Telecommunications Policy

How Denmark Has Overtaken the U.S. as a Telecom Policy Leader

It's all about deregulation to foster innovation.

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free internet
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In the 1990s, the world looked to the United States as a model for deregulatory telecom and tech policy. Not only was the country fortunate enough to house Silicon Valley's pressure cooker of internet innovation, but its policy makers seemed to deeply understand the need for a culture and regulatory approach that truly embraced experimentation and permissiveness.

Regulators around the world took notice and strove to emulate the success of the U.S. approach. Denmark in particular styled its own telecommunications regulations on the U.S. model, slashing its chief telecom regulator altogether and assigning small regulatory functions to other departments.

It was a smash success. Today, the Danes enjoy some of the highest quality broadband and mobile penetration in the world at affordable prices with little government intervention, explains a recent Mercatus research paper by telecom scholars Roslyn Layton and Joseph Kane. By eliminating a source of regulatory capture and streamlining regulatory obligations, regulators could dedicate resources to working on actual problems, like creating a lean, digital bureaucracy appropriate for the information revolution.

Ironically, a decade later, the U.S. has since slid back into a precautionary mindset towards technology policy. Today, it seems that the Danish student has surpassed the American teacher, and the Federal Communications Commission (FCC) may well be turning to the Danish model to recapture some of our earlier progress.

This was the takeaway of a recent event hosted by the Mercatus Center on the topic of Danish telecom deregulation as a model for U.S. policy. The discussion—emceed by yours truly—presented two panels on the respective topics of Denmark as a case study and the concrete lessons that the U.S. can extract from the Danish experience.

Such great promise

On the first panel, my Mercatus Center colleague Brent Skorup facilitated a dialogue with Layton, former FCC Commissioner Robert McDowell, and Phoenix Center president and telecom scholar Lawrence Spiwak on the Danish telecom miracle. Deregulation not only spurred a veritable renaissance of broadband investment and deployment, it also cut down on cronyism by eliminating a major target of corporate lobbying. Layton's policy recommendations were clear: "The job of a telecommunications regulator is to put itself out of business."

At one point, the U.S. was moving close to that ideal. President Bill Clinton's extraordinary "Framework for Global Electronic Commerce" of 1997 outlined a hands-off posture toward Internet technologies that could have been drafted by Milton Friedman himself. Good riddance to the heavy-handed, precautionary regulation of the past. In its place would be a "market-driven arena" in which government involvement would be limited to ensuring "industry self-regulation and private sector leadership."

The FCC started to turn over a new leaf as well. Unlike the booming new native internet industry, the underlying telecom infrastructure that made such developments possible were theretofore unfortunately burdened by antiquated telephone regulations established in the wake of the Great Depression.

That government-first mindset changed with the ascendancy of Chairman William Kennard to the FCC in 1997. Kennard fully understood the potential of the internet to revolutionize commerce and daily life. More importantly, he was acutely aware of the potential for bad policy to stifle the amazing opportunities that digital technologies presented. In his view, the best way to promote fast, expansive, affordable telecom access was to "resist the urge to regulate" and allow the market to drive development. So Kennard steered the FCC to peel back bad regulations and leave as much space for innovation for new technologies as possible. The general goal was for the FCC to move "from an industry regulator to a market facilitator" by 2005, as Skorup cited from Kennard's 1999 strategy document.

Straying from the course

Yet, as McDowell and Spiwak pointed out at the event, the FCC has strayed far from these ideals in the years since. There is no question that the policies that were implemented worked—spurring an "incredible explosion of entrepreneurial brilliance" in McDowell's estimation.

But the federal government stopped short of amending or repealing important portions of the 1934 Federal Communications Act that regulated new technologies in an outdated and inappropriate manner. More control means less flexibility and ultimately fewer opportunities for consumers and entrepreneurs.

Furthermore, political changes influenced the culture of the FCC during the Obama administration, which turned to more aggressive attempts to design industry landscapes. It's not just a "net neutrality" thing, either—although that was a huge expansion in government power. Spiwak pointed to examples like the FCC's attempted crackdown on set top boxes (and eventually TV streaming apps) to demonstrate how such interventions could intentionally siphon profits from targeted firms and therefore limit investment. One study from the Phoenix Center estimated the opportunity cost of such policies to be roughly $20 to $30 billion in lost service advancements a year.

