Self-Regulation of E911 for VoIP: Lessons for the Cable Industry from
Environmental Voluntary Agreements
Tom Lookabaugh and Douglas C. Sicker
Interdisciplinary Telecommunications Program and Computer Science Department
University of Colorado at Boulder
[Tom.Lookabaugh, Douglas.Sicker]@colorado.edu
2005 Magness Institute Academic Seminar
2005 National Cable Television Association Show
San Francisco, California
April 2, 2005
Abstract
It will be difficult and costly to use traditional command and control regulation to
support social policy goals for emergency services access (E911) for all
emerging voice applications enabled by Voice-over-IP (VoIP) technology. A
self-regulation regime by the cable industry and more broadly by the
telecommunications industry could be both more flexible and more efficient.
Whether it would be effective is a different question and one that would need to
be answered proactively as part of any proposal. Here we explore the theoretical
and empirical literature on environmental self-regulation, particularly voluntary
agreements by polluting firms, to understand what would be relevant to a cable
industry self-regulation proposal. Key recommendations include the need to
proactively address effectiveness critiques by advocating an appropriate role for
government regulators in the overall scheme, by monitoring and publicly
reporting outcomes rather than effort, and including appropriate third party
stakeholders in developing agreements so as to avoid the appearance or fact of
regulatory capture.
Introduction
Convergence in the telecommunications industry is leading many operators and
application designers to develop and deploy novel voice applications; the cable industry
is particularly active. Some voice applications look much like traditional telephony,
while others (such as voice augmented instant messaging or video gaming) look quite
different. The reliable provisioning of calling for emergency services (the traditional
E911 framework) remains an important social policy goal. But the strain induced by the
extension of voice applications far beyond the traditional telephony model makes a
straightforward extension of E911 regulation to all voice applications quite difficult.
One approach would be to rely on a government agency (most likely the FCC) to develop
new and extensive emergency services regulations that would be broadened to cover all
emerging voice applications, specifying which ones should confirm with provision of
1
emergency services, how conformance is measured, and then enforcing conformance.
Previously, we proposed a different approach: that the industry develops a self-regulatory
approach based on labeling and certification (Sicker and Lookabaugh, 2004). We
suggested that industry should be strongly motivated to pursue this approach in order to
maintain flexibility that matches the much broader and evolving opportunity set around
innovation based on voice over IP and voice services in new contexts. We warned,
though, that self-regulation for social policy reasons is a relatively new concept and one
fraught with questions, particularly around credibility and effectiveness, and we
developed a set of observations and recommendations to address these.
In this paper we extend that work by carefully evaluating experience in environmental
regulation. Environmental regulation has seen the most active experimentation in selfregulation of any area of social policy. High profile environmental failures like the
Union Carbide gas leak in Bhopal, India, the Three-Mile Island and Chernobyl
radioactivity leaks, and the Exxon Valdez oil spill as well as persistent concerns with
issues like ground water contamination, loss of ozone, acid rain, global warming, etc.,
help draw substantial attention to the question of corporate responsibility for the
environment. A vocal environmentalist movement contests with industry interests in
legislatures, regulatory bodies, and the courts to define and enforce corporate
accountability for the environment. At the same time, recent trends in government are
towards less explicit and comprehensive direct regulation. This has made environmental
policy a testing ground for concepts of industry self-regulation and certification, resulting
in a proliferation of experimentation both domestically and internationally with forms of
voluntary agreements to address social policy goals for environmental protection (Dietz
and Stern, 2004, Garcia-Johnson, 2001). These experiments hold lessons for any new
self-regulatory regime such as the one we advocate for E911 and VoIP – and even
possibly other social policy goals in the telecommunications area.
Regulatory Approaches
Traditional regulatory strategies for achieving social policy goals, including both
environmental and telecommunications policy, have focused on “command and control”,
in which an expert government agency determines and enforces regulations, including
applying penalties and sanctions. More recently, environmental regulation has also seen
the introduction of market instruments that attempt to address economic theory about the
efficient provision of social goods by creating tradable pollution credits.
