**SEPARATE STATEMENT OF COMMISSIONER**

**HAROLD FURCHTGOTT-ROTH**

**April 19, 2001**

*Re: Developing a Unified Intercarrier Compensation Regime; Intercarrier
Compensation for ISP-Bound Traffic; Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996*, Notice of
Proposed Rulemaking, CC Docket Nos. 01-\_\_, 99-68, 96-98

This NPRM seeks comment on a variety of pricing mechanisms for
commercial relationships between and among carriers, placing particular
emphasis on bill-and-keep arrangements. Such mechanisms are worthy of
praise when they are employed voluntarily and by mutual assent in
contracts. This NPRM thus may do some good in informing the public of
various contractual options, expanding and illuminating the range of
pricing mechanisms that carriers can agree to adopt.

If, however, the goal of the NPRM is ultimately to limit the range of
permissible contractual arrangements private parties may undertake, this
is a sad and shameful day for the Commission. We would be telling
private parties that Washington knows how to improve their lot better
than they do themselves. We would be mandating an invasive form of
nationwide price regulation, a great irony at a time when politicians of
all stripes embraces the ideals of economic deregulation.

The Communications Act of 1934, as amended by the Telecommunications Act
of 1996 ("1996 Act"), does not require the Commission to regulate the
prices charged between and among carriers. Indeed, the entire elaborate
framework of Sections 251 and 252 of the 1996 Act is predicated on the
primacy of contracts between private parties, not rate regulation from
Washington, D.C. *See* 47 U.S.C. §§ 251-252.

Moreover, the 1996 Act explicitly aims to remove impediments to
contract. For example, section 252 limits the grounds on which State
commissions may reject privately negotiated intercarrier agreements.
*See* 47 U.S.C. § 252(e)(2)(A). In addition, section 253(a) prohibits
barriers to entry -- which necessarily include foreclosing options to
contract between private parties: "No State or local statute or
regulation, or other State or local legal requirement, may prohibit or
have the effect of prohibiting the ability of any entity to provide any
interstate or intrastate telecommunications service." 47 U.S.C.
§ 253(a). These provisions make unlawful many forms of price regulation
that limit the scope of contracts between and among carriers. While the
focus of these provisions is primarily upon State and local governments,
the federal government should be slow to adopt regulation that State or
local governments cannot legally impose.

Allowing and encouraging freedom of contract is profoundly important. As
Milton and Rose Friedman explain in *Free To Choose*:

> One set of ideas was embodied in *The Wealth of Nations*, the
> masterpiece that established the Scotsman Adam Smith as the father of
> modern economics. It analyzed the way in which a market system could
> combine the freedom of individuals to pursue their own objectives with
> the extensive cooperation and collaboration needed in the economic
> field to produce our food, our clothing, our housing. Adam Smith's key
> insight was that both parties to an exchange can benefit and that, *so
> long as cooperation is strictly voluntary*, no exchange will take
> place unless both parties do benefit. No external force, no coercion,
> no violation of freedom is necessary to produce cooperation among
> individuals all of whom can benefit. That is why, as Adam Smith put
> it, an individual who "intends only his own gain" is "led by an
> invisible hand to promote an end which was no part of his intention.
> Nor is it always the worse for the society that it was no part of it.
> By pursuing his own interest he frequently promotes that of the
> society more effectually than when he really intends to promote it. I
> have never known much good done by those who affected to trade for the
> public good."

Milton & Rose Friedman, *Freedom To Choose* 1-2 (1980) (quoting Adam
Smith, *The Wealth of Nations* (1776)).

Two lessons relevant to this proceeding can be drawn from the Friedmans'
essay. First, limiting the scope of potential contracts among carriers,
or coercing the terms of such contracts, cannot advantage all carriers;
indeed, it will certainly harm some carriers relative to no limitations
on contracts. Second, the unfettered pursuit of private interest,
including through contracts, will lead to greater social welfare gains
than the intentional, including governmental, efforts to promote
welfare. Stated simply, contracts, rather than government regulation,
are the surest way to promote the public interest.

Requiring intercarrier compensation of specific forms, such as
bill-and-keep, is nothing more than price regulation -- harmful to
contracts, carriers, consumers, and the public at large. No amount of
studies or documents can paper over that simple fact. Indeed, the burden
should be on proponents of new forms of price regulation and new forms
of contract foreclosure to demonstrate that such regulation promotes
public welfare more than contractual flexibility. I await such
demonstrations.

For its entire history, the Commission has regulated telecommunications
rates with a heavy, clumsy, at times sadistic, and all too visible hand.
Limiting voluntary contracts among private parties, or coercing the
terms of such contracts, cannot promote the public interest. I hope that
this proceeding will afford the public an opportunity to provide
comments to the Commission on the legacy of Commission rate regulation
and its substantial unintended harms. Perhaps it is time for the
Commission to promote both the reality as well as the rhetoric of
deregulation.