG-WCIT12 Contribution 103, at 5 (June 4, 2012), http://www.itu.int/md/T09-CWG.WCIT12-C-
0103/en (“Arab States Contribution 103”). Further, Iran argues that the current definition already includes
the Internet. Contribution from Iran, The Islamic Republic of Iran, CWG-WCIT12 Contribution 48,
Attachment 2 (Sept. 12, 2011), http://www.itu.int/md/T09-CWG.WCIT12-C-0048/en.
8 Further Directions for Revision of the ITRs, Russian Federation, CWG-WCIT12 Contribution 40, at 3
(2011), http://www.itu.int/md/T09-CWG.WCIT12-C-0040/en (“To oblige ITU to allocate/distribute some
part of IPv6 addresses (as same way/principle as for telephone numbering, simultaneously existing of many
operators/numbers distributors inside unified numbers space for both fixed and mobile phone services) and
determination of necessary requirements.”). See also Arab States Contribution 103 at 9 (“Member States
shall, if they so elect, be able to control all naming, numbering, addressing and identification resources
used within their territories for international telecommunications/ICTs.”).
9 Russian Federation Contribution 95 at 3; Comments on Document CWG-WCIT12/TD-64, Russian
Federation, CWG-WCIT12 Contribution 112, at 54 (June 6, 2011), http://www.itu.int/md/T09-
Similarly, Egypt’s submission calls for unprecedented economic regulation of Internet
traffic through the ITU.10
Even though a few proposals have been offered in fora other than the ITU, each
gives us a sense of where some ITU Member States would like to go with
intergovernmental Internet regulation. For instance, proposals made directly to the U.N.
General Assembly by China, Russia, Tajikistan and Uzbekistan call for
intergovernmental regulation of Internet content and applications.11 And, last year, India
introduced a resolution at the U.N. calling for a new U.N. body to oversee the Internet.12
In short, whether submitted to the U.N. or the ITU, these proposals are about much
more than conventional Internet governance. Their scope dwarfs the controversies
regarding ICANN and domain names. Without exception, each proposal would radically
restructure the Internet ecosystem for the worse. They are before us in black and white.
So please look with great skepticism on vehement claims that no proposals to regulate the
Internet are before the ITU or the U.N.13
10 Africa Region’s Proposals to the Review of the ITRs, Africa Region, CWG-WCIT12 Contribution 116, at
20 (2012), http://www.itu.int/md/T09-CWG.WCIT12-C-0116/en (“Member States shall [take measures to]
ensure that fair compensation is received for carried traffic (e.g. interconnection or termination).”). See
also Proposal on International Telecommunications Connectivity (Based on Contribution CWG-
WCIT12/C-84), Paraguay, CWG-WCIT12 Contribution 113, at 5 (June 6, 2012),
http://www.itu.int/md/T09-CWG.WCIT12-C-0113/en (proposing that parties that enter into Internet
connection agreements “take into account the possible need for compensation . . . for the value of elements
such as traffic flow, number of routes, and cost of international transmission, and the possible application
of network externalities, amongst others.”); Arab States Contribution 103 at 9 (proposing an amendment
containing language similar to Paraguay’s proposal).
11 Letter dated 12 September 2011 from the Permanent Representatives of China, the Russian Federation,
Tajikistan, and Uzbekistan to the United Nations addressed to the Secretary-General, Item 93 of the
provisional agenda - Developments in the field of information and telecommunications in the context of
international security, 66th Session of the United Nations General Assembly, Annex (Sep. 14, 2011),
12 Dushyant Singh, Member of Parliament, Statement on Agenda Item 16 - Information and
Communication Technologies for Development, 66th Session of the United Nations General Assembly
(Oct. 26, 2011), http://www.un.int/india/2011/ind1945.pdf (proposing “the establishment of a new
institutional mechanism in the United Nations for global internet-related policies.”). See also Commission
on Science and Technology for Development, Summary Report of the Chair: Briefing on the Open
Consultation on Enhanced Cooperation on Public Policy Issues Related to the Internet (May 18, 2012),
http://unctad.org/meetings/en/SessionalDocuments/ecn162012crp2_en.pdf (“Some delegates called for the
establishment of an intergovernmental mechanism for enhanced cooperation within the United Nations
structure, which would enable governments, on an equal footing, to carry out their roles and responsibilities
in international public policy issues pertaining to the Internet.”).