Market
instruments achieve an important degree of flexibility in the allocation of costs, but are
still embedded in a highly structured, monitored, and enforced regime overseen by
governments. Primary concerns with both command and control and market instrument
regulation are lack of flexibility, high transaction costs, and the potential of stifling
innovation both directly in the form of innovation serving the relevant social policy goals
and other forms of innovation relevant to the affected industry.
More recently, voluntary agreements have emerged as an alternative to either command
and control or to government sponsored market instruments in environmental regulation.
2
Voluntary agreements can take several forms, including (Higley, Convery, and Lévêque,
2001, Alberini and Sergerson, 2002):
•
Intra-industry agreements – in which an industry develops its own framework
independent of any government regulators
•
Negotiated agreements – in which regulatory agencies and firms negotiate targets
for environmental performance
•
Public Voluntary programs – in which a regulator establishes a program and its
requirements and firms choose to participate on a voluntary basis.
An alternative taxonomy is to note that most agreements include two components: a set
of rules, principals, and guidelines and a reporting or monitoring mechanism (GarciaJohnson, 2001). As we will see, those agreements which only include the former tend to
be problematic.
The potential benefits of voluntary agreements are primarily that they can reduce the
perceived problems of traditional regulation by increasing flexibility and lowering costs;
these are as motivating in the area of environmental social policy regulation as they are
potentially for telecommunications regulation.
Firm Rationale and Environmental Voluntary Agreements
Environmental voluntary agreements may have potential advantages relative to
traditional regulation, but they confront a number of credibility and effectiveness
challenges.
We can expect many of these same challenges to apply to
telecommunications social policy regulation.
An important question about voluntary agreements is why we would expect firms to enter
into and perform under such agreements. Two major frameworks are advanced to
explain why firms would and would not participate in voluntary agreements. Institutional
organizational theory typically draws on the framework of DiMaggio and Powell
(DiMagio and Powell 1983); they posit a trend for firms to adopt similar practices and
behaviors over time (isomorophism) driven by coercive pressure (external pressure),
mimetic pressure (the pressure to imitate industry leaders), and normative pressure
(norms derived from professionalism). These pressures can help motivate compliance
with socially desirable goals of minimizing environmental impact even if this is in
conflict with apparent economic goals (Darnall, 2001, Rivera and De Leon, 2004); a
similar analysis derives from managerial and actor theory (Prakash, 2001). Institutional
economic theory, on the other hand, seeks to understand when firms would enter into
voluntary environmental agreements for purely economic reasons, by defining economic
rationales sufficiently broadly to incorporate various stakeholder interests (Alberini and
Segerson, 2002, Harford 1997, Khanna and Anton, 2002, Khanna and Damon, 1999,
Ashby et al., 2004, Delmas and Terlaak, 2001, Anton et al, 2002).
3
The economic approach tends to highlight a set of specific motivations for firms to
undertake voluntary agreements, including:
•
The threat of environmental liabilities
•
High cost of compliance with threatened command and control regulations, if
voluntary agreements fail
•
Customer pressure for conformance
•
Social pressure for conformance (e.g, from NGO’s)
•
Reputational costs
Some authors also posit pressure from investors for conformance, e.g., through
environmentally sensitive investment funds or through highly diversified shareholders
who reflect societies broad interests (Khanna and Anton, 2002, Harford 1997), but there
does not seem to be significant empirical support for this effect (Rivera and DeLeon,
2004).
Free Riding, Industry Concentration, and Anti-Trust
A persistent concern about firm involvement in voluntary agreements is the potential for
free-riding: entering the agreement but underperforming relative to the obligations on the
theory that others who are performing relative to its obligations will secure benefits
shared by all; there is an obvious theoretical basis for this concern and empirical evidence
to support it as well, for example in the Chemical Industry’s Responsible Care program
(King and Lenox, 2000). Free-riding is probably inevitable and it is valuable to minimize
it; however, the fact that some free-riding is present is not sufficient to reject voluntary
agreements as unable to provide net superior efficiency to command and control
regulation (Dawson and Segerson, 2003).
