WASHINGTON, D.C.—U.S. Senator John Thune (R-South Dakota), Ranking Member of the Senate Committee on Commerce, Science, and Transportation, today delivered a speech to the Free State Foundation on the need for policymakers to update communications and Internet policy to meet the needs of an evolving digital world. Thune delivered the following remarks as prepared:

Video of Thune’s speech is available here.

Thank you, Randy, for that warm introduction.  The Free State Foundation does great work promoting free market policies and economic liberty for the communications and high-tech industries.  The insightful papers published by Free State, along with the Foundation’s thought-provoking events, contribute greatly to the public policy debate on these issues.  I am glad I can join you all here today to share some of my thoughts on what we should be doing to advance our country’s digital economy.

Before policymakers can talk about which communications laws need to be updated and which regulations have outlived their purpose, we first need to understand where the United States stands with respect to its communications and technology capabilities.  We often hear about how the United States is falling behind the rest of the world, how our broadband infrastructure is mediocre, and how our communications industries are not competitive.  These claims are so often repeated by pundits, advocates, and even comedians that they almost become self-evident—but are the claims actually true?  The simple answer is “no.” 

For instance, the Free State Foundation’s own Christopher Yoo recently published a paper comparing the United States and Europe in many broadband metrics.  Professor Yoo found that the U.S. fared better in broadband investment, network latency, delivering advertised broadband speeds, and overall broadband usage. 

But where the U.S. really outshines Europe is in broadband deployment.  Eighty-two percent of American households now have access to a high-speed broadband connection of at least 25 megabits, compared to just 54 percent in Europe.  And when it comes to mobile broadband, the gap is even more pronounced—just 27 percent of Europe is covered by 4G LTE services, compared to an extraordinary 86 percent in the U.S.  Our lead in these metrics is all the more impressive when one takes into account that America is geographically much larger and more rural than Europe.

While some pro-regulatory advocates claim our communications sector is dominated by monopolies and duopolies, the evidence in the marketplace doesn’t support that view.  Monopoly markets are typically characterized by a lack of investment, a lack of innovation, no new entrants, and excessive profits. 

Since 1996, the private sector has invested $1.2 trillion into building and constantly upgrading our nation’s communications networks, including about $60 billion annually in capital investments over the last few years.  Regarding market entry, we have already seen rampant intermodal competition in the telephone and video markets.  Not to mention efforts by companies like Google and DISH Network who are committed to becoming serious new broadband players. 

As for excessive profits for communications providers, again, there’s little evidence.  Former Clinton Administration Official, Everett Ehrlich, found that Fortune 500 broadband companies had an average profit margin of just 3.7 percent.  The average profit margin for Fortune 500 Internet companies who offer services on top of the broadband infrastructure?  A whopping 24 percent.  As Ehrlich points out, “this sizeable difference makes clear that providers of broadband connectivity are not extracting undue profits from broadband users.” 

Why does this all matter?  Because painting a picture of a dysfunctional communications and broadband marketplace is central to the efforts of pro-regulatory advocates who claim more government intervention into the online world is needed to fix a “broken system.”  Many of those who seek to regulate the Internet are using mistruths and hyperbole to scare both the public and policymakers into restricting economic and individual liberty. 

We should instead be celebrating the accomplishments of our communications, technology, and Internet industries and looking for ways to build upon this and drive further economic growth.  The foundation that all of this success rests upon is our communications infrastructure, particularly our broadband networks.  Without robust and ubiquitous broadband, many of the innovations and business breakthroughs of the last several years would not be possible.  We must ensure our communications policy reflects the new Internet-powered world, so that the potential of what rides over-the-top of our communications networks is fully realized.

The last time Congress significantly updated our communications laws was in 1996.  Back then, you had to pay for the Internet by the hour, and going online meant tying up your home’s telephone line.  There were only 100 thousand websites in 1996, and Google and Wikipedia had not been created yet.  Today there are nearly 900 million websites.

The bipartisan and deregulatory Telecommunications Act of 1996 encouraged intermodal competition and provided a light regulatory touch for information services.  Bipartisan leadership at the FCC reinforced the light touch for the Internet when implementing the law.  All of this fostered an era of convergence and innovation in the communications space.  Cable companies started to compete with telcos, telcos got into the cable TV business, and everyone started offering Internet access. 