In less than a decade, the United States regressed from being a world leader in laissez faire telecom oversight—with the dazzling results that followed—to a run-of-the-mill command-and-control style industrial planner whose thinking was mired in the bad old days of the Great Depression.

There is good news. Under the capable leadership of current Chairman Ajit Pai, the FCC is well-poised to return to and even exceed its glory days of light touch regulation and permissionless innovation. It may just mean that the US will take a page from the book of one of its old students.

The student becomes the teacher?

The second panel of the event featured a fascinating conversation between Pai and one of the former Danish regulators involved in their successful deregulation, Jakob Willer. Wall Street Journal Chief Economics Commentator Greg Ip moderated, probing the panelists to explore the similarities and tensions between the two regulatory bodies.

It was a fairly unique exchange. Willer and his colleagues had been deeply inspired by the vision outlined by former Chairman Kennard in his 1999 FCC Strategy Document, traveling to the U.S. in 2000 to pick the FCC's brains and determine how Denmark could best adopt this framework. They really meant business. Willer described their goals as to promote "market-led development" and a "technology neutral regulatory environment."

Perhaps most importantly, Danish deregulation has been stable, remaining consistent throughout the swings of electoral politics since 1999. In fact, the biggest threat to Danish telecom does not come from within its borders at all, but from Brussels, which seeks to impose harsh "net neutrality" regulations on European Union member states.

Many of Willer's observations dovetailed nicely with the path forward that Pai sketched for the FCC. Both men agreed on the importance of preventing regulations from discouraging investment and innovation. Pai stated that he hoped to turn the FCC away from the "economics-free zone" of his predecessor and toward a culture where economic analysis drives all ex ante regulation.

We might not expect the FCC to disband completely in the next few years—as Pai quipped, he certainly does not want to see himself put out of a job during his term. And there are important differences between Denmark and the U.S. that change the calculus of regulatory effectiveness—Denmark is blessed with a smaller population and greater city density, which makes broadband deployment a bit easier, for instance.

Still, Americans should take heart that the FCC is looking to the world's most successful telecom deregulator as an inspiration for policy. And Pai has made it abundantly clear that his agency will focus on disbanding old regulations that make no sense and directing resources to addressing contemporary problems as the Danes did. If the agency stays the course, the FCC may very well return to its glory as a global leader in smart telecom oversight.

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  1. its policymakers seemed to deeply understand the need for a culture and regulatory approach that truly embraced experimentation and permissiveness.

    More like its policymakers were too busy clawing at each others’ throats to notice all that sweet taxable innovation.

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  2. Sucks when socialists out capitalist us

    1. “Sucks when socialists out capitalist us”

      It would if it happened.

    2. Duh!

  3. This is a horrible article.

    The telecom industry in Denmark is subsidized. There is a near monopoly by one telecom company TDC (Tele Danmark Communications).

    Denmark has a tax rate of over 50% of GDP and is a massive welfare state. This includes massive crony welfare to companies too.

    With Denmark’s 5.7 million people, its a drop in the bucket to service them with subsidized ISPs and telecom.

    The USA has ~330M people and a huge land mass compared to Denmark. As one of 4 major cell carriers, Verizon has 147M cell customers and 5 million customers of FiOs in 5 of 50 states.

    1. Denmark isn’t special in having faster and more ubiquitous broadband than the US. Most small, wealthy countries are in the same boat. South Korea has the fastest average internet speed in the world. If everyone in your country lives in a big, wealthy city then ubiquitous and fast broadband isn’t too hard.

    2. Plus they have universal health insurance – and high tax rates – and they’ve already surrendered to Islamists. All just part of the slippery slope of actual telco deregulation.