A technique to reduce free-riding is to develop measurement and sanction mechanisms to
discipline firms. One candidate for this role is an industry trade association; this is,
however, problematical as it is not clear whether an association has sufficient
independence to be effective. Moreover, anti-trust legislation normally forbids certain
types of punitive action by trade associations as being overly collusive (King and Lenox,
2000). More generally, there are anti-trust concerns around voluntary agreements
facilitating tacit collusion among industry players and the use of voluntary agreements by
incumbents to raise barriers to entry (Harford, 1997). The interaction with anti-trust
makes the selection of measurement and sanction mechanisms more difficult and leads to
a role for government or for truly independent third party certifiers (King and Lenox,
2000).
Aside from anti-trust issues, it is an open question as to whether industry concentration
facilitates the effectiveness of voluntary agreements. Brau and Carraro argue that
concentration reduces free-riding and so enhances effectiveness (Brau and Carraro,
2000), but Chapple et al. find in both their empirical work and that of others that industry
4
concentration is negatively correlated with involvement with voluntary agreements
(Chapple et al., 2001). Of course these are not quite the same thing: participation in
voluntary agreements may also come with substantial free riding.
Credibility and Effectiveness Challenges to Voluntary Agreements
Effectiveness
Any serious proposal for self-regulation will have to address theoretical and empirical
questions about effectiveness: does self-regulation efficiently meet the social policy goals
it is intended to advance, and in particular, is it better than existing alternatives?
The record for environmental voluntary agreements is mixed. Theoretical arguments in
support of voluntary agreements abound (see the section “Firm Rationale and
Environmental Voluntary Agreements” above) and there is some empirical evidence in
support as well (Khanna and Damon, 1999). However, much of the empirical literature is
ambiguous or negative about effectiveness. Harrison and Antweiler maintain that in a
case they studied in detail, upon further analysis gains purported to be from voluntary
agreements in fact were largely due to traditional command and control regulation
(Harrison and Antweiler, 2003). In several cases, there is suggestion that environmental
performance is actually weakened by voluntary agreements, including the Department of
Energy’s Climate Challenge Program on CO2 emission (Welch et. al., 2000) and the
Sustainable Slopes Program for ski areas (Rivera and De Leon, 2004). The perverse
performance under these agreements is attributed to the lack of specific institutional
mechanisms to prevent opportunism (too much free-riding), including no specific
environmental standards, third-party oversight or sanctions. More generally, an emphasis
on means (“proactive efforts”) rather than ends (measurable outcomes) seems to be
decidedly problematic (Khanna 2001).
Transparency and Stakeholder Involvement
Another broad concern around voluntary agreements is the extent to which parties to the
agreements make them in private failing to incorporate the legitimate needs of all
stakeholders, including society at large. When a regulator is a party to the agreement,
this is the well known problem of regulatory capture (Krarup, 2001). Traditional
strategies for mitigating regulatory capture are transparency and visibility of process and
the explicit involvement of other groups such as NGO’s in structuring agreements
(Carmin et al., 2003); these can add substantial legitimacy to voluntary agreements.
Monitoring
After agreements are reached, effective monitoring of agreements emerges as a common
element for effectiveness (Barth and Dette, 2001, Krarup, 2001). This is a potential role
for a government regulator (Rivera, 2002). Monitoring should be coupled with public
dissemination in order to support the reputational motivation for compliance with
voluntary agreements (Lindsay, 1998); in addition monitoring can provide measurement
5
feedback to firm managers that is valuable in and of itself (Asfah et al., 2000). Examples
of such public monitoring include the U.S. Environmental Protection Agency’s Toxic
Release Inventory (a reporting requirement of the EPA which is then captured in a
publicly available database), the Canadian government’s National Pollutant Release
Inventory, and similar mechanism in Australia and the European Union (Harrison and
Antweiler, 2003).
Certification
Certification is a key part of our proposal for E911 over VoIP. In the case of
environmental regulation, the closest analogy is ISO 14001, a regime like the ISO 9000
framework for quality management (Darnall, 2001). In ISO 14001, facilities develop an
environmental management system (EMS), certified by an external third party auditor.
