The FCC: An Irrelevant Agency In Pursuit Of An Agenda
The nomination of Tom Wheeler, President Obama's choice to head the Federal Communications Commission, veered to the political when Sen. Ted Cruz (R-Tx.) blocked a vote over concerns about restrictions on political advertising. Yet the narrow focus of this public debate ignores much larger questions about the FCC and its ability to regulate a dynamic and rapidly evolving technology sector. Established in 1934, the agency's regulatory toolkit and worldview are hardly applicable to today's market. Rather than debate a small policy battle, it would be better to examine the relevance of the FCC's continued existence.
Landline telephones-long a staple of the agency-have been surpassed by competitive wireless communications and broadband networks that provide consumers far more value than plain old telephone service ever did. In fact, 67 percent of the phones purchased last year were smart phones that, in addition to simple phone calls, provide consumers a portal to the Internet and the information economy. Moreover, competition in this market is thriving: According to the FCC, in 2012, more than 90 percent of the population in the United States had access to wireless service from three or more carriers. Trying to regulate this market with the monopoly rules of the past would do more harm than good.
Perhaps to ensure its relevancy and justify its future, the FCC has latched onto Internet regulation as a lifeline, seeking to pull the Internet into the web of regulations that were developed to regulate telephones in a bygone era. However, with broadband services classified as information services, the FCC's ability to regulate the Internet has been limited. To date, the Internet has avoided the common carrier regulation that stifled competition in traditional copper landline service. But the FCC issued an Open Internet Order in 2010 that prohibits broadband providers from blocking or discriminating against any content. This creates a backdoor to a new regulatory regime for the FCC. Verizon sued, and in September the D.C. Circuit Court of Appeals heard oral arguments in this pending case.
The case is important because the broadband and content markets are evolving swiftly, and should the courts rule in the FCC's favor, innovation and competition could be hampered. Questioning from the judges suggests they are skeptical of the FCC's claims, and hopefully they will limit the agency's attempt to expand its authority. If that happens, the FCC's relevance will be diminished further.
That does not mean that the emerging broadband market is perfect. Impediments continue to exist that should be addressed through government action. Government created many of the distortions in the market, and it will take government action to remove them. One of the primary problems is that growth in the marketplace is pushing the limits of the existing broadband economy. With the rise of cloud computing, streaming video services and other bandwidth intensive products, broadband providers are running into very real constraints on just how much content they can provide. Google and YouTube alone account for 25 percent of Internet traffic. Netflix is even larger, but tends to peak at certain times of the day.
Bandwidth is a scarce resource, and much of it continues to be held by the government. Moving forward, spectrum reform and open spectrum auctions will be required to move more bandwidth to the private sector. Sensible, market-oriented reforms of spectrum policy raise questions about the continued need for FCC regulation of the old broadcast networks. Spectrum reform is critical, but that does not mean the FCC needs to manage it. Brent Skorup of the Mercatus Center suggests creating a single depository of spectrum (he suggests a GSA-type entity) within the federal government to manage all spectrum owned and used by the federal government. Importantly, he also recommends moving to market prices to help improve the allocation of spectrum.
Step back and examine the larger picture. The question should not be how to fit the Internet into the FCC's plans. Rather, the question is how to let the next generation of technologies serve consumers best, and that does not necessarily include a role for the FCC. Today's broadband markets are not defined by the regulated monopolies that were the FCC's sine qua non. Competition does exist among broadband providers, no matter how much the FCC tries to minimize this fact. It is clear that the goal of broadband policy should not be to establish a new system of rate regulation. Rather, efforts must be made to nurture and encourage competition, something that may fall more comfortably under the domain of the Federal Trade Commission and the Department of Justice. Removing entry barriers and expanding competition would do far more to protect consumers and promote innovation than new price regulation.
Why the FCC? That is the more important question that should be put to Tom Wheeler.