13 See, e.g., Hamadoun I. Touré, Secretary-General, International Telecommunication Union, Opening
Remarks to Council Working Group – WCIT-12 (June 20, 2012),
http://www.itu.int/en/osg/speeches/Pages/2012-06-20.aspx; Hamadoun I. Touré, Secretary-General,
International Telecommunication Union, Remarks to ITU Staff on World Conference on International
Telecommunications (WCIT-12) (June 6, 2012), http://www.itu.int/en/osg/speeches/Pages/2012-06-06-
2.aspx; Hamadoun I. Touré, Secretary-General, International Telecommunication Union, Opening
Welcome Speech at the World Telecommunication Policy Forum (WTPF), Meeting of the Informal
Experts Group (IEG) (June 5, 2012), http://www.itu.int/en/osg/speeches/Pages/2012-06-05.aspx; Eric
Pfanner, Debunking Rumors of an Internet Takeover, N.Y. TIMES (June 11, 2012),
In addition to the pro-regulation proposals emanating from Member States, a few
non-governmental groups have put forth their own ideas for expanded Net regulation as
well. This is not entirely surprising. I have learned during my six years on the U.S.
Federal Communications Commission that the most common request we receive from
industry is, “Please regulate my rival.” Essentially, this request translates into, “My rival
is running too fast, and I want government to slow him or her down to my level.”
Industry players that have long operated under legacy regulations are the most susceptible
to this affliction.
Perhaps the same could be said of the recent proposal by the European
Telecommunications Network Operators’ Association (ETNO).14 ETNO would like IP
interconnection agreements to be brought under the ITRs for the first time with a new
“sending party network pays” construct.15 To be effective, the ETNO proposal would
have to require an international dispute resolution forum with enforcement powers as
well as an intrusive new mechanism for recording Internet traffic flows on the basis of
the value of traffic delivery, presumably determined by the ITU. Such expanded
“monitoring capabilities” for the ITU fit perfectly into Mr. Putin’s vision of the Internet
of the future.
In short, the ETNO proposal would upend the economics of the Internet by replacing
market forces with international regulations that would create tremendous uncertainty,
increase costs for all market players, especially consumers, and ultimately undermine the
rapid proliferation of Internet connectivity throughout the globe. Disproportionately
harmed by this upheaval would be the developing world. The upward trajectory of living
standards for billions of people like Ali and Isaac, the pineapple farmers from Ghana,
could be put in jeopardy too.
Furthermore, I can’t imagine why network operators would consciously surrender
their autonomy to negotiate commercial agreements to an international regulator – unless,
of course, they suffer from the “please regulate my rival” malady of an industry that has
been regulated too much and for too long. History is replete with such scenarios, and the
desire for more regulation for competitors always ends badly for the incumbent regulated
industry in the form of unintended and harmful consequences.