The facility then implements a process of continuous improvement to reduce
environmental impact through learning, feedback, and proactive management changes.
Most work to date on ISO 14001 has been in observing the dynamics that drive adoption.
Evidence from the adoption of ISO 14001 in Japan shows the difficulty of assuming that
firms share a single common capability and orientation towards adoption; in fact, the
character of adopting firms changes markedly as adoption increases, suggesting
complementary changes in the motivations and support provided by regulators or third
parties (Welch et al., 2002). Evidence from the UK suggests that highly internationalized
industries are more prone to adoption and that firm size and profitability are both
negatively correlated with adoption (Chapple et al., 2002), a finding somewhat
contradicted by a study of US companies showing that adoption is positively correlated
with strong internal capabilities (Darnall, 2001). The cultural environment and role of
government regulators seems to be particularly pronounced in distinguishing between
adoption rates in the US and in the EU (Delmas, 2002).
Credible Threat of Regulation
A consistent finding in both the theoretical and empirical literature on environmental selfregulation is the requirement for a credible threat of costly command and control
regulation imposed by government should self-regulation fail (Convery and Lévêque,
2001, Khanna and Damon, 1999, Khanna 2001, Alberini and Segerson, 2002). In a game
theoretic analysis, for example, Ashby et al. are quite explicit: “These observations
suggest that government has an incentive to generate the expectation of a zero tolerance
regime irrespective of its true intentions…. However, governments following this
approach need to avoid a credibility gap as the one generated by the UK government’s
failure to legislate following a series of damning reports on press self-regulation.” (Ashby
et al, 2004)
A regulatory threat can be one of command and control regulation with either impacts on
firm flexibility or directly on cost through compliance costs and potential penalties, or the
threat of a costly taxation regime. (Convery and Lévêque, 2001).
6
Dissemination of Expertise
A complement to a credible threat of regulation is the positive role of disseminating
technical expertise or other knowledge by a government regulator or other third party.
This has proven valuable in helping small and medium players participate in
environmental voluntary agreements and can take a number of forms, including
outreach/education, tools development and dissemination, challenge/recognition/award
programs, demonstration projects, and technical assistance (Lindsay, 1998).
Recommendations to the Cable Industry
Based on this analysis of experiences in environmental self-regulation, we can augment
and amplify our previous recommendations (Sicker and Lookabaugh, 2004) as follows:
1. Assume that any industry proposal for self-regulation for social policy goals by
the cable industry or more broadly by the telecommunications industry will be
met with skepticism by other stakeholders. Anticipate this in developing the
proposals.
2. Anticipate and promote a role for a government regulator to negotiate agreements
and provide a credible threat of command and control regulation. Involve other
stakeholders (e.g., NGO’s) in the negotiation to avoid the fact or appearance of
regulatory capture.
3. Look to an independent third party (either a certifier or a government regulator,
not a trade association) to monitor and publicly report performance and
disseminate knowledge and expertise.
4. Performance needs to be measured against specified outcomes, not effort or
intention.
Conclusion
Self-regulation for social policy goals is a challenging but enticing proposition.
Advantage flows from the potential for increased flexibility and lower costs (both for
regulator and for regulated firms) relative to traditional command and control regulation.
The challenge comes from skepticism (often justified) regarding the effectiveness of this
kind of regulation.
We see self-regulation as a possible approach to the application of E911 style emergency
services calling goals to the proliferation of new communication applications emerging as
networks converge onto a common IP infrastructure. And, if successful there, we can
imagine a number of other telecommunications social policy goals that could be
amenable to a similar treatment. Indeed, we are hard pressed to see how an expert
agency will be able to keep up with the rate of innovation now occurring; either a more
flexible regulatory system such as self-regulation will emerge, or regulatory agencies will
find themselves directly constraining valuable innovation.
