A well-established tenet of practitioners and academics is that well-functioning competitive markets require a stable and predictable legal framework. If this is not present because policies are unclear, politicians interfere in regulatory processes, or courts engage in activist decision-making, then efficient markets will not develop. Companies will not have the confidence to invest in new technologies, and consumers will be deprived of the benefits the new technologies offer.
The propensity for political and regulatory overreach and their effects in destabilizing telecommunications markets were canvassed by the opening plenary panel of last year’s International Telecommunications Society (ITS) European regional conference in Madrid (on which my AEI colleague Mark Jamison and I sat). The panelists agreed that greater clarity on the boundaries between political and regulatory roles is required.
In the United States, this tension has into question whether regulatory agencies have the authority to make the rulings they do and the extent to which their actions and priorities are determined independently on merit or are responses to political direction. Fortunately, the constitutional separation of powers places checks on agencies by way of judicial inquiry. This is currently occurring in the US Court of Appeals for the Sixth Circuit, which is hearing the “net neutrality” appeal on an earlier decision to stay the implementation of the Federal Communication Commission’s (FCC) May 24, 2024 ruling. This ruling makes Internet service providers subject to Title II of the Telecommunications Act 1996 and is evidence of the path taken in the net neutrality debate up to the current hearing: the propensity for the FCC to impose or rescind rulings in perfect correlation with the political preferences of the incumbent President’s party and, hence, the balance of power amongst commissioners.
It has been argued that if politicians want to impose net neutrality on US telecommunications markets, then the appropriate way to do so is via legislation rather than politicized interventions. Certainty could thus replace 30 years of indecisive flip-flopping, although if the wrong decision is implemented it will be much harder to get it overruled.
By way of comparison, in Canada there is no question about the subjugation of decision-making by the regulator, the Canadian Radio-television and Communications Commission (CRTC), to political direction. Canada differs from, for example, the European Union, where only appeal bodies set up under Article 31 provisions can suspend or overturn regulatory decisions. No matter how “independent” a regulatory agency may appear, ultimately it exists only because the government permits it to. The executive can vary, refer back, or rescind any CRTC telecommunications decision, whether of its own motion or on a petition from an interested party, effectively making the CRTC perpetually and institutionally beholden to executive political considerations. The executive can also direct the CRTC before it has even made a decision through the power to issue directions of general application on broad policy matters, though the question of how detailed the CRTC can be under this “direction” power is the subject of current litigation.
A recent example of the executive overruling the nominally independent CRTC is the November 6 2023 order referring back to the CRTC its earlier decision ordering the major fiber builders to open up their networks to their competitors in the provinces of Ontario and Quebec.
The executive is now proposing to interfere with the CRTC’s decision, referring it back to the CRTC to reconsider whether certain larger operators should be permitted to use this unbundled fiber, after operators had already made commitments based on the original ruling. The original decision followed Canada’s long-standing policy of granting regulated wholesale access to incumbents’ fixed line telecommunications infrastructures, excluding fiber, to prioritize service-based competition (on one network) over infrastructure-based competition between duplicate networks.
Regardless of the substance of these CRTC decisions, the directive signals a major change in the balance between government and regulator in Canada. The effect is substantive as it signals to the regulator that the government believes the regulator has not appropriately interpreted and balanced the stated policy goals against one another. If the government disagrees with the CRTC decision arrived at under its policy direction, then arguably the resolution lies in reformulating policy rather than by issuing orders to reconsider decisions.
The US and Canadian examples above illustrate the dilemmas raised by the ITS panel. Technologies may have changed, and markets may have become more competitive, but tensions remain between politicians and regulatory agencies. Without clear policies and legislative mandates, and the willingness of the parties concerned to respect the boundaries between their activities, then there will be insufficient certainty for investors and consumers to confidently interact and efficient markets to develop. Ultimately, politicians must ensure the policy and legislative clarity. With that in place, regulators can confidently proceed to regulate efficiently and as independently as possible.
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