The Nascent Services Doctrine

Remarks of FCC Commissioner Kathleen Q. Abernathy
Before the Federal Communications Bar Association  
New York Chapter
New York, NY  -  July 11, 2002
As prepared for delivery.

	My job as an FCC Commissioner has numerous challenges - there are all those 
acronyms to learn, where to go to lunch near our isolated D.C. offices, and jurisdictional 
limitations that can spoil our fun.   Actually, I do think one of the core challenges of the 
job is stepping back from the heat of individual proceedings to develop and fine tune a 
more comprehensive regulatory philosophy than any one proceeding can provide.  I 
believe such a philosophy - clearly articulated and debated in the public sphere - lends 
predictability to agency decisionmaking and allows me to refine my thinking before I am 
called upon to apply it in a given proceeding.
	So today I will describe what I have labeled the "nascent services doctrine" of 
communications regulation.
      I have often spoken about the importance of developing policies that promote 
facilities-based competition, because robust competition across platforms delivers 
benefits to consumers far more effectively than regulators.  And as we have seen in the 
wireless and long distance sectors, while resellers play an important role, facilities-based 
competitors are the most viable and beneficial to consumers in the long term because of 
their ability to innovate, drive varying pricing models, and respond quickly to 
marketplace demands.
      I have also spoken often about my general deregulatory philosophy - which 
begins with the premise that current providers are regulated more than they may need to 
be, to the extent that they operate in competitive markets.
      
The Nascent Services Doctrine

      Building on these two premises, I have been thinking about many of the 
regulatory dilemmas faced by the Commission and have noticed that a recurring 
challenge we face is how to craft regulations for new technologies and services.  In 
response to this challenge I have developed the Nascent Services Doctrine.  This doctrine 
holds that regulators should exercise restraint when faced with new technologies and 
services.  Such restraint should facilitate the development of new products and services 
without the burden of anachronistic regulations, and in turn promote the goal of 
enhancing facilities-based competition.  Once the new facilities-based competitor has 
demonstrated its viability, regulators must reexamine the overall regulatory scheme 
applicable to all providers in the marketplace in light of the new provider to assess 
whether existing regulations can be modified or repealed.  This is not a matter of picking 
winners and losers; it is about exercising regulatory restraint to create an environment 
conducive to investment in new infrastructure, because new platform providers create 
competition and innovation that ultimately benefits consumers far more than prescriptive 
regulation.   In essence, short-term regulatory disparities are tolerated to generate long-
term facilities-based competition.   
      There are two distinct applications of this doctrine.  It applies both to nascent 
technologies, which appear in the market without any clear sense of the services they will 
ultimately support or the markets in which they will ultimately compete, and to nascent 
platforms, which I think of as new competitors to incumbents in already-defined markets.  
Ultra-wideband is an example of a nascent technology.  We do not know precisely how 
this technology will be used, but we do know that it has tremendous potential and we 
should approach it in a restrained manner.  An example of a nascent platform is satellite 
broadband service, which is just beginning to compete with more established cable 
modem and DSL providers.  As I have said before, government is not a very good 
predictor of technological innovation and how it will affect the marketplace.  Therefore, 
when faced with a nascent technology or platform, the Commission is best served by 
taking a hands-off approach or applying a light touch until the contours and capabilities 
of the new service or application are better understood.  
      The Commission often has done the right thing and exercised regulatory restraint 
with respect to nascent technologies and platforms in the past.  For example, when 
wireless voice services were first developed, the Commission refrained from imposing 
detailed price and service-quality regulations, despite many calls to do so in order to 
establish "parity" with wireline regulation.  Similarly, the Commission generally took a 
hands-off approach to DBS services as they emerged as competitors to cable in the 
MVPD market.  Congress also has recognized the benefits of restraint in each context:  
when the wireless platform began offering voice services in competition with wireline 
telephony, Congress did not reflexively impose the equal access requirements to which 
wireline providers are subject.  Nor did Congress extend many cable television 
regulations to the DBS platform.
      
