New Rules for a New Age: Creating an ‘Economic Stimulus Agency’ out of the FCC

Wharton legal studies and business ethics professor Kevin Werbach, whose research focuses on the relationship between technology and the economy, recently worked with the Obama administration’s transition team on a review of the Federal Communications Commission and related technology and telecommunications issues. In an interview with Knowledge@Wharton, he says that advances in technology and the urgent need to restart the economy require the commission to rethink its role — not just as a regulator, but as an agency that creates jobs and encourages investment.

An edited transcript of the interview follows:

Knowledge@Wharton: Let’s talk first, if we may, about your experience on the transition team. What, exactly, was your role?

Kevin Werbach: I was co-leading the agency review of the Federal Communications Commission. So, there were teams on the transition assigned to every part of the federal government. Our responsibility was to go into the agency, meet with the senior staff, meet with outside groups — industry, public interest groups, other interested parties — and really roll up our sleeves and assess what was happening at the agency, and try to lay the groundwork for the new administration to put into place both their people and a new policy agenda.

Knowledge@Wharton: What was your take-away regarding the agency?

Werbach: The FCC, under Kevin Martin, who was the chairman at the end of the Bush administration, was really devastated. It was a place that had been heavily politicized. The staff was demoralized. [The FCC] was failing, in a lot of ways, to achieve the kind of benefits that it should be…. And so we found a lot of dissatisfaction, both inside and outside the government, with the kind of processes the agency was using. People would say, “They’re just not being fair. They’re not being consistent. They’re not being transparent. We really don’t feel like they have the interest of the American people at heart.” So we tried to ascertain how to revitalize this agency — how to take this agency and make it, once again, one that could really deliver benefits to the American people.

Knowledge@Wharton: That sounds like quite a rebuilding job. We have one nomination for the chairman, and some other positions that are still open on the Commission itself. How urgent is it that we get those positions filled quickly?

Werbach: I think it’s very urgent. It’s urgent, of course, more generally, that the President’s nominees get confirmed, and that the additional openings are filled. The FCC is pretty important. It oversees a huge swath of the economy — the whole telecommunications and media sector, as well as the whole technology sector, which is pretty critical to an economic recovery.

Wharton professor Kevin Werbach discusses current challenges for the FCC

Knowledge@Wharton: It would seem that the degree to which the work of the FCC can be tied to the economic recovery will determine the speed with which it gets the attention it needs. How important is the role of telecommunications and technology generally in the recovery?

Werbach: It’s extremely important. The FCC really needs to think about itself as an economic stimulus agency, as an agency that’s about creating jobs and fostering investment. Look at the telecommunications and media and technology sectors — there is a tremendous opportunity for growth. These are not industries that are going down. These are industries that, in many ways, are growing. And they’re the foundation for other kinds of new jobs….  A central part of [health care reform] is computerizing medical records and putting health care on-line. That requires broadband out to every part of the country. Green energy requires smart grids, implementing the electric grid on broadband networks. Education requires the ability to deliver information throughout the country, over networks to people. So, the areas that the FCC is responsible for can really be central to the recovery.

Knowledge@Wharton: Are you confident that the Obama Administration recognizes that?

Werbach: Absolutely…. Julius Genachowski, who has been nominated to be the head of the FCC, has tremendous experience as a business leader and an investor, as well as in government. And I know he recognizes that, absolutely.

Knowledge@Wharton: You’re going to be addressing some of the challenges for communications regulation in the coming years at a seminar tomorrow. You’re saying in this seminar that the communications networks are the foundation on which the future of business — news, business interaction, entertainment, health care, education, energy conservation, and a lot of other economic sectors — will be built. And [you say] that the network infrastructure is the dividing line between the “old physical economy of scarcity, and the new information economy of abundance.” Tell us what you mean by these two terms: the physical economy of scarcity, and the information economy of abundance.

Werbach:  It’s pretty simple. You make things [because] there’s a … scarcity. GM can only put out so many cars, and it costs a certain amount of resources to build each one. But bits are bits. And they’re infinitely replicable. So Google doesn’t have the same kind of physical limitations on how many searches it can do, or what it can do with the information that goes into its system. Now, underneath that, there are physical networks. There’s equipment. [Google has] to buy routers and servers, and they have to buy telecommunications lines to connect them. That’s why I talk about that being the dividing line. But once you have that investment, building on top of it and [adding] new services … is really limited only by the imagination.

Knowledge@Wharton: So, you’re also suggesting that the biggest challenge for communications law right now is to take the lessons that we’ve learned from some of these virtual ecosystems that live on top of this infrastructure, and apply them to the infrastructure. Tell us how that works.

Werbach: My research looks at the intersection between law, business and policy around technology. We have 70-plus years of communications regulation in the United States that was designed for traditional networks — for the telephone system, for example, or broadcast television and radio. Increasingly, all these are going on-line. They’re all merging in with the Internet. All those silos of networks are converging. And we don’t have a regulatory structure for that new, converged, broadband Internet infrastructure. [That is] partly because, justifiably, the FCC and other parts of the government were hesitant to regulate those new services. As [the services] were growing, [the FCC] didn’t want to apply the old rules to the new technology. I was involved with that when I was in government in the 1990s and it was something I fully support. But at some point, you need to have a system that looks at how to insure that networks are used in the public interest [and] how to insure that markets don’t go off the rails, which is what we saw in the financial sector, for example, and we’ve seen in the past with the telecom sector. That means you need to figure out the intersection of the legal structure [with] the new technology and [with] what the market looks like today.