Take, for example, the American railroads of the early 20th century. Having been
heavily regulated since the 1880s,16 the railroads feared competition from a new and
14 Revisions of the International Telecommunications Regulations – Proposals for High Level Principles to
be Introduced in the ITRs, ETNO, CWG-WCIT12 Contribution 109, at 3 (2012),
15 Id. at 2.
16 Interstate Commerce Act of 1887, Pub. L. No. 49-104, 24 Stat. 379 (1887). I thank Clifford Winston, a
senior fellow at the Brookings Institution’s Economic Studies program, for lending his expertise with
transportation and industrial organization research and Dominique Lazanski, the Head of Digital Policy at
nimble competitor, the trucking industry. Anxious not to let a less-regulated upstart eat
their lunch, instead of convincing the U.S. Congress to deregulate rail to be on an even
footing with trucking, the railroads asked lawmakers to regulate their rivals. The New
Deal Congress, which was enamored with regulation (thus likely prolonging the Great
Depression, but that’s for another speech) was more than happy to oblige in 1935.17
What was the unintended consequence of regulating rivals in the transportation
context? With transportation rates cemented at artificially high levels by the regulator,
manufacturers and distributors of goods that required shipping found it cheaper to deploy
their own trucking fleets.18 Trucks that operated privately and not as common carriers
were exempt from federal economic regulation. Of course, investment and revenue
flowed to the least regulated option, private trucking. Congress, the regulators and the
railroads didn’t foresee this entirely predictable consequence. As a result, the regulated
railroads lost market share and income for decades. Rail’s share of the surface freight
market had fallen from 65 percent at the end of World War II to only 35 percent by the
Finally, by the mid 1970s, railroad and trucking executives alike saw the light and
pled with Congress to deregulate them to give them the freedom to invest and compete in
an unfettered market. After enactment of deregulatory laws in 1976 and 1980,20 the rail
and trucking industries respectively began to grow and prosper. Consumers were
immediate beneficiaries of deregulation with rates falling by 30 percent21 and transit time
reduced by at least 20 percent by 1988.22
But what about profitability? Don’t falling prices equate to reduced profits? Isn’t
jumping from the certainty of price regulation into the unknown chaos of an unregulated
competitive market sure to put downward pressure on net revenue? Aren’t industries,
and even individual companies, really better off in the shelter of command and control
regulatory regimes? Doesn’t investment in infrastructure increase under the certainty of
rate regulation? The answer to all of these questions is: no.
the TaxPayers’ Alliance, for her assistance with research regarding the regulation of the European postal
system in the 17th century. I also would like to thank Tyler Cox, Emilie de Lozier, Emanuel Gawrieh and
Sarah Leggin for their research contributions.
17 Motor Carrier Act of 1935, Pub. L. No. 74-255, 49 Stat. 543 (1935).
18 CLIFFORD WINSTON ET AL., THE ECONOMIC EFFECTS OF SURFACE FREIGHT DEREGULATION 4 (1990).
19 Robert E. Gallamore, Regulation and Innovation: Lessons from the American Railroad Industry in
ESSAYS IN TRANSPORTATION ECONOMICS AND POLICY: A HANDBOOK IN HONOR OF JOHN R. MEYER 493,
493 (José Gómez-Ibáñez, William B. Tye & Clifford Winston, eds., 1999).
20 Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31 (1976);
Motor Carrier Act of 1980, Pub. L. No. 96-296, 94 Stat. 793 (1980); Staggers Rail Act of 1980, Pub. L. No.
96-448, 94 Stat. 1895 (1980).
21 Clifford Winston, The Success of the Staggers Rail Act of 1980 8-9 (AEI-Brookings Joint Center, Oct.
2005), available at http://www.brookings.edu/research/papers/2005/10/railact-winston.
