Creative Destruction of Regulation: Principles for State Communications Law

Raymond L. GiffordPresident The Progress & Freedom Foundation

But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)–competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.

It is hardly necessary to point out that competition of the kind we now have in mind acts not only when in being but also when it is merely an ever-present threat. It disciplines before it attacks.

Joseph A. Schumpeter

Capitalism, Socialism and Democracy, pp. 80-85, HarperPerrenial, 1942

Pew Internet ProjectBroadband Penetration on the Upswing Released April 19, 2004

Pew Internet ProjectBroadband Penetration on the UpswingReleased April 19, 2004

Pew Internet ProjectBroadband Penetration on the UpswingReleased April 19, 2004

The decision to get broadband in the home seems driven more by impatience with the speed of the dial-up connection than price of service. When asked why they decided to switch to a home broadband connection, 60% of broadband-using respondents said connection speed was more important than price considerations. Few cited price considerations.

How people value their online time, and how that changes over time, seems very much at the root of the home high-speed adoption calculation.

Pew Internet ProjectBroadband Penetration on the UpswingReleased April 19, 2004

Source: ITU World Telecommunication Indicators Database.Birth of Broadband: ITU Internet Reports

Voice

Transport

Voice

TransportTelecommunications

Information Service

Traditional Telecom

Apps

TCP/IP

Internet

Apps

TCP/IP

Transport

InternetTelephony

Voice

VoIP subverts the PSTN Telecommunications Model

Effects of VoIP

• Squeezes ability to seek cost recovery from access and reciprocal compensation– Beware a vicious cycle, as is now happening with

federal USF contribution mechanism• Forces rebalancing, or better yet, deregulation of

retail rates– Forces a different pricing model toward flat, monthly,

charge, or tiers of bandwidth use.• You will lose your most profitable access-payers

first– They have the most to gain by avoiding usage-based

intercarrier compensation