Forbes magazine titled a 2013 article Lessons From Uber: Why Innovation And Regulation Don’t Mix. It’s a common enough view in innovation circles.
Research by the Manchester Business School and research for the EU has found that the answer to the question ‘Does regulation hinder innovation?’ is ‘It depends.’ Regulatory design is what matters, not the simple existence or otherwise.
The Economist in 2009 noted the conclusion from the book Transforming Global Information and Communication Markets that “The most important factor that led to America’s stunning success in information technology was not the free market but government regulation.” While the trust-busters that deregulated get a guernsey, they found that:
…good regulation is more important than simply freeing markets in technological industries… Counterintuitively, fragmenting these industries helped common standards to emerge. Such standards allowed businesses to become “modularised” so that, for instance, Microsoft’s operating system and Novell’s applications run on IBM’s hardware while an AT&T internet connection can be used to access Google’s search engine.
Taking this analysis a step further, countries that never experienced this great regulatory splintering are at a disadvantage. They are trapped in a mid-20th-century form, characterised by domineering, vertically integrated firms, which try to do everything in-house or at least keep it within their family of closely related companies. As a result, customers are beholden to suppliers, and innovations go under-exploited. This is how things are in Japan.
Australia was part of the great trust-busting movement introducing competition in telecommunications, and had great expectations for what it would do for Australian industry.
In 1992 a senior bureaucrat contributing to the book Competition Policy in Telecommunications and Aviation asserted that the telecommunications industry was generally considered to be one in which Australia had the potential to be a significant international player. Opportunities for international participation were expected to improve from technological change, innovation by providers and increasing deregulation.
Opportunities were expected in five specific areas; export of equipment, export of services (such as network management or entertainment and education services), turnkey activity (which Telecom and OTC were both engaged in at the time), equity participation in overseas companies and ‘network hubbing management’.
None of this eventuated.
This history is worth reflecting on as the Government considers the submissions to its review of the ACMA.
The ACMA itself is the outcome of an earlier inadequate review process. It was created in 2005 by bringing together the Australian Broadcasting Authority and the Australian Communications Authority.
That merger to create a “converged” regulator was doomed to failure, as the legislative process did not undertake any convergence of the regulatory regime.
The Convergence Review commissioned by Senator Conroy also failed in its brief. Firstly the terms of reference were too narrow, excluding consideration of telecommunications issues as these were still under review from NBN processes. Secondly the work of the inquiry was dramatically overshadowed by the notionally sub-ordinate Finklestein inquiry into media regulation.
The current inquiry is also hamstrung by a limited scope, being primarily focused on the functions of the regulator rather than the objects and scope of regulation.
Thankfully submissions have been more ambitious than the terms of reference.
Free TV for example has referred to another review that has been gathering dust, the Review of the National Classification Scheme by the ALRC. While their submission focused on the ongoing asymmetric regulation of free television compared to other content services (points noted in the Convergence Review) they also recommend “Primary responsibility for regulating the National Classification Scheme should lie with a single regulator, the ACMA.”
Similarly Communications Alliance is unsurprisingly focused on maintaining a bias against intervention and developing a culture of continuous improvement. But overall they want a regulator to “Remain committed to facilitating competition, innovation and investment in the telecommunications and other regulated sectors and to promoting consequent consumer benefit.”
Alcatel-Lucent chimed in including a white paper The Future of Digital Services Delivery. They argue that to realise the vision of a dynamic digital market will require a regulator that “understands and can flexibly promote a complex service delivery environment encompassing retail and business consumers, today’s retail and wholesale service providers, early phase digital content providers as well as the full range of future digital application services providers.”
Unfortunately Google made a very short two page submission and didn’t embrace the opportunity presented by the review. Google has been particularly strong on the topic of “fair use” as recommended in the ALRC report Copyright in the Digital Economy. Google argues that without the US fair use law their search service could not have been developed, and that the failure to implement a similar law in Australia detracts from the ability to innovate.
This is just an outline of areas where the approach taken to regulation in the information and communications space can have a big impact on the innovation capability of the economy.
It has become quite common to contrast the timidity of the current Australian Government with the bold reform agenda of their conservative counterpart in New Zealand. There the Kay government has just launched their own review of convergence. This is a multi-strand project that includes content regulation and classification, telecommunications and spectrum regulation, and cybersecurity among others.
Some of the elements of the review also form part of the Government’s Business Growth Agenda.
Our New Zealand friends are undertaking the kind of broad review that we need in Australia.
As Communications Minister Malcolm Turnbull was hamstrung by the limitations of his portfolio description, he didn’t even have “Digital Economy” in his title.
In his first address as Prime Minister designate he has stated his intention to reinvigorate the Government’s policy making in relation to embracing the opportunities that the 21st century has to offer.
As he shapes his first Ministry he has the opportunity to address some machinery of government matters that are long overdue. The first is to bring IT policy back with communications, and that should include both the industry policy and procurement. The second is to bring all the content related issues into communications including copyright and classification. The final one would be to bring the national security issues back to communications as the Attorney-General’s Department has made a complete hash of those.
Of course, the temptation will be to leave the elements where they are and attempt to do all the co-ordination from the Prime Minister’s Office. He will find that he will be adequately busy coordinating the rest of the Government.
The only challenge remaining will be to find a Minister capable of handling the diverse portfolio. Assuming the choice was from the existing outer Ministry Senators Nash and Fifield may be up to the challenge.