7
But for self-regulation for social policy goals to be credible, we need to learn from
previous experiences in similar endeavors. The field of environmental self-regulation
through voluntary agreements has been one of the most active areas of experimentation in
new forms of regulation over the last decade and a half. A substantial collection of both
theoretical and empirical work has emerged and we can learn several useful lessons. In
particular, it seems clear that in constructing a proposal we should actively seek out a
government agency capable of providing a credible threat of command and control
regulation; such a threat helps save industry from itself by providing what appears – from
the experience in environmental self-regulation – to be a necessary context for a
successful regime. Other key findings include the need to define, measure, and publicly
report results using an independent third party (possibly, but not necessarily, the same
government agency) in order to reduce the tendency for free-riding by firms, and the
desirability of taking advantage of this same third party to assist in dissemination of
knowledge that will support successful self-regulation by firms, and the advantage to
credibility from including other interested parties such as NGO’s in development of selfregulation policies (rather than simply relying on industry and regulators to engage in
bilateral negotiations). These findings further help us in defining and supporting a
credible self-regulation proposal to the industry, government, other stakeholders, and
society at large.
References
Albano, G. L. and A. Lizzeri (2001). "Strategic Certification and the Provision of Quality."
International Economic Review 42(1): 267-283.
Alberini, A. and K. Segerson (2002). "Assessing Voluntary Programs to Improve Environmental
Quality." Environmental and Resource Economics 22: 157-184.
Andrews, R. N. L. (1998). "Environmental regulation and business 'self-regulation'." Policy
Sciences 31: 177-197.
Anton, W. R. Q., G. Deltas, et al. (2002). Incentives for environmental self-regulation and
implications for environmental performance. Urbana-Champaign, IL, Environmental and
Resource Economics Program.
Asfah, S., A. Blackman, et al. (2000). How do Public Disclosure Pollution Control Programs
Work? Evidence from Indonesia. Washington, D.C., Resources for the Future.
Ashby, S., S.-H. Chuah, et al. (2004). "Industry Self-Regulation: A Game-Theoretic Typology of
Strategic Voluntary Compliance." International Journal of the Economics of Business
11(1): 91-106.
Barth, R. and B. Dette (2001). The Integration of Voluntary Agreements into Existing Legal
Systems. Environmental Voluntary Approaches: Research Insights for Policy-Makers
from the Policy Workshop on the Use of Voluntary Approaches, Brussels.
Brau, R. and C. Carraro (2001). Are VAs a threat to competition? Environmental Voluntary
Approaches: Research Insights for Policy-Makers from the Policy Workshop on the Use
of Voluntary Approaches, Brussels.
8
Carmin, J., N. Darnall, et al. (2003). "Stakeholder Involvement in the Design of U.S. Voluntary
Environmental Programs: Does Sponsorship Matter?" Policy Studies Journal 31(4): 527544.
Chapple, W., A. Cooke, et al. (2001). "The Characteristics and Attributes of UK Firms Obtaining
Accreditation to ISO 14001." Business Strategy and the Environment 10: 238-244.
Convery, F. and F. Lévêque (2001). Applying Voluntary Approaches – Some Insights from
Research. Environmental Voluntary Approaches: Research Insights for Policy-Makers
from the Policy Workshop on the Use of Voluntary Approaches, Brussels.
Darnall, N. (2001). Adopting ISO 14001: Why Some Firms Mandate Certification while Others
Encoruage It. Twenty-Third Annual Research Conference for the Association for Public
Policy Analysis and Management Fall Conference: "Public Policy Analysis and Public
Policy: Making the Connection", Washington, D.C.
Dawson, N. L. and K. Segerson (2003). Voluntary Agreements with Industries: Participation
Incentives with Industry-wide Targets, University of Connecticut Department of
Economics.
Delmas, M. A. (2002). "The diffusion of environmental management standards in Europe and the
United States: An institutional perspective." Policy Sciences 35: 91-119.
Delmas, M. A. and A. K. Terlaak (2001). "A Framework for Analyzing Environmental Voluntary
Agreements." California Management Review 43(3): 44-63.
Dietz, T. and P. C. Stern (2002). New Tools for Environmental Protection: Education,
Information, and Voluntary Measures. Washington, D.C., National Academies Press.
