Technology Is Thriving, So Why Are the Feds Strangling It?

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A growing number of economists are describing the current slump as a form of secular stagnation, where diminishing outlets for capital investment have slowed economic growth, reduced the demand for labor and stalled the economic recovery. While the technology sector remains one of the few areas of the economy where innovation and growth continue at a rapid pace, the Federal Communications Commission is moving forward with a series of new rules that may shackle this important part of the economy. From new mandates for municipal broadband to redefining what broadband means, to proposals to turn the Internet into a common carrier, the FCC is working to reshape how Americans connect to the Internet.

In a recent speech before a tech start-up incubator in Washington, D.C., FCC Chairman Thomas Wheeler focused on the need to provide faster broadband connections to American consumers. His comments reinforce the FCC's push for changing the definition of "advanced telecommunications capability" from a broadband speed of 4Mbps to 10Mbps. In fact, Wheeler goes further in his speech, noting that "a 25Mbps connection is fast becoming ‘table stakes' in 21st century communications." Pushing even further, Wheeler states that it is "unacceptable" that 40 percent of American homes do not have access to 100Mbps connections - even though a majority of homes already have access.

It may sound as if the market broadband is flailing when, in fact, it continues to evolve at a fast pace while deploying faster and larger networks. While a 25Mbps connection may be the way of the future, it is well above what the typical user requires today. And it is not as if providers are not upgrading their networks. New players are also entering the game; content providers such as Google are investing in their own networks - a smart, competitive response to changing market conditions. Fiber, copper, cable, wireless and satellite providers continue to expand, spending over $1.2 trillion since 1996 and $75 billion in 2013 alone.

The change in the definition of broadband is important because it affirms the relevancy of FCC regulation. As Wheeler notes, at higher speeds there are fewer providers of broadband, and once the speed of 50 Mbps is reached, consumers typically have one provider offering this option. So to further ensure the FCC's oversight of the market, Wheeler suggests that in the future, 100 Mbps should be the standard for broadband speed. Continuously moving the goalposts secures the FCC's role in broadband regulation and deployment.

In the world of antitrust and regulatory economics, defining a monopoly is closely tied to defining a market. When considering soft drinks, for example, critics may point to the market power of Coca-Cola or Pepsi. But when soft drinks are placed in the broader world of beverages - coffee, tea, bottled water, tap water, etc. - the perceived market power of these companies declines significantly. Identifying monopoly power becomes a game of sorts, with economists arguing over the definition of the relevant market. In his discussion of the future of broadband, Wheeler has a carefully defined definition of broadband guaranteed to ensure a role for federal regulation and oversight of broadband providers.

At the same time, the FCC is considering the use of Title II of the Federal Communications Act of 1934 to regulate the Internet. This would deem broadband providers common carriers, much like telephone and electric utilities. For many, this is a panacea that would ensure all data would be delivered in a fair and non-discriminatory manner. Yet the history of public utility regulation raises serious questions about the efficacy of this approach. All too often, rate regulation is distorted to include subsidies, taxes and benefits for politically powerful interests, with the costs passed on to ratepayers. It is not clear how imposing public utility ratemaking procedures on broadband providers would improve the consumer's Internet experience.

Wheeler frames the FCC's role as "incentivizing competition." Yet it is hard to square the FCC's recent regulatory push with incentivizing competition. Chasing monopolies and calling for common carrier regulation for Internet providers are more likely to thwart competition and reduce investment in the networks of the future.

What is puzzling about these actions is that there is scant evidence to suggest that broadband markets are in need of fixing. Title II regulation is a draconian form of net neutrality regulation aimed at hypothetical issues that have yet to materialize in the real world. At the same time, investment continues in the broadband market, expanding deployment and increasing connection speeds. It may not be occurring as fast as some would like, but it is not obvious that heavy-handed regulation would do a better job.


Wayne Brough, Ph.D is Chief Economist and Vice President of Research at FreedomWorks.  

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