The Telecom Act was far from perfect, but it got the job done.  Even so, it is best to view the Telecom Act as a transitional law for a transitional time, rather than as a permanent statute that will last 62 years without major revision, like its predecessor, the Communications Act of 1934.  The original Communications Act was designed for an era of actual communications monopolies; the Telecom Act was designed for the transitional era that took us from monopoly to competition; and now, we need a new policy framework for today’s converged, competitive, and Internet-powered world. 

This, of course, is much easier said than done.  Modernizing the laws governing the communications and technology sectors is no small task, which is why I am glad my colleagues in the House of Representatives have already begun examining the regulation of the communications industry. 

It took several years for Congress to complete the Telecom Act back in the 90’s.  Because of this, some people may think a Communications Act update is an impossible task in today’s political environment and that Congress should not even bother to try.  I reject that pessimistic view.  The voters did not send us to Washington, D.C. to sit on our hands and resign ourselves to failure.  They sent us here to make a difference. 

There has long been bipartisan consensus that our communications laws are outdated.  According to my former colleague Sen. John Kerry, the Telecom Act was “obsolete” within six months of enactment because it didn’t take the Internet into account.  It would be a dereliction of duty if Congress did not at least explore whether and how our communications regulations can be modernized.  I hope next year the Senate will follow the example set by the House to begin consideration of what a Communications Act update might look like.

Any such discussion needs to begin with broadband Internet and the government’s regulatory posture toward it.  It has been said before by me and many others, but it bears repeating until people really understand—Title II common carrier regulations designed nearly a century ago for a telephone monopoly simply do not make sense in a more competitive broadband world. 

Now, I’m not saying that the Internet should be a lawless frontier free from any government oversight.  That is the sort of straw-man accusation leveled by those who want to avoid doing the hard work of justifying regulations for the Internet ecosystem.  Even so, policymakers must be careful to preserve the light-touch regime, first implemented by the Clinton Administration, that has been so successful in making us the digital envy of the world. 

Some people, however, want to completely upset that regime and instead want to see the Internet shackled with Title II of the Communications Act.  Title II is certainly not a “light touch,” not with its burdensome rate regulation, property valuation, and discontinuance provisions, along with many others. 

Traditional wireline telephony now makes up just 22 percent of the 443 million phone lines in America, and that rate continues to decline each year.  When consumers are rapidly abandoning traditional Title II services, it makes little sense to apply Title II regulations to today’s new technologies and business models.  Even Google seems keen on avoiding the morass of Title II—the Internet giant has specifically chosen not to offer telephone services with its Google Fiber broadband product because it wants to avoid the regulatory burdens that come along with it. 

Another reason I oppose Title II reclassification is because regulating an industry as if it were a public utility monopoly is the surest way to guarantee the industry will become a monopoly.  As I discussed earlier, the evidence in the marketplace makes it clear that our broadband market is dynamic and competitive—not at all like the early days of Ma Bell that Title II was intended for.  Public utility regulation traditionally is intended to do two things—protect the public from the harms of a monopoly, while simultaneously protecting that monopoly.  Since the broadband market is demonstrably not a monopoly, regulating it as a public utility would only make the industry less competitive and less innovative.  Or, in other words, make it more like a monopoly. 

Neither Title II nor section 706 of the Telecom Act are appropriate tools to regulate the Internet.  The former is outdated and politically corrosive.  The latter is legally untested and potentially far too broad.  When Congress wrote both provisions, it never expected or intended for either to apply to a dynamic and competitive broadband marketplace.  Because of this, any Internet regulations issued by the FCC based on either statute will be tied up in courts for years, thus creating more uncertainty for businesses and end users, not less. 

The only way to provide the certainty that ISPs, edge providers, content publishers, and end users need and want is for Congress to legislate.  My colleagues and I need to roll up our sleeves and figure out how best to promote an open, competitive, and free Internet.  Doing so would not be easy, and it would certainly require every stakeholder to make some compromises.  For the sake of the Internet and for America’s economic competitiveness, I’m willing to try. 

I’d note that the last time Congress updated the Communications Act, a South Dakotan and a Michigander also sat atop the Commerce Committees, so perhaps the stars are aligning there too.

For all the attention that Title II, section 706, and the IP transition get, we cannot lose sight of mobile communications.  Everywhere you look, from the forecasts of venture capitalists and industry analysts to that shiny device teenagers use, it is all about mobile broadband. 