DiMaggio, P. J. and W. W. Powell (1983). "The Iron Cage Revisited: Institutional Isomorphism
and Collective Rationality in Organizational Fields." American Sociological Review
48(2): 147-160.
Garcia-Johnson, R. (2001). Certification Institutions in the Protection of the Environment:
Exploring the Implications for Governance. 23rd Annual Research Conference of the
Association for Public Policy, Analysis & Management. Washington, DC.
Harford, J. D. (1997). "Firm Ownership Patterns and Motives for Voluntary Pollution Control."
Managerial and Decision Economics 18: 421-431.
Harrison, K. (1999). "Talking with the Donkey: Cooperative Approaches to Environmental
Protection." Journal of Industrial Ecology 2(3): 51-72.
Harrison, K. and W. Antweiler (2003). "Incentives for Pollution Abatement: Regulation,
Regulatory Threats, and Non-Governmental Pressures." Journal of Policy Analysis and
Management 22(3): 361-382.
Higley, C. J., F. Convery, et al. (2001). Voluntary Approaches: An Introduction. Policy
Workshop on the Use of Voluntary Approaches: Environmental Voluntary Approaches:
Research Insights for Policy-Makers, Brussels.
Khanna, M. (2001). "Non-Mandatory Approaches to Environmental Protection." Journal of
Economic Surveys 15(3): 291-324.
Khanna, M. and W. R. Q. Anton (2002). "Corporate Environmental Management: Regulatory and
Market-Based Incentives." Land Economics 78(4): 539-558.
9
Khanna, M. and L. A. Damon (1999). "EPA’s Voluntary 33/50 Program: Impact on Toxic
Releases and Economic Performance of Firms." Journal of Environmental Economics
and Management 37: 1-25.
King, A. A. and M. J. Lenox (2000). "Industry Self-Regulation without Sanctions: The Chemical
Industry Responsible Care Program." Academy of Management Journal 43(4): 698-716.
Lindsay, C. (1998). Extended Product Responsibility Through Voluntary Partnership. OECD
Workshop on Extended and Shared Responsibility, Washington, D.C.
O'Rourke, D. (2003). "Outsourcing Regulation: Analyzing Nongovernmental Systems of Labor
Standards and Monitoring." The Policy Studies Journal 31(1): 1-29.
Prakash, A. (2001). "Why do Firms Adopt 'Beyond-Compliance' Environmental Policies?"
Business Strategy and the Environment 10: 286-299.
Rivera, J. (2002). "Assessing a voluntary environmental initiative in the developing world: The
Costa Rican Certification for Sustainable Tourism." Policy Sciences 35: 333-360.
Rivera, J. and P. d. Leon (2004). "Is Greener Whiter? Voluntary Environmental Performance of
Western Ski Areas." The Policy Studies Journal 32(3): 417-437.
Rugman, A. M. and A. Verbeke (1998). "Corporate Strategies and Environmental Regulations:
An Organizing Framework." Strategic Management Journal 19: 363-375.
Sharma, S. (2000). "Managerial Interpretations and Organizational Context as Predictors of
Corporate Choice of Environmental Strategy." Academy of Management Journal 43(4):
681-697.
Sicker, D. C. and T. Lookabaugh (2004). “A Model for Emergency Service of VoIP Through
Certification and Labeling,” Telecommunications Policy Research Conference 2004, George
Mason University, Oct. 1-3, 2004.
Welch, E. W. and A. Hibiki (2002). "Japanese voluntary environmental agreements: Bargaining
power and reciprocity as contributors to effectiveness." Policy Sciences 35.
Welch, E. W., A. Mazur, et al. (2000). "Voluntary Behavior by Electric Utilities: Levels of
Adoption and Contribution of the Climate Challenge Program to the Reduction of Carbon
Dioxide." Journal of Policy Analysis and Management 19(3): 407-425.
Welch, E. W., Y. Mori, et al. (2002). "Voluntary Adoption of ISO 14001 in Japan: Mechanisms,
Stages and Effects." Business Strategy and the Environment 11: 43-62.
10