American Action Forum Grades the FCC’s Internet Regulations
The Federal Communications Commission’s utility-style Internet regulations went into effect last week, just as many schools around the country let out for summer vacation. Thankfully for the Obama administration, which bullied the FCC into making the changes, the new regulations were never put to the red marker of a teacher, otherwise the regs would have received a grade of F.
When the American Action Forum (AAF) did the FCC’s homework, we found that last time the agency implemented these kinds of regulations, approximately $7 billion of investment disappeared. Even though it will take some years for the Internet economy and consumers to see the final report card, they will surely be disappointed.
For over a decade now, the FCC has tried to implement strict regulations for the Internet. Twice before, the courts ruled these efforts unlawful because they overstepped the bounds of congressional authority. But this time around, the FCC, spurred on by the White House, took the nuclear option and decided to reclassify the Internet.
Before last week, broadband was regulated under the relatively light rein of Title I of the Communications Act, a contributing factor in broadband’s rapid development. Reclassifying broadband means that the agency now regulates it under the utility-style regime of Title II, which was designed for the telephone industry of the 1930s. In spite of the countless differences between the technologies and a history of regulatory separation stretching back to the 1970s, the FCC decided that the telephone and the Internet need to be regulated in the same onerous way, thus opening up consumer Internet services to a bevy of new requirements and rate regulation.
The history of similar regulations disproves the FCC’s claim that the net neutrality regulation would “not have a negative impact on investment and innovation in the Internet marketplace as a whole.” Countless studies have concluded otherwise.
From 1996 to 2005, the regulations that the FCC just put on the Internet were applied to telecommunication companies. During this time, the agency claims that companies “increased their capital investments as a percentage of revenues.” But these investments decreased in 2001 after “the Commission relieved providers of many unbundling requirements and other regulatory obligations.”
Of course, the agency fails to mention that the Dotcom bubble occurred in 2001, forcing all of the players to pull back their investments, which had grown massively since 1997. A thorough study would have explored the root causes of that downturn, but the FCC denied repeated calls by some of their own commissioners to conduct a robust economic study of the new rules. AAF recently released a study and found that $7.1 billion of investment was missing from the telecommunications industry, in part due to the regulation that now exists for the Internet.
As we detail in the study, the FCC committed countless errors in laying out the case for these new rules, but the most egregious error is the most obvious. Consumers saw the most benefits after all of the regulatory burdens were lifted in 2005. The dynamic market of smartphones, apps, and ever increasing broadband speeds is a product of the regulatory world we have just left behind.
Advocates for Title II reclassification, including the President, have sold their plan as real network neutrality, but there are countless ways to ensure the Internet remains open and innovative. Ultimately, no one knows what structure the Internet will take in the upcoming years. Rules that lock in the status quo are the last things we need. Instead, the Federal Communications Commission should strive for regulatory humility, identifying damages only as they occur and imposing appropriate remedies.
By the end of 2016, there will be someone new in the White House, so who knows if the policies of this FCC administration will last into the next. Still, in the meantime immense damage can occur to the telecommunications industry due to the uncertainty of different investment paths. Luckily for the agency, school is out for the summer, but when it comes back, this regulation’s failing grade won’t be tolerated for long.
The AAF’s new study, The Real History of Title II and Investment,was published on May 20, 2015. Will Rinehart is Director of Technology and Innovation Policy at the American Action Forum. You can follow him on Twitter here.
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