Special Reports

Anna-Maria Kovacs, Ph.D., CFA

July 2014

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Executive summary:

There is a consensus among many regulators, consumer advocates, and network providers that there is a set of core values that should apply to the communications ecosystem in America: public safety, universal access, consumer protection, and competition.

Competition is a relative newcomer to the U.S. communications arena, but it has quickly empowered consumers to make their own communications choices based on their own priorities, which do not necessarily match those of their regulators. When consumers select platforms, services, or applications that are not consistent with traditional public safety, universal access, or consumer protection, what are regulators to do? Attempting to stifle consumer choice is neither appealing nor realistic, but abdicating responsibility for the core values is not viable, either. The time has come for a new network compact that recognizes that consumers are in charge.

For most of the Twentieth Century, even as recently as the passage of the Telecommunications Act of 1996, regulators could set rates and standards for communications providers, which were monopolies, and be certain that consumers would purchase the services the regulators had, thus, effectively designed.

Regulators and carriers treated consumers as a homogeneous body, for the most part creating one-size- fits-all services. Consumers, having no choices available through which they could express their diversity, acted as a homogeneous body.

In less than two decades, technological evolution and innovation and the competition they have fostered have provided consumers with the abundance of communications choices they enjoy today. The existence of those choices has changed the relationship of regulators, network providers, and consumers in fundamental ways. Consumers are now in charge.

For each communication, today’s consumers have at their disposal myriad permutations of platforms, services, applications, and devices from which they can select the combination that best fits their message, audience, location, and circumstances. They can satisfy their own priorities and fully express their individuality. They can also make choices that evade the core values. They are powerful decision- makers, neither directly captive to their providers nor indirectly captive to regulators who control the providers. Accomplishing the core values today requires a new network compact based on consumers’ power.

While regulators still exercise varying degrees of control over different network platforms, consumers today have so many options—both between platforms and between the services and applications that ride those platforms—that they can easily evade their regulators’ choices if they do not match their own.

Put another way, the old network compact—although created to benefit consumers—was primarily between regulators and service providers. Network providers supplied what regulators decreed given their vision of consumer welfare. Consumers had no choice but to buy those services or do without. Today, thanks to the ample choices they enjoy, consumers have taken control. They are no longer passive beneficiaries of decisions made by others—they are making their own decisions for their own benefit.

Those who value competition celebrate the empowerment of consumers. At the same time, consumers’ new power creates a dilemma for regulators. When consumers make choices that are not consistent with the core values, should regulators intervene—recognizing that they are limiting consumers’ choices by doing so? If they do intervene, how can they make their intervention effective given consumers’ power to evade regulatory choices that do not mesh with their own priorities?

The fundamental challenge for regulators is to craft a new network compact based on respect for consumers and their choices. It must not limit those choices except when it is absolutely necessary to do so. Regulators must ensure that core values are met, but they must do so strategically.

To be effective, the new network compact must target regulatory intervention to those few areas where consumers will recognize it as necessary: areas where some consumers are vulnerable and the market has failed to meet their needs.