Wheeler Says Agile Policy Needed for 'Web 3.0' to Drive Productivity

Former FCC Chairman Tom Wheeler urged flexible, agile broadband regulation to usher in "Web 3.0" that "orchestrates intelligence" and boosts productivity and economic growth. "We need to make sure that we have open networks that facilitate the kind of productivity revolution that’s necessary, and are not strangled by fewer than half a dozen companies,” he said in a keynote Monday, the final day of the Silicon Flatirons digital broadband conference at the University of Colorado-Boulder (see 1702120001 for Day One). He took some shots at the new Republican-run FCC, as he has on Twitter (see 1702130037). He said allowing the large broadband providers to consolidate further would make matters worse.

He said the internet's failure to boost productivity hadn't been adequately considered. "It's productivity that drives economic growth and will create the kinds of jobs and economic stability that we all want," he said. Wheeler cited economist Robert Gordon's book, The Rise and Fall of American Growth, as documenting that U.S. productivity growth started to fall after 1970, with the internet not having any positive impact, other than a "blip" in the 1990s that quickly disappeared. Wheeler said that's because the internet was focused on consumer activity while productivity growth came in business and industry.

The internet didn't take off until the World Wide Web allowed mass use, Wheeler said, but "Web 2.0" has basically been "frozen" for years. He backed efforts to develop "Web 3.0" to jump-start productivity growth. "Web 3.0 is the delivery of intelligence, not just information," he said, citing the data that would be collected from sensors on billions of devices and analyzed. "It’s about using information, not just pushing information," he said. "And the value creation that comes from that structure of using rather than pushing creates new products, new services, new economic opportunity, and it changes the economics of the web from push to pull." The idea is to move from "transporting information" to "orchestrating intelligence," he said. Autonomous cars are an example, as they could create a safer highway, which would be more productive, he said. Needed to make the new web work, he said: "counter-party trust" that identifies and validates devices; "analytic capability" that must be farmed out through a "distributive platform" to create "artificial intelligence"; and cybersecurity.

Signals, Spending

Policymakers need to understand industry realities and the early signals from the FCC under the Trump administration weren't good, said the Democrat. “Whether 3.0 is realized is going to depend on the behavior on largely uncompetitive networks, run by fewer than six companies. And if the Trump FCC allows further consolidation, that story only becomes worse." ISP steps to control access to video was something Wheeler said his FCC believed was anticompetitive, and yet the Trump FCC "immediately shut that down." Wheeler criticized ISP "spying on consumers" that mines their network use. "It's bad enough that Russia hacks our democracy," he said. "Networks must have a default expectation of privacy, not a default expectation that the information going over those networks is going to be used by those networks."

The ex-chairman again disputed broadband provider claims that network neutrality regulation and Communications Act Title II broadband oversight hurt investment. He cited AT&T statements that it was increasing network capacity by 250 percent in 2015/16 over 2013/14 for about 75 percent of the cost, and that it expected capital spending to continue to run at 15 percent of revenues -- despite the FCC order in Q1 2015. "That's truly good news," he said. AT&T didn't comment.

Hal Singer, a principal at Economists Inc., said Wheeler is trying to "obfuscate the facts." He said AT&T's top-line capital expenditure had gone from $21.2 billion in 2014, to $19.2 billion in 2015 and $21.5 billion in 2016. "Title II is wonderful, right? Wrong," he said in a Friday piece that referred to a Jan. 13 Wheeler speech as chairman that made similar investment comparisons. Singer said AT&T's buy of DirecTV and some Mexican cellular assets blurred comparisons, requiring related investments to be backed out. "The best estimate for AT&T’s domestic broadband capex in 2015 is $19.2 billion (the top-line figure reported in its annual report) less $375 million in Mexico less $1.5 billion in DIRECTV, or $17.3 billion. And the best estimate for AT&T’s domestic broadband capex in 2016 is $21.5 billion (the top-line figure reported in its annual report) less $750 million in Mexico less $3.0 billion in DIRECTV, or $17.8 billion," Singer wrote. "Put differently, the imposition of Title II is associated with (but did not necessarily cause) an annual reduction of over $3 billion in capital in the broadband sector in each of the last two years. That’s a lot of capital to go missing."

The "new regulatory paradigm" combined broadband oversight with nimble regulation in which the commission forbore from ex-ante price regulation and other regulation, Wheeler said. Results are good: Broadband industry fiber connections are up, network revenue up, stock prices up, he said. "Now the Trump FCC apparently has some other ideas, but this new paradigm is at the heart of our policy of the future." Policy had to be agile and flexible, just like the technology and market it oversees, Wheeler said. "We put that agile regulation in the open internet order in the general conduct rule," he said. "Networks must be truly open, not just regulatory doublespeak that says, 'Well, I've got network neutrality here but it's empty.'"

The U.S. needs "command but not control regulation" that lets technology "tell us where we need to go," said Mark Cooper, Consumer Federation of America research director, also in Boulder. "You want to state your social goals" through commands while giving up control and letting "the marketplace do its thing," he said.

Cooper accused congressional Republicans of indulging the "crony capitalism" and even "fascism" of Trump. "They're trying to destroy progressive capitalism. They want to go back, not to 1960 but to 1860," he said.

Cooper said FCC Chairman Ajit Pai made a mistake by revoking Lifeline broadband provider designations in one of his early acts. "His first act should have been to whack one of the big guys, not the little guys," said Cooper, who believed that would have gotten "people’s attention" that Pai can’t be taken for granted. "He picked the wrong guys to whack. ... That was a big stumble out of the box." Pai's office didn't comment.

Nielsen Executive Vice President Karen Kornbluh said "we're at an inflection point" where if steps aren't taken to ensure greater broadband access "on the front end" while encouraging innovation, the country will be dealing with a lot of inefficient "ad hoc decisions" later. Creating more social "equity" is "always complicated, messy, it has downsides," she said, "but we neglect it at our peril." Comcast Senior Vice President Rebecca Arbogast said broadband trends are moving in the right direction but said the remaining problems are tough, as rural connectivity is expensive and broadband adoption barriers "are deeply engrained" in poverty and people largely disconnected from society.