Politics & Policy

Broadband Blockers

The FCC is again trying to regulate telecommunications access.

President Bush has called for universal broadband by 2007. That’s a critical goal, since there are more than a dozen countries that have greater Internet access for their citizens and businesses than we do. But does the White House understand that their own Federal Communications Commission is inhibiting this goal?

Specifically, the FCC is going to decide this week whether to promulgate new regulations that would allow competitors of the incumbent telephone companies — the “Baby Bells” — to have access to the infrastructure that the phone companies built with billions of dollars of private investment capital. Yes, of course, competition is a desirable goal. But if the government mandates that the privately financed infrastructure must be shared by all competitors, who will make the initial investments in the first place?

Telecom infrastructure development is absolutely crucial for U.S. economic growth. This is an industry with plans to invest upwards of $100 billion in new-generation fiber-optic communications networks. This is good news for workers, technology businesses, and homeowners who need to be hooked up to high-speed Internet.

In many ways Michael Powell’s FCC has delayed this dynamic investment process. The FCC remains fixated on a re-regulation model for telephone and Internet communications, when the very intent of the landmark Telecommunications Act of 1996 was to inspire deregulation and a pro-consumer, survival-of-the-economically-fittest model.

From the perspective of the rule of law, the Constitution prohibits an uncompensated taking of property, which is what these regulations would in effect mandate. The idea behind the original 1996 legislation was to allow new startup telecom firms to have some access to existing networks, so they could reach a stage of economic maturity and compete on their own. After eight years, it is certainly time to allow these upstart competitors, some of which succeeded and many of which still are not profitable, to sink or swim.

Since 1996, the FCC has produced three sets of rules to regulate telecommunications access. Each has been rejected by either the D.C. Circuit Court or the U.S. Supreme Court. Each time, the courts provided guidelines for a new iteration of the rules and, each time, the FCC produced a revision that failed to meet those guidelines.

The courts have already admonished the FCC that its previous attempts indicate an “unwillingness to adhere to prior judicial rulings.” Yet reports suggest that the latest attempt, due this week, is an instant replay.

One problem with the FCC’s latest regulatory proposal is that it misunderstands the nature of competition. The courts have told the FCC repeatedly (and correctly) that a competitive market is defined by whether competition is possible — not whether competition is actually taking place. Gatorade dominates the sports-drink market, not because it’s a monopoly with barriers to entry, but because no other firm can make a better thirst quencher. A firm may come to dominate a competitive industry simply because it makes a better product, not because it is restraining trade and competition.

The FCC rules being proposed to ensure competition border on the absurd. The FCC is considering a regulatory regime that would create a telecommunications competition analysis of every commercial office building in the United States. A new army of regulators would be needed to enforce and adjudicate this. An information-age industry should not be required to reckon with this kind of central-planning dynamic.

A better approach would be to let the free market work its course. If competitors wish to hook up to existing networks, let the market set the price. Right now telecom competitors and phone companies can connect to the incumbent network using a service that has existed since before the 1996 Telecom Act was passed. The FCC instead wants a price-control regime under which regulators decide a fair market value. These prices will certainly be discounted well below fair market rates. The cost to consumers is that this will deter growth of the network so vital to future economic growth.

If the FCC proceeds with its latest regulatory scheme, it may soon find itself in the embarrassing situation of again being turned down by a court whose patience has already been tried. All of this legal wrangling is bad for the markets and bad for the telecommunications and related high-tech industries. In practical terms, all this adds up to continued delays in delivering new services such as broadband to customers, and the slower creation of new jobs and economic growth.

Correct me if I’m wrong, but aren’t these precisely the goals that the FCC is supposed to be advancing?

Stephen Moore is president of the Club for Growth.


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