Regulation won’t encourage competition and innovation. It will instead chill innovation and lead to an inferior consumer experience.
Regulation won’t encourage competition and innovation. It will instead chill innovation and lead to an inferior consumer experience.
D espite years of investment, innovation, increasing competition, and declining prices under a light-touch regulatory framework, the Federal Communications Commission (FCC) has reinstated Obama–era net-neutrality rules and is applying utility-style regulation to broadband. This partisan move is consistent with the Biden administration’s overall approach: faith in government regulation and a distrust of the marketplace.
The net-neutrality rules themselves prove the point. The FCC has established bright-line rules prohibiting blocking, throttling, and paid prioritization. Chair Jessica Rosenworcel says that these rules are needed because consumers “do not want their broadband provider cutting sweetheart deals, with fast lanes for some services and slow lanes for others. They do not want their providers engaging in blocking, throttling, and paid prioritization.” She says that the net neutrality rules “fix” that.
It is unclear, however, why the FCC thought there was something to fix. Internet-service providers (ISPs) already have indicated that they do not engage in blocking, throttling, or paid prioritization, and there is no evidence that, beyond reasonable network-management practices (such as for network security), such conduct is occurring. It is undisputed that consumers can visit any lawful website, play games, and stream the video content of their choosing.
This blanket use of regulatory authority is not only unneeded but detrimental. The bright-line rule banning paid prioritization presumes that paid prioritization is always harmful to consumers. In fact, paid-prioritization offerings are common in the general marketplace in order to relieve congestion or serve a consumer need, just as TSA PreCheck and USPS Priority Mail do.
And while the FCC says it is banning paid prioritization to, in part, ensure edge-provider innovation, it fails to recognize the potential ISP-based innovations it may be chilling. The bright-line rule prevents potentially beneficial offerings from developing, such as giving priority to telemedicine or first responders.
A bright-line prohibition is also unneeded because the market will impose rationality on prioritization practices. If an ISP engaging in paid prioritization provides an inferior consumer experience, its customers are empowered to take their business elsewhere because most consumers have multiple options in ISPs. This is exactly how the marketplace works throughout the economy, but the FCC doesn’t trust the broadband market to perform this natural function.
The success of the light-touch regulatory approach demonstrates that there is no need for these arbitrary restrictions on how technologists and engineers manage networks or on how ISPs develop service offerings. Commissioner Brendan Carr’s dissenting statement explains that since 2017, fixed broadbands speeds have increased by 430 percent and mobile have increased by 647 percent. Indeed, the Speedtest Global Index ranks the U.S. in the top ten in both mobile and fixed broadband speeds. The U.S. is fifth in fixed broadband speed, ahead of every European Union country.
Carr’s dissent also cites Bureau of Labor Statistics data showing that broadband prices are down by 9 percent since 2018 and that for the most popular broadband-speed tiers, real prices are down 54 percent. For the fastest broadband-speed tiers, prices are down 55 percent over the past eight years.
The FCC so distrusts market incentives that it would rather put all of this broadband success at risk for the sake of regulatory authority. And who will pay the price? Consumers. Whether it is priority services that are not developed, pricing and promotion packages that are never offered, or network investment and upgrades that don’t occur, consumers will pay the price for the FCC’s faith in regulation over the marketplace.
On top of all of this, the FCC moved full steam ahead even though its order has obvious legal infirmities under the major questions doctrine and may well be overturned by the Supreme Court. This only heightens the needless negative impact on consumers and the industry.
In a “Fact Sheet” on its net-neutrality rules, the FCC says that broadband regulation “encourages competition and innovation.” Regulation won’t encourage competition and innovation. It will instead chill innovation and lead to an inferior consumer experience.