5. How Regulatory Policy Can Keep Up
“Forward-looking” and “light-touch” should be policy-making watchwords in the digital age.
“Fast-paced regulatory change” is not a phrase one hears often – or wishes to. We all expect, rightly, that regulation will be well thought out, unrushed and promulgated with care. This presents a conundrum in the internet age: the sort of deliberate approach that has characterized telecommunications regulation for most of its history is ill-suited to the speed of digital disruption and the marketplace developments it spawns. Policy and regulation need to evolve with changing nature of the industry; the question is, how do they keep up?
A good first step is recognizing the nature of today’s challenge. The communications industry has changed substantially in the last three decades. The break-up of the AT&T monopoly in the US was set in motion only in 1982. Social media barely existed a decade ago. Mobile has gone from nascent to nearly everywhere in a few years. During much of this time, the primary regulatory issue has been the shift from state-owned and monopolistic service to private sector competitive markets and a substantially less regulated industry.
Today’s critical issues span a much more complex, interconnected value chain and could not be more different: the protection and use of personal data, the fractured allocation of mobile spectrum, and the growing convergence between telecommunications (fixed, mobile, cable) and media and digital service industries. CSPs are looking to expand into digital services while digital service players are experimenting with connectivity. New business models such as M2M and the Internet of Things involve companies and consumers in many sectors of the economy. Establishing rules for an increasingly fragmented marketplace, especially without unduly restricting some participants, is a much tougher challenge than overseeing a monopolistic industry.
It is also becoming increasingly clear that, in certain areas, policies need to cross national borders and be developed or harmonized at the international level (digital services and their underlying data benefit from the freedom to flow internationally, for example), while other areas will benefit more from local experimentation. International bodies such as ICANN and ITU can play a role. Greater clarity is required to give confidence to industry participants and investors.
Today’s markets need something other than new regulations – markets and their participants will benefit from entirely rethought regulatory frameworks that establish structures and approaches rooted in 21st century realities. It will help policy-makers in developing these frameworks if they think in terms of three dynamics: scope, approach and level of engagement. They should also bear in mind that the internet gives all marketplace participants – most notably consumers – much greater choice and transparency than they ever had before. Information truly is power; consumers are in their strongest position ever to make choices and protect their own interests. (See Figure 8.)
In the digital age, policy-makers need to think in broad terms, taking multiple overlapping sectors into account. A debate should take place in multiple markets, for example, over whether telecom-specific regulation is still necessary, beneficial or sufficient. The ICT value chain is both much expanded and more intertwined – investments and innovations in one segment are quickly felt in many others. Moreover, because the internet accounts for a large and growing share of market activity in so many sectors of the broader economy, ICT policy-makers should strive to eliminate distortions between ICT and other industries.
None of this should mean more regulation or regulations that apply more broadly. Rather, the internet affects a wide range of industries and commerce. Regulations that shape, alter or constrain online commerce – new rules on data use, for example, or attempts to regulate automotive telematics or communications among machines – have ramifications for companies and consumers that extend well beyond the internet itself. A new mindset is required, as are periodic reality checks on the effects of new or altered rules. As industries and ways of doing business evolve, it will be necessary from time to time to remove outdated regulations that result in discrimination between industries. There may also be value in experimenting with non-regulatory means of encouraging online behaviours, using rating systems or the principles of open data, for example, with issues such as data use by operators and data services companies.
Many regulatory regimes have been predominantly ex-ante in approach – they have set down rules in anticipation of marketplace developments. In the fast-changing digital era, however, it is hard to apply foresight with prescience in an environment that gives birth to entire new industries seemingly overnight. Could anyone have anticipated the privacy and data security issues spawned by social networks even a decade ago, for example? Policy-makers should look for opportunities to establish ex-post regulatory approaches where there is sufficient competition and vehicles exist or can be established for the speedy resolution of disputes.
For such social-policy challenges in particular, governments need to devolve and evolve. They should create regulatory systems that can be adaptive, enacting laws based on principles – for example, that consumers have a right to keep certain personal data private – and giving authority to third parties to apply those principles to changing market conditions.22 For issues such as privacy and copyright, this can be accomplished through formal and informal judicial processes. For issues such as technology or content standards, industry bodies can take the lead, often with government as a partner.
Governments also need to experiment with different approaches, selecting the ones that appear to work, and giving them room to grow in impact. Many countries with fast-growing internet economies have tried out such policies as light-handed regulation or targeted tax incentives, then stepped aside and let the resulting innovations flourish. They have pursued industrial policies that seeks to mimic the rapid innovation cycles of internet-based business models. Equally, governments should set out guide rails – signalling types of policy that they will not pursue or areas where they intend to rely primarily on industry or third-party oversight.
Level of Engagement
As observed with respect to the regulation of spectrum, lack of harmonization or interoperability at the regional and international level in certain areas can lead to inefficiency and add complexity and cost for companies and consumers. There is a trade-off to be assessed: international policy can lead to better coordination and efficiency, but often at the expense of experimentation and speed. Policy-makers need to identify the appropriate geographical level, or reach, for various policies and regulations. Harmonization in spectrum is required at a regional and international level. Policy for fixed infrastructure – for example regarding municipal operators – should be examined locally to encourage innovation. In markets such as the EU, better coordination in such areas as mobile infrastructure and digital services will further investment and innovation as well as the goals of the EU’s single digital market. (See Figure 9.)
Policy-makers need to stay mindful of the potential for fragmentation at multiple levels in how, and by what rules, the internet is governed. Networks are means of bringing people, businesses and ideas together. Policies that promote separation or isolation run counter to the internet’s overriding strength. “Forward-looking” and “light-touch” should be policy-making watchwords in the digital age.