Federalism vs. Limited Government

As I've written before (see this on a proposal for a telcom act for 2003 and this for thoughts on the regulatory meltdown), now that the tech industry's fate is tied to the growth of bandwidth more than microprocessor power the regulatory issues concerning telecom will become all important. One of the key fronts is the regulation of local phone lines--and whether the FCC should not only deregulate but ban the states from regulating or whether the federals should just kick the can down to the states. This pits two libertarian principles against each other: federalism vs. deregulation. Peter Huber convincingly argues that we should "forget federalism" in this piece from National Review Online. Excerpts from Huber's piece:

when Congress passed the 1996 Telecommunications Act ... ordinary, local and long-distance wired voice calls still generated 90 percent of the telecom industry's total revenues, with wireless and data evenly splitting the rest. Today, the numbers are about 40-30-30; in five years, they'll be 20-40-40.

This profound shift in the structure of telecom markets now threatens to topple century-old regulatory bureaucracies. But the regulators are fighting back. ...

For much of the last century, Washington regulated railways, trucks, and airlines; when deregulators finally gained the upper hand, they passed federal laws that preempted reactionary state regulators, too. Most conservatives are federalists, and reflexively oppose made-in-Washington solutions because experience teaches that they generally don't work. But regulatory swamps created in Washington have to be drained there too. The federalists lost the fight for a "more granular" approach to telecom regulation in 1996. They shouldn't want to win it now.

This is what SHOULD have been done--to see what was done, read this. In short, the FCC did the right thing when it came to broadband but has left the states to regulate local phone service. Not only is this bad news for RBOCs, and I believe consumers, it's going to be particularly bad for folks who live in regulation loving states like California and New York. The real story here is that California, already hostile to business from a regulatory standpoint and expensive from a tax standpoint, might become more and more inhospitable to the kind of entrepreneurial forces that have made it the economic powerhouse it has become.