Robert Hahn is director of economics at the Smith School, University of Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy. Peter Passell is a senior fellow at the Milken Institute and the economics editor of the Legatum Institute's Democracy Lab. They are cofounders of Regulation2point0.org, a web portal on regulatory policy.
Does the Internet need some form of regulation? Absolutely.
Is the United Nations the best forum for regulating it? Absolutely not.
We raise this second question because the World Conference on International Communications in Dubai is coming up in December. And it will be convened by the International Telecommunications Union, a U.N. agency. On the agenda are changes to regulations adopted in 1988 that could affect the Internet in major ways.
The Dubai meeting will consider a host of ways in which countries can/should set rates for the Internet use ranging from cross-border Internet traffic to international mobile roaming rates. FCC Commissioner Robert McDowell argues persuasively that such regulation could have a chilling impact on the future of the Internet and wireless technologies, and we agree.
If the last 50 years of regulation have taught us anything, it's that governments are bad even at the most sincere efforts to set prices to advance policy objectives or to regulate entry into markets. Competition trumps regulation, except in cases in which there are tangible external costs or benefits—and the Internet is no exception.
The U.S. government seems to be on the right side this time around, proposing to "affirm the role played by market competition and commercially negotiated agreements for exchanging international telecommunication traffic." Terry Kramer, who is leading the U.S. delegation, clearly recognizes the problems with rate-setting, noting, "We have significant concerns about proposals which seek to mandate a sender-party pays pricing mechanism, such as that being proposed by the European Telecommunications Network Operators."
So, who should regulate the Internet, and how? First, there seems to be a broad consensus that the multi-stakeholder governance model is working. As McDowell concludes, "This consensus-driven private-sector approach has been the key to the Net's phenomenal success."
Second, national governments are among those stakeholders. For example, policymakers and the courts have an important role to play in issues that touch on privacy and security. Indeed, we believe there is an economic "externalities" argument here: Regulation may be warranted because individuals and firms do not take into account the full cost of their behavior on the welfare of others.
Third, the role of national government in the Internet's economic sphere should be clearly delineated—and limited. Government can help with contract enforcement. It may also decide to tax commerce, including Internet commerce, but it should do so in a way that doesn't kill the goose that lays the proverbial golden egg. And government can encourage innovation by means of investment in basic research, liberalization of spectrum, and promotion of competition. But that's about it.
Note that while the government's role at the national level should be limited, its role at the international level should be even more limited. And this is where the Dubai conference fits in. In our view, the attendees should only intervene in Internet governance to the extent that they can demonstrate they will do no harm.