With few exceptions, too much of anything can be inefficient and wasteful. But, wouldn’t it be nice if we had more choices, more competitors in the market, when we were looking to buy access to the Internet for our home or business? Could you imagine comparing upload and download speeds, quality of service, and prices for a dozen or more broadband options?
Today, while 70 percent of U.S. households have access to fixed high speed internet (download speed of 25 mbps or higher), only 21 percent have a choice between two or more providers.
{mosads}Why so few choices? The upfront investment costs for the distribution plant are in the billions of dollars. It is why, according to the Leichtman Group, that 95 percent of the U.S. broadband market is served by just 14 telecom and cable providers. Even Google has dialed back its plans to get in the game.
So, when competition cannot thrive because economies of scale are so significant that the market can only accommodate a small number of firms in each geographical market, regulation is necessary to ensure just and reasonable outcomes. The question is how much regulation, because, more often than not, regulation is overdone, costly and extends beyond its “useful” life. But, until there are changes to technology or the way we consume information services, regulation is all we got.
Calling it “light-touch”, as the FCC did in both its 2015 Order and its reversal of that Order last month, tries to make us feel better about it. But, that should not be the emphasis.
The worst thing for markets is uncertainty. The best approach is legislation by Congress that codifies what is broadband and the responsibilities of broadband providers, and stops trying to put broadband into one of two boxes—labeled telecommunication service or information service. A law would reduce the ambiguity for all, including the ISPs.
Let’s get regulatory oversight right to ensure that ISPs, privately-held or even municipalities, are incentivized to invest in state-of-the art infrastructure while ensuring that consumers and competitors are not harmed or disadvantaged. This goldilocks “ask” will not be easy to achieve, given the political climate, the pace of vertical and horizontal consolidation within the industry, and the regulatory flip-flops*. But, we must try.
*Regulatory History of Telecommunications and Information Services
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Date |
Discussion |
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1910-1934 |
The Mann-Elkins Act of 1910 amended the Interstate Commerce Act of 1887 to extend common carrier regulation to telecommunication services. By law, common carriers are required to provide non-discriminatory “transport” services to the general public. The Communications Act of 1934 established the Federal Communications Commission (FCC) as the regulatory body with oversight of interstate telecommunications services. Title II of the Act describes the responsibilities of a common carrier. |
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1966-1980
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The FCC conducted a series of proceedings (Computer Inquiries) to examine and alter policies in response to the convergence of computers and communications. The FCC, in its Second Computer Inquiry (1980), established a regulatory framework that distinguished between “basic service’ and “enhanced service.” Basic service was “limited to the common carrier offering of transmission capacity for the movement of information” while an enhanced service was “any offering over the telecommunications network” that was more than a basic transmission service.” |
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1996 |
The Telecommunications Act amended the Communications Act of 1934 with the intention of significantly relaxing regulations which were seen as impediments to investment and innovation. Section 706 of the statute directed the FCC to “take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.” Telecommunications (basic) service, including access to the Internet over telephone lines (DSL), would continue to be regulated under Title II. Information (enhanced services) would be regulated under Title I. |
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2005
2006 |
In National Cable & Telecommunications Association v. Brand X Internet Services (2005), the Supreme Court upheld the FCC’s decision that cable modem service providers are information service providers (Title I) and not common carriers (Title II). In 2006, the FCC stopped applying common carrier regulations and Computer Inquiry requirements to broadband internet services provided by telephone companies. |
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2010-2014 |
In its 2010 Open Internet Order, the FCC implemented rules against blocking and unreasonable discrimination by ISPs. The conduct rules were in place for several years until, in 2014, in Verizon v. FCC, the Court struck them down because the rules fell outside the Commission’s “statutory grant of authority” under Title I. |
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2015 |
In a 3-2 vote on Protecting and Promoting the Open Internet, the FCC classified fixed and mobile ISPs as common carriers under modified Title II rules and banned blocking, throttling, and paid prioritization. |
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2017 |
In a 3-2 vote on Restoring Internet Freedom, the FCC reclassified broadband Internet access service as an information service under Title I and handed over jurisdiction to the FTC in determining if ISPs are engaging in unfair business practices. |
Dr. Mary Kelly is the Associate Chair of the Department of Economics at Villanova School of Business.