22 Clifford Winston, U.S. Industry Adjustment to Economic Deregulation, 12 J. ECON. PERSP. 89, 99 (1998).
History teaches us that profitability and investment tend to increase once the weight
of regulation is lifted from the collective chest of industry. For example, rail’s
profitability gained steam after deregulation with its return on investment (ROI) nearly
doubling.23 Better yet, return on equity (ROE), or profit earned on shareholder
investment, more than tripled in the early years after deregulation.24 And investment was
stoked by deregulation – railroads invested U.S. $480 billion into network upgrades, or
40 percent of revenue, between 1980 and 2010.25 All of this was achieved even though
the U.S. railroad industry’s rates are half of Europe’s and are the lowest in the world.26
My use of the railroad and trucking example isn’t a matter of cherry-picking the
most useful scenarios. Deregulation in other networked industries benefited all involved
as well. For instance, American airline deregulation that encouraged competition and
allowed pricing freedom produced similar results: fares declined, revenues increased,
consumers enjoyed more choices and were able to fly more.27 Similarly, after the partial
deregulation of the American telecom sector in 1996, markets witnessed lower prices,
increased investment, more powerful innovation, and skyrocketing consumer adoption of
new offerings.28 Success has been especially robust in the American wireless sector
because it has been lightly regulated since its inception.29
23 Railroad’s ROI averaged 4.9 percent from 1971 through 1980, compared with a 2.5 percent average
between 1970 and 1979. U.S. GEN. ACCOUNTING OFFICE, GAO/RCED-90-80, RAILROAD REGULATION:
ECONOMIC AND FINANCIAL IMPACTS OF THE STAGGERS RAIL ACT OF 1980 34 (1990).
24 Railroad’s ROE, which averaged only 2.3 percent in the 1970s, climbed to 9 percent between 1971 and
1980. Id. at 35.
25 ASS’N OF AM. RAILROADS, RAIL EARNINGS TODAY PAY FOR CAPACITY AND SERVICE IMPROVEMENTS
FOR TOMORROW 1 (2011), available at http://www.aar.org/~/media/aar/Background-Papers/Rail-Earnings-
26 ASS’N OF AM. RAILROADS, THE COST EFFECTIVENESS OF AMERICA’S FREIGHT RAILROADS 2 (2012),
available at http://www.aar.org/~/media/aar/Background-Papers/The-Cost-Effectiveness-of-Freight.ashx.
27 From 1976 to 1982 alone, real fares fell by more than 9 percent. Compare U.S. BUREAU OF THE CENSUS,
STATISTICAL ABSTRACT OF THE UNITED STATES 1978 671, table 1134 (99th ed. 1978) with U.S. BUREAU OF
THE CENSUS, STATISTICAL ABSTRACT OF THE UNITED STATES 1984 633, table 1099 (104th ed. 1983). These
figures are even more impressive considering fuel costs increased by 88 percent over the same period. Id. at
636, table 1103. Moreover, passenger traffic and, with it, industry revenues, have expanded. Specifically,
total operating revenues grew from 37,629 million in 1975 to 37,629 million in 1985. See U,S. DEP’T OF
TRANSP., RESEARCH & INNOVATIVE TECH. ADMIN., NATIONAL TRANSPORTATION STATISTICS table 3-22
(2011), available at http://www.bts.gov/publications/national_transportation _statistics/pdf/entire.pdf (total
operating revenues in 1975 to 37,629 million in 1985. Additionally, the number of air carriers, both
passenger and freight, approximately tripled between 1976 and 1983. Thomas Gale Moore, U.S. Airline
Deregulation: Its Effects on Passengers, Capital, and Labor, 29 J.L. & ECON. 1, 5 (1986) (citing thirty-three
certificated carriers in 1976, compared with ninety-eight in 1982). Many new entrants have made their
presence known by operating as “low-cost” or “independent,” like Southwest Airlines or ValuJet (now
known as AirTran). See Winston, supra note 22, at 93-94.
28 For instance, local service providers doubled their revenues the year after the Telecommunications Act of
1996 (“1996 Act”), Pub. L. No. 104-104, 110 Stat. 56 (1996), was passed. See INDUSTRY ANALYSIS
DIVISION, COMMON CARRIER BUREAU, FEDERAL COMMUNICATIONS COMMISSION, LOCAL COMPETITION
(Dec. 1998), https://transition.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-
State_Link/IAD/lcomp98.pdf (“Local Competition Report”). And, between 1996 and 2001, investment by
telecommunications firms skyrocketed and capital stock increased at a rate that far exceeded the period
Examples of deregulatory phenomena are by no means limited to American success
stories. Europe has also benefited from deregulation. Since the introduction of
competition, the European freight rail market has enjoyed healthier growth and
investment just as the European postal system did in the 17th century!30
before the passage of the 1996 Act. See id. at 3-4; Lawrence J. Spiwack, The Truth About
Telecommunications Investment After the Telecommunications Act of 1996, PHOENIX CENTER POLICY
BULLETIN NO. 4, at 3-4 (2003), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=503364.