Knowledge@Wharton: It seems that what you’re suggesting is that the default setting in addressing regulation of the infrastructure is open access. And by open access, you mean…?

Werbach: Open access means that networks can interconnect freely. So, what makes the Internet the Internet? People think the Internet is a network. It’s really not. The Internet’s a network of networks. So, any system that … connects into the Internet can be part of this ecosystem. That’s a principle that has allowed the Internet to grow and foster so much innovation. If we have open interconnection, open access — so any broadband network system can be plugged in — you can attach new services, new devices, new applications to that network. Then, there’s a lot more potential for growth. So, for example, we have a stimulus package now that’s going to put $7 billion into rural broadband and broadband infrastructure to expand … the system that we have in this country. If that only serves the companies that provide that network, the value’s limited. But if it’s an open access network that allows other companies, governmental institutions [and] citizen groups to come in, [they can] leverage that infrastructure. Connecting a wireless network [to the Internet allows the creation of] a health care application in a rural community. That magnifies the value of the network.

Knowledge@Wharton: Are there any regulations now that stand in the way of those kinds of structures being added to the broadband network that [goes] into these rural areas?

Werbach: Well, that’s the point of this research I’ve been doing. It’s a total regulatory gray area because the rules we have apply to traditional telecommunications networks. The FCC, in the past, has said broadband access networks are not what are called regulated telecommunications services; they are something else, called information services, [for] which there are no rules … under the existing statutes. And so what I’m trying to do in my work is map out what those rules should be, by reference to some of the enduring principles that are in the Communications Act already.

Knowledge@Wharton: The Obama administration has received some degree of attention for its consciousness of a lot of these services that you’re talking about. President Obama was very worried about losing his BlackBerry, for example. Do you think that orientation is going to have a big impact on the … policies that we see emerge from the FCC and other related agencies?

Werbach: I think it’s going to have a big impact across the government. Think about work today, and any kind of organization. There are very few organizations today that don’t use e-mail … [or] the Internet as just a fundamental part of how they do business, how they manage their supply chain, and so forth. [It’s the same for] government…. If you have people in government who are not familiar with those technologies that the average worker … and the average manager takes for granted, there’s going to be a disconnect in their ability to develop policies that reflect even today’s economy, let alone tomorrow’s. So, I think the fact that there are so many people involved in this administration who really are technology-savvy and who get it at a personal level, is important.

The other thing is that these technologies are incredibly powerful. I remember talking with someone who had been involved in the Clinton transition in 1992, and later was a senior official in the Commerce Department. He said that back then they had to walk around with disks. So when people would write memos or try [to] collaborate on a policy recommendation, they would literally have to walk around with floppy disks across the office. And of course, today, we can do that all online. [The transition team] had a collaboration system that we could use for doing the work of the transition. And [it was] just for the transition process, which was … only 77 days, and it had to do a tremendous amount. The ability to use that technology was very powerful.

Knowledge@Wharton: Among those powerful technologies you’re talking about, right now a lot of attention is being paid to handheld instruments that really behave more like personal computers than telephones. And everybody seems to agree [that] that’s the big technology of the moment. It’s very difficult to look far down the road [to see] these things,  … but what are some of the other new technologies that you think the FCC is going to have to address in the next four years, say?

Werbach: We’re still just getting a taste of mobile. We’re now in a world with about 3½ billion people having mobile phones, which is more than double the number of people who have wire line phones, and [the] transition is [continuing]. And we’re just starting on the smart phone revolution. So, the iPhone is really symbolic of this transition you mentioned from phones to handheld computing devices. I talked to a friend yesterday who was saying … [that] Samsung is introducing 20 iPhone-like devices next year. Twenty of them, for just one company. So, that revolution is going to be quite significant. I think we’re also going to see group collaboration mechanisms … becoming more powerful in the workplace, as well as the ability to use video much more and integrate that and other kinds of media … into the process. Also, [there are opportunities] to take search technology — which, of course, is very widespread on the Internet — and apply it much more directly into lots of other services.

Knowledge@Wharton: We’ve already seen social media make its presence known … in the realm of the law. For instance, [at] a trial in Philadelphia … a juror was sharing observations via Twitter. Do you see that as something that’s going to be happening more and more as these social networking applications become more widely adopted? … Is that going to be … [examined] by regulators?

Werbach: I certainly think that [social media] is … going to be increasingly pervasive. Twitter is the current symbol of it, but it’s really much broader than that. It follows on from the point about mobile devices and smart phones. As you have people [who are] more and more densely connected on platforms that are interconnected … [there is] more potential for applications and services that leverage off of that connectivity. So, Twitter is one early example … of what happens when people can communicate all the time about what they’re doing. And that [information] can be aggregated. From a regulatory standpoint … there are a whole set of issues that government is just starting to wrestle with. Privacy is one that’s extremely important, but deeply misunderstood. It’s not an either-or question of whether I’m public or private. We’re going to be sharing things all the time. And people’s preferences are going to be changing, based on what circumstances they’re in. We’re … in a world where everything is [increasingly] connected. So regulators in government, as well as individuals, need to wrestle with what are appropriate limits in terms of sharing information?

Knowledge@Wharton: Thank you very much for being with us today.

Werbach: My pleasure.

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