Goals Underlying the Doctrine

      Taken as a whole, the nascent services doctrine seeks to achieve two key goals:  
(1) deliver benefits to consumers by developing facilities-based competition, both 
intermodally and intramodally; and (2) reduce unnecessary regulatory burdens and 
ultimately achieve regulatory symmetry for all providers. 
Developing Facilities-Based Competition
      As I have noted, incubating new technologies and platforms helps establish new 
facilities-based competitors, and the increased competition ultimately delivers to 
consumers the benefits of lower prices, better service quality, more innovation, and more 
choice.  Regulatory restraint is a necessary part of fostering such competition, because 
there is little doubt that overregulation can do substantial damage to nascent technologies 
and platforms.  As the recent turbulence in the capital markets has shown, companies take 
enormous risks when they invest billions of dollars in communications networks - such 
as the cable, wireline, and wireless broadband networks being built today.  To avoid 
creating additional disincentives to invest - beyond those risks that are inherent in the 
marketplace - we must resist the reflexive tendency to apply legacy regulations to new 
platforms.  This tendency is often motivated by a desire to achieve immediate regulatory 
parity.  However, applying heavy-handed regulations to new platforms can chill 
investment and threaten to stifle the development of new facilities-based competitors.  
      As I will discuss in a moment, regulatory parity is an important long-term goal, 
because applying different regulations to providers in a single market inevitably causes 
marketplace distortions and leads to inefficient investment.  As a short-term policy, 
however, accepting some degree of disparity is not only tolerable, it is essential.  For 
example, when the DBS platform was created, it was appropriately exempt from most of 
the legacy regulations imposed on cable operators.  This regulatory restraint allowed 
those nascent platforms to develop into effective competitors.  Today, as companies work 
toward bringing a third and fourth broadband pipe to the home via new satellite and 
wireless technologies, it will be equally important to avoid stifling those nascent 
platforms with the heavy-handed broadband regulations associated with the wireline 
telephony platform.  Just as you would not build a tree house in a sapling - because you 
might kill the tree and hurt yourself in the fall - it does not make sense for regulators to 
immediately and reflexively burden new providers with a full regulatory load.  If the 
ultimate goal is to develop sustainable facilities-based competition - and I think it is - 
it seems reasonable to me to allow the new service to develop free of most legacy 
regulatory burdens.
       
Reduce Regulatory Burdens and Achieve Symmetry in the Long Term

      As I have noted, the interest in developing nascent platforms cannot justify 
regulatory disparities indefinitely.  The Nascent Services Doctrine not only helps 
facilities-based competitors develop, it also promotes the reduction of regulatory burdens 
and increased regulatory symmetry in the long term.  If we succeed in spurring 
investment in new platforms - and robust facilities-based competition takes hold - we 
can then begin to dismantle regulations imposed on incumbent providers and replace 
them with more appropriate rules.  In this way the Nascent Services Doctrine provides a 
laboratory to assess the necessity of our regulatory intervention on the incumbent 
provider when compared with its nascent competitor.  In contrast, if we were to extend 
legacy regulations immediately in a reflexive drive toward symmetry, that would assume 
the ongoing need for the underlying regulation and never allow us to assess deregulation 
in the real world.  Indeed, reflexive symmetry actually institutionalizes the legacy 
regulation by imposing it on more providers across all platforms, ultimately making it all 
the more difficult to remove regulations from the books - even after they have outlived 
their usefulness.  The nascent services doctrine places the burden on the regulator to re-
institutionalize the regulations after a new competitor has established itself in the 
marketplace.    
      Such an approach is also most faithful to the 1996 Act, which called on the FCC 
to develop a procompetitive, deregulatory policy framework. Congress established 
specific mechanisms to ensure that as competition develops we will strip away legacy 
regulations.  Sections 11 and 202(h) direct us to conduct a biennial review of all 
regulations and eliminate any that have been rendered unnecessary as a result of 
meaningful economic competition.  And section 10 requires us to forbear from enforcing 
any regulation or statutory provision that is no longer necessary to protect consumers and 
the public interest.  At the end of the day, there is no doubt in my mind that facilities-
based competition eventually will render many of our legacy regulations unnecessary and 
ultimately obsolete.
      