Additionally, the 1996 Act resulted in lowered prices and increased innovation. See, e.g.,Reed Hundt, Ten
Years Under the 1996 Telecommunications Act, 58 FED. COMM. L.J. 399, 402 (2006); The
Telecommunications Act of 1996, NTIA (Feb. 4, 1999), available at
ECONOMIC REPORT OF THE PRESIDENT, ANNUAL REPORT OF THE COUNCIL OF ECONOMIC ADVISERS, U.S.
Gov’t Printing Office (1999), available at http://www.gpo.gov/fdsys/pkg/ERP-1999/pdf/ERP-1999.pdf).
29 Today, the U.S. wireless industry directly or indirectly provides more than 2.4 million jobs and its
economic contribution has grown more than five times faster than the overall economy (16 percent versus 3
percent). See CTIA-THE WIRELESS ASSOC., SEMI-ANNUAL 2011 TOP-LINE SURVEY RESULTS 10 (2012),
http://files.ctia.org/pdf/CTIA_Survey_Year_End_2011_Graphics.pdf (“CTIA SEMI-ANNUAL 2011 SURVEY
RESULTS”); National Framework, CTIA – THE WIRELESS ASSOC.,
http://www.ctia.org/advocacy/position_papers/index.cfm/AID/12062 (last visited June 20, 2012) (“CTIA
National Framework”). Since the 1996 Act, estimated connections in the wireless industry have increased
from 44 million in 1996 to over 331 million in 2011, while average local monthly bills have decreased.
Also, in 2011 alone, over $25 billion was invested in United States’ wireless infrastructure. See CTIA-THE
WIRELESS ASSOC., CTIA SEMI-ANNUAL WIRELESS INDUSTRY SURVEY (2012),
http://www.ctia.org/advocacy/research/index.cfm/AID/10316 (last visited June 19, 2012); CTIA SEMI-
ANNUAL 2011 SURVEY RESULTS at 2, 10. According to the most recent FCC statistics, nine out of ten
American consumers have a choice of at least five wireless service providers. See Implementation of
Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of
Competitive Market Conditions with Respect to Mobile Wireless, including Commercial Mobile Services,
WT Docket No. 10-133, Fifteenth Report, 26 FCC Rcd 9664, 9669 (2011). As a result, American
consumers enjoy low prices – 4 cents per minute – and high mobile usage rates. See Roger Entner, The
Wireless Industry: The Essential Engine of U.S. Economic Growth, RECON ANALYTICS, at 1 (May 2012),
30 Communication from the Commission to the Council and the European Parliament on Monitoring
Development of the Rail Market, at 6, COM (2007) 609 final (Oct. 18, 2007), available at http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0609:FIN:EN:PDF (reporting that, between
2000 and 2005, the Member States with non-incumbent railways witnessed a significant increase in freight
rail performance than Member States in which the market was still dominated by a monopoly); see
also Oliver Stehmann & Hans Zenger, The Competitive Effects of Rail Freight Mergers in the Context of
European Liberalization, 7 J. COMPETITION L. & ECON. 455, 462 (2011), available
at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1833323. Member States that liberalized early
recorded the biggest increases in freight rail volume between 1995 and 2004: the U.K. (70
percent),Netherlands (67 percent), Austria (36 percent), and Germany (24 percent). By contrast, output
declined in Member States like France that shielded their incumbents from competition. See Annexes to the
Communication on the Implementation of the Railway Infrastructure Package Directives (‘First Railway
Package’), at 64, COM (2006) 189 final (May 3, 2006), available at
Furthermore, during the 30 years war (1618-1648), the decentralization of government
undermined the previously monopolistic postal system. Where state monopolies were not enforced, wide
diversity existed. For example, in 1695, postal customers in the Free City of Hamburg could choose among
local postal entities affiliated with at least eight different regions and various private delivery services.