      BTW – TDC was privatized – and was focused OUTSIDE Denmark while Denmark itself was highly competitive with no subsidies by 2004. Until 2005 – when PRIVATE EQUITY (Blackstone, KKR, and others) bought TDC and forced it back into focusing solely on Denmark. This is the same damn problem re privatization/deregulation of utility-type companies that occurred in the 1890’s (eg in Detroit and Cleveland). No matter how much pols might occasionally do the correct thing, they will NEVER succeed because private M&A/banks (who are EASILY the most subsidized industry of all) will always force the trough back open and eliminate competition and free markets.

      1. I saw that they are a private company which is why I did not say TDC Group is a public company.

        According to their financials, TDC is 85% in Denmark and 15% in Norway.

        The reason the socialist government step in is because these companies are not competitive and the model only works for so long. The company loses money, so the socialists step in to save their cronies from bankruptcy.

        The main point being that the FCC is a bloated government agency like Denmark’s bloated agencies with some differences. Denmark is not some fantastic success story and that is why this article is BS.

        1. That’s just post-facto crap. TDC was acquired in 2005 by private equity and forced – by them not govt – to divest intl businesses (which were 50% of revenues in 2005 – incl Switzerland, Poland, Baltics, Germany, Hungary, Czechia, UK, etc). Pulling back from those were not operating/market decisions. They were financial/tax decisions made by their new owners (who also owned large debt/equity stakes in the non-Danish telcos that TDC was quite effectively competing with). Who were using their cronyist control over central banks and subsidized money to efficiently organize and consolidate global telco industry in order to maximize economic rent. The Danish govt is not even a pimple on the cyst on the butt of that globalist type bull.

          You are simply a clown who is trying to wrestle with the only strawman you know.

          1. Oh – and the 1890’s stuff re utilities (esp Hazen Pingree and Detroit) is really very instructive. Neoliberals didn’t invent privatization in the 1980’s. Pingree tried repeatedly to get competition going in various then-private Detroit utility companies. EVERY SINGLE TIME, the competition would end in six months with a then ‘private-equity’ group (funded by JP Morgan in his ‘efficient trust’ heyday) buying up all the competitors and reconsolidating everything to suck at the public teat again. Pingree’s only solution back then was to start municipally-owned utilities that couldn’t be sold and reconsolidated back into a monopoly.

            Not that that’s the solution now – but understanding the WHY of that stuff THEN is still informative. The biggest enemy of competition and free markets is not necessarily gummint. Private banks/finance hate competition even more and have their own incentives to force gummint into giving them rent – then and now.

          2. Wow. You are just going to keeping doubling down on clownish nonsense to avoid the reality that businesses will never be tyrannical like government can be.

            The tax problems you mention are Denmark’s government taxing the crap out of the businesses to pay for a welfare state.

            Even LEGO, a hugely successful Danish toy company internationally, is bogged down by Danish government’s regulations and taxes. LEGO prices are far higher than they should be to be competitive.

            As I said, this article is a white wash of socialist policies that superficially appear to be great for short periods but scratch the surface and there is rot.

            1. No – the tax stuff I mentioned is about the deductibility of interest – hence the subsidizing of debt over equity. Which is a subsidy to LBO houses – and has fuckall to do with Denmark.

  4. Statements like this really annoy me:

    There is no question that the policies that were implemented worked?spurring an “incredible explosion of entrepreneurial brilliance” in McDowell’s estimation.

    No, it’s the lack of the prior policies, the lack of regulation, which unleashed the market. You may as well say “There is no question that the muggers’ turn to pickpocketing spurred an increase in nightlife.”

  5. This is one of the best articles I have come across. Keep up the good work.
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    1. This is one of the worst comments I have come across. Don’t keep up the bad work.

  6. Aw, isn’t this nice. The regulators are going to slack off a little and let more of the market work again.
    They still pretend they aren’t the biggest problem facing markets and preventing the satisfaction of consumer demand!

  7. I dislike comparisons of “high quality bandwidth” as it tends to be hard to do. America has weirdness going on I believe could be fixed, but it’s also a huge sprawling mass with many people actually living in that sprawl. Denmark is an entire country that is about 3 times the area of LA. It’s hard to compare infrastructure with these differences. Like when people compare Souel to the US.

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