Now, some people will argue that mobile broadband isn’t “real” broadband, that mobile isn’t an alternative to fixed, but tell that to the owners of the 188 million smartphones in this country.  People aren’t using the Internet stuck in one place, tethered to a single, fixed broadband connection.  In fact, Americans now spend more time with their mobile devices each day than they do going online with a laptop or PC.  

If consumers view mobile and fixed broadband as part of the same seamless Internet experience, why should policymakers act as if mobile and fixed broadband are completely separate, distinct things?  We should take our guidance from what real people are actually doing in the marketplace rather than listening to ivory-tower academics or professional advocates who claim that wireless Internet access is “second-class.”  These are the very same people who argued not even a decade ago that wireless phones would never be an adequate substitute for landlines.  Today, nearly half of Americans have proved those predictions to be shortsighted.  For consumers, broadband is both fixed and mobile, both wired and wireless. 

Just as treating broadband like a monopoly is the surest way to get a broadband monopoly, treating mobile as an inferior form of broadband is the surest way to stifle wireless broadband.  Rather than fighting the wisdom of the crowds, we should embrace it and pursue policies that make the mobile Internet experience even more powerful and more robust. 

One of the things Congress can and must do is to continue focusing on spectrum.  Mobility drives the innovation economy, and spectrum is what fuels wireless services.  Without enough spectrum, the private sector will not be able to keep pace with consumer demand, which is growing exponentially.  We must make it a priority to increase the availability of spectrum for commercial use, both licensed and unlicensed, as quickly as possible.  The upcoming spectrum auctions at the FCC are critical steps in the right direction, and I will be following them closely, but we need to start thinking about “what’s next?” 

At this point, there are no more large blocks of unused spectrum sitting around waiting to be assigned for advanced wireless services.  We’ve already gone after the low hanging fruit, so we will need to redouble our collective efforts to free up more spectrum as well as using current spectrum in a more efficient manner. 

Spectrum users, be they government agencies or private companies, like having distinct frequencies to themselves.  But in the future, we’re are going to need  these spectrum users to start getting used to living much closer to each other—think rowhouses and condo buildings rather than sprawling, spread-out suburbs.  And much like real estate, they’re not making any more wireless frequencies, so we are going to need to get the most possible out of the current spectrum map.

One of the biggest drivers of increasing wireless traffic is video, another area that is ripe for reform.  As ranking member of the Senate Commerce Committee, I am currently working with my colleague, Chairman Jay Rockefeller, on a satellite TV reauthorization bill.  The House version of this bill includes a number of video reforms, including on retransmission consent negotiations and cable set-top box policy.  While it is too soon to say what the final satellite TV bill will include, it seems clear that there is interest in both chambers on updating our video laws, many of which were written in 1992 as part of the Cable Act. 

A great deal has changed in the video market in just the past five years, let alone since we last passed comprehensive video legislation 22 years ago.  When Congress wrote the Cable Act, it never envisioned telephone companies entering the TV space, let alone companies like Netflix, TiVo, Amazon, Apple, and YouTube revolutionizing how people watch video.  And the Supreme Court will soon hand down a decision in the Aereo case that may have wide-ranging implications for the television industry. 

With so much having changed in the video marketplace, now is a good time for Congress to examine our laws to determine whether they are still relevant and whether they provide the foundation for continued video innovation and consumer choice.  Just like telephone service, our video laws in large part reflect a monopoly market structure that no longer exists.  And as with voice services, video services are quickly becoming applications that merely ride on top of the underlying competitive broadband network infrastructure.  Failing to modernize these outdated laws would be a missed opportunity.

From my position on the Commerce Committee and in Republican leadership, I see every day the rewards and challenges of living through the digital revolution.  The world moves so fast that it is hard for even the most technologically-savvy and digitally-connected person to keep up with everything, so it should be no surprise that our laws have fallen woefully behind.  I can promise you that I will continue to work with my colleagues in the Senate to modernize America’s digital policies, because we need 21st Century laws for a 21st Century world. 

I know that our next speaker, FCC Commissioner Ajit Pai, is just as committed to this effort as I am, and I am sure he will be able to offer a unique perspective on communications reform from being in the trenches every day at the Commission.

Thank you.

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