Targeted Regulation Is Consistent With the Nascent Services Doctrine

      It is important to note, however, that this doctrine does not call for avoiding 
regulation altogether.  My point, rather, is that the FCC must be sensitive to the need to 
incubate new technologies and services, and we also must intervene in the market only to 
the extent necessary - and in a narrowly tailored manner.  As I have explained in 
defining my core regulatory principles, even a proponent of deregulation must recognize 
that circumstances exist that will require regulatory intervention.    
      I have previously identified three broad categories where regulators must 
intervene in the marketplace.  First, we must adopt regulations to implement public 
policy goals unrelated to competition, or even at odds with competition.  Universal 
service and access for persons with disabilities are examples of this kind of regulation.  
These public policy goals generally are set forth in the Communications Act, and they 
should accordingly be applied to all service providers, regardless of the nascency of their 
platform.
      Second, we must intervene to prevent competitors from imposing externalities on 
one another and to protect consumers where market failures are identified.  Although, as I 
have noted, the Commission was right to refrain from imposing heavy-handed price and 
service-quality regulations on PCS services in 1993, it was also right to adopt strict 
interference rules to prevent competitors from externalizing their costs.  By ensuring that 
the regulations were narrowly tailored to the particular governmental interests at stake, 
the Commission not only helped ensure that mobile wireless customers would benefit 
from innovative calling plans and falling prices but also helped establish wireless as an 
intermodal competitor to providers of local and long distance telephony.
      Finally, consistent with the Act, regulators must intervene to eliminate structural 
barriers to entry.  As an example, we have required the unbundling of local loops and 
sought to ensure that adequate competitive safeguards exist during the transition from 
monopoly or duopoly to robust facilities-based wireline competition.  I recognize that a 
policy of regulatory restraint with respect to nascent platforms may not be sufficient by 
itself to ensure the development of multiple facilities-based platforms, because market 
demand and technological capabilities will determine ultimate success.  And so, in the 
broadband arena, although we took a hands-off approach to cable modem services when 
they were first introduced and we have generally avoided regulating satellite and wireless 
broadband services, we still do not yet have a viable alternative to cable modem service 
and DSL in most markets.
      In these circumstances, as we strive to incubate new platforms by finding new 
wireless spectrum and licensing new satellite services, we must be mindful that cable 
modem and DSL providers may possess market power that can be exercised to the 
detriment of consumers.  If such conditions are found to exist, we must determine 
whether there is a need for competitive safeguards notwithstanding our long-term goal of 
reducing regulatory burdens.  We must also be wary of deregulating an incumbent 
platform too soon based merely on the existence of a second platform, because the sort of 
robust competition that renders regulations unnecessary may well require more than a 
duopoly.
      In light of these concerns, there are times when regulators must intervene to 
ensure that intramodal competition survives in circumstances where market forces have 
yet to produce multiple facilities-based choices for consumers.  That is why I supported 
the issuance of an NPRM in the Cable Modem proceeding seeking comment on the 
possible establishment of a nondiscriminatory access requirement for independent ISPs.  
Without more extensive intermodal competition, I believe this is a policy question we are 
bound to at least consider.  By the same token, while we have sought comment on the 
possible elimination of the Computer Inquiry unbundling and nondiscrimination rules 
that apply to incumbent LECs' broadband information services, I will consider the 
strength of and prospects for intermodal competition before supporting any decision to 
eliminate existing intramodal safeguards.  We may very well decide that market forces 
alone are sufficient to ensure that consumers can choose from among several broadband 
ISPs, but I believe that some observers and analysts have been too hasty in assuming that 
this is a foregone conclusion.
      In the end, these are very difficult policy choices, but I believe the Nascent 
Services Doctrine should serve the American people well by fostering an environment 
that encourages new investment in facilities-based providers, moves towards further 
deregulation by fostering competition, and eventually allows all platforms and services to 
compete on an equal basis in the drive to deliver innovative and valued services to the 
American people.


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