Consumers may threaten regulators' best-laid plans

Tammy Parker, FierceWirelessTech

The battle over net neutrality and related pushes to rewrite the Telecommunications Act of 1996 are sure to have major impacts, one way or another, on the future of consumers' communications and entertainment options. But those effects will themselves be influenced by ever-changing marketplaces, which are undergoing rapid transformations.

Many are calling for the FCC to regulate all broadband providers--big and small, wireless and wireline--under Title II of the Communications Act of 1934. This would categorize those providers as a "telecommunications service" rather than an "information service" and would subject them to more heavy-handed regulation.

But a new report issued by the Internet Innovation Alliance (IIA) highlights the fact that vast choice in the marketplace means "while regulators still have varying degrees of control over various network-providers, and a great deal of control over POTS [plain old telephone service] providers, they have effectively lost control over consumers."

To me, that means adding more regulation to the mix will likely have lots of unintended consequences.

The 36-page report, which was authored by Anna-Maria Kovacs, notes one of those consequences, which is that network-based operators will probably have less money for infrastructure investment. "Because consumers can easily abandon the services required by regulators and shift their spending to other providers, the regulated carrier's revenues are no longer assured and neither is the floor below its earnings. That makes it more difficult for it to attract investors' capital," she said.

Moreover, if tighter regulation, say of wireless services, results in higher prices or fewer features, consumers are likely to find more preferable alternatives. "Consumers' ability to leave providers also limits regulators' ability to ensure that consumers get what regulators think they need. If consumers choose to move to a platform that is less secure or offers less consistent quality in exchange for either a lower price or other desired features (e.g. Skype instead of POTS), regulators can't force them to buy security or consistency. Nor can they force consumers to cross-subsidize other consumers," Kovacs wrote.

AT&T (NYSE: T) is a big supporter of the IIA, which was founded in 2004, and the group's arguments favor the telco/business side. Nonetheless, I think IIA's latest study brings up some salient talking points regardless of which political slant one has. For example, the study offers a number of fascinating statistics from other researchers showing how the telecom landscape has changed in the past 18 years.

In 1996, 94 percent of households subscribed to POTS, and 6 percent had no landline service. Now, only 5 percent of consumers still rely exclusively on POTS, which, one might note, is the most-regulated voice service option.  At the end of last year, two out of five consumers used wireless only for voice, which is eight times as many as those who relied exclusively on POTS. More than a quarter of households subscribe to voice over Internet (VoIP), either alone or in combination with wireless.

Further, Kovacs noted that many communications that used to occur via multiple voice calls are now simply relayed over social media services that do not support universal service. Additionally, she observed that multiple platforms are used to deliver broadband service, and the video market is also a mixed bag.

I started thinking about the communications and entertainment platforms employed in my own small circle. I have cable VoIP, home broadband and a smartphone, though it is a mere 3G model rather than an LTE version. The handset is usually running off of my home Wi-Fi, so I haven't really needed LTE. For years, I relied on Roku and a cheap, digital broadcast antenna for video. However, I've returned to the cable TV fold because I got tired of frequently having to figure out to which Roku channel "The Suze Orman Show" had moved.

Meanwhile, my neo-Luddite beau still has POTS service and a cellular feature phone, but he has the full cable TV package. He doesn't have home broadband. His next-door neighbors have POTS, DSL, a cell phone and DirecTV.

The only one in my inner circle who ditched the home phone is my youngest niece, who went cordless about six years ago. She posts on Facebook (NASDAQ: FB) a lot, so I assume she's got home broadband in addition to accessing Facebook on her mobile. I haven't checked lately to see what she's doing for TV service.

That is quite the mix of technologies for a fairly boring, homogenous collection of four households, and that is exactly the point of the Kovacs study. "Because consumers today don't have to purchase what regulators design and a monopolist provides, they can't be treated as a homogeneous body without choices; a 'one size fits all' solution is no longer viable," she said.

Kovacs suggests, and I agree, that regulators must acknowledge any general-purpose regulatory regime will fall short of achieving goals of heightened competition and provision of services to vulnerable consumers simply because regulators are at this stage incapable of regulating everything. It might be relatively easy to extend onerous rules and regulations to non-POTS networks, but those pesky over-the-top services will keep rearing their heads and drawing consumers' attention to the non-regulated environment.

Regardless of who wins the ongoing legislative and regulatory battles, the modern consumer will retain ultimate power by choosing where and when to spend their dollars. And that could throw more than one monkey-wrench into what initially seemed the best-laid plans.--Tammy