In 1947, AT&T Inc. reached out to the US Federal Communications Commission (FCC) with a proposal to roll out a telecommunications network based on cellular mobile technology. FCC, at that time, thought a mobile telephone was a luxury, a niche service aimed at a tiny user base. It refused to license AT&T any spectrum, choosing instead to earmark spectrum for television—even though that industry had more than it would ever need. As a result, even though we had the technical expertise and companies willing to invest in the technology, it wasn’t until the 1980s—over three decades later—that the development of mobile communication finally got underway. Given how significantly that technology has influenced global communications and commerce, I cannot help but wonder how much further down the road we might already be, if only FCC had approved the technology sooner.
The regulatory basis on which the telecom industry operates is that everything is prohibited unless specifically permitted. The government incrementally allows new technologies after much deliberation and forces anyone looking to try something new to first ask for permission before starting the business. As a consequence, innovation in the telecom sector is often delayed because regulators, who are by definition the very antithesis of entrepreneurs, don’t always see the potential of a new idea.
The internet, on the other hand, has always been completely unregulated—in its early days because no one really understood how it worked, and later on because the velocity at which things changed on the internet made it impossible for anyone to regulate it fast enough. As a result of this regulatory vacuum, the internet was able to rapidly grow into the ubiquitous infrastructure-of-everything that it is today, its tentacles reaching into nearly everything we do and guaranteed to penetrate further still.
The story of these two industries—the internet and the cellular mobile industry—is a living example of how society can benefit from permissionless innovation on the one hand and the extent to which progress can be stunted when it is constrained by regulatory approvals.
But in addition to the obvious regulatory approvals that many new businesses need to obtain, there is a more insidious permission constraint on innovation in some sectors: the need to obtain the permission of competitors.
There are many businesses that need licenses to operate (the legal business is one) and often, those licenses are hard to come by, not because regulators are reluctant to issue them but because incumbents have the ability to lobby against the opening up of the sector to competition. Early ride-sharing businesses had to deal with the taxi lobbies that claimed that these new internet platforms that did little more than match demand with supply were actually a taxi business and needed a licence to operate. Similar hurdles were placed before apartment sharing services who were allegedly providing a lodging service just like hotels, hence had to be licensed as one. When entrepreneurs in India found a more efficient way to deliver medicines to your doorstep, at times within an hour of placing the order, pharmacies protested against this new-data driven business model, claiming that anyone delivering pharmaceuticals had to be licensed as pharmacists—even though at the heart of it all they were doing was providing a logistics service.
Rear Admiral Grace Hopper once said, “If it’s a good idea, go ahead and do it. It’s much easier to apologize than it is to get permission.” Most of the successful tech businesses that we admire today have been able to disrupt the prevailing order simply because they built their businesses on this principle. At the same time, it is hard to assess how many countless other innovative models have chosen not to risk facing off against either regulators or competitors in a permission showdown. If innovation is to truly prosper and if we are to become a country that supports entrepreneurship and improves the ease of doing business we will need, first and foremost, to find ways to foster permissionless innovation. This would require us to substantially dismantle our regulatory infrastructure wherever possible so that entrepreneurs can be given the freedom to experiment with new business models as they choose. We should find ways to make our regulations light—permissive by default and interventional only when there is a genuine risk of danger to the public that the business is either unaware of or has chosen not to fix even after repeated warnings from the regulator.
But perhaps more importantly, we should ensure that incumbents are not allowed to consolidate their position at the cost of newer and more innovative ways of doing business—so that we allow new ideas to bubble up without the curse of tradition weighing them down.
Rahul Matthan is a partner at Trilegal. Ex Machina is a column on technology, law and everything in between. His Twitter handle is @matthan
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