Hopefully, the point of these analogies is obvious. “Regulating my rival” is a
seductive notion for many, but it only lures its victims to rocky shores before revealing
itself as a perilous Siren call. Telecom companies should not look to regulate their
“rivals,” Internet content and applications companies, down to their level – especially not
through an intergovernmental body.
Instead, network operators should seek deregulation by their home governments to
allow them full flexibility to produce and price freely in competitive markets. In fact, as
history shows us, attempting to regulate rivals will only produce unintended
consequences that will harm the companies advocating regulation. More importantly,
consumers end up losing the most. In short, the opposite of what is desired will occur,
something called “regulatory failure.” No government, let alone an intergovernmental
body, can make economic and engineering decisions in lightning fast Internet time. Nor
can any government mandate innovation. But new rules can undermine investment,
innovation and job creation all too easily.
Despite these realities, resisting the temptation to regulate is difficult for many.
Furthermore, deregulation can seem counterintuitive to some. We always hear talk of
“market failure,” but we rarely see analyses of “regulatory failure.” Perhaps that is why,
in the words of Professor Adam Thierer, “regulation always spreads.”31 As world
economies contract and government debt mounts, repeating the same government actions
of regulating more and spending more of the public’s money will only produce the same
results: shrinking economies and growing debt. It is time to reverse these trends, but
doing so will require tremendous political courage.
We can start by avoiding any expansion of regulation to the Internet. Its
phenomenal success can be traced directly to its voluntary and self-governing structure,
the result of a multi-stakeholder process free from top-down governmental influences. In
fact, policy makers should head in the opposite direction of the proposals outlined earlier.
We should learn from the voluntary, bottom-up, self governance approach in the image of
the non-hierarchical Internet itself, and look to apply this successful model elsewhere.
Revolutionizing public policy through a fundamental modernization of legacy laws to
clear away unnecessary regulatory obstructions will uncork the flow of investment
Competition drove down costs. In 1712, a postal order was issued reiterating the governmental monopoly
and reversing private post in Prussia. By 1720, other European states proposed the establishment of
cooperative postal arrangements which would bypass Prussia, but serve the Danzig to Petersburg line. The
other European states signed a treaty in 1723, which divided the routes amongst the states and included a
promise to suppress independent postal carriers, returning postal carriage to a monopolistic state. See ELI
NOAM, TELECOMMUNICATIONS IN EUROPE 8-13 (Oxford University Press, 1992) (for broader economic
themes, see all of chapter 2).
31 Berin Szoka & Adam Thierer, Net Neutrality, Slippery Slopes & High-Tech Mutually Assured
Destruction, TECH. LIBERATION FRONT (Oct. 23, 2009), http://techliberation.com/2009/10/23/net-
neutrality-slippery-slopes-high-tech-mutually-assured-destruction/ (“The reality is that regulation always
spreads. The march of regulation can sometimes be glacial, but it is, sadly, almost inevitable: Regulatory
regimes grow but almost never contract.”).
capital, spark innovation, drive economic growth and propel job creation. Couldn’t
today’s world economy benefit from such positive and constructive change?
On the other hand, dragging rivals down to the lowest common denominator of
overly regulated international telecom companies will enshrine mediocrity at best, and, at
worst, snuff out incentives to take risks and reap the resulting rewards, therefore killing
opportunities to revitalize moribund economies and improve the human condition.
Thank you for having me here today and I look forward to learning from this
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