Federal Communications Commission (FCC) Commissioner Mignon Clyburn issued a memo on the agency’s new Restoring Internet Freedom rule, essentially telling consumers their best interests in the digital age are in the backseat. In reality, consumers are better positioned under the new rules, which ensure increased investments for more robust broadband deployment and create a partnership between the FCC and FTC that delivers strong protections to consumers online.
Everyone wants consumer protection, but is that better achieved through competition or regulation? In dynamic industries, it is not the number of firms that matters, but the level of technology, as firms compete with goods and services that are better and different. In such markets, quality of information for consumer decisions is paramount. Therefore, increasing transparency is essential to supporting competition. Consumers are protected by market forces as people switch away from firms that don’t meet their preferences.
The government suggests regulation when consumers cannot be trusted to make their own decisions or firms will not enter markets or produce the optimal quantity on their own. But regulation can also impede innovation and competition. In 1913, Theodore Vail argued that the U.S. would be better off if the government sanctioned AT&T’s telephone monopoly so that it could provide “universal service.” Ma Bell reigned for most of the century with consumers suffering from monopoly pricing and lack of innovation. Finally, the Department of Justice broke it up to end the collusion and created the FCC. Clyburn and others suggest that a similar framework should be used to regulate the internet, i.e., the FCC decides its price, speed, traffic management, preferred technology consumers, and so on. That could make sense if the FCC declared there to be a market failure, but it has not done that analysis or made such a determination.
The FCC issues periodic reports about competition in the broadband market. It notes the wireless market is robustly competitive as measured by data usage, speeds, coverage, technologies, spectrum holdings and market shares. Continued growth in speeds and diverse technologies characterize the wireline market. Taken together, Americans can access broadband across a wide range of technologies, speeds, and prices. We currently have 4,551 broadband providers.
Nevertheless, a perception persists that the market is not competitive, with only one provider of broadband. This is likely because of a highly-politicized decision by the FCC to define broadband at 25 Mbps download when the OECD suggests that 4 Mbps download is sufficient. However, Americans have a choice of at least four mobile carriers offering 4G/LTE service, capable of 50 Mbps under certain conditions. Almost every American can get broadband via digital subscriber lines (DSL). Once capable of only dialup speeds, many DSL connections now exceed 100 Mbps.
Most Americans can also obtain broadband via coaxial cable, which increasingly reaches gigabit speeds (1000 Mbps), and gigabit fiber optics is available directly to about one-third of all American homes. Also, all Americans can access about a dozen satellite broadband providers who offer speeds of 20 Mbps, a speed faster than available to most of the people in the world. 5G wireless service, which is being launched in several U.S. cities this year, allows consumers to watch movies on their television just the way they do with landline service. So, it is not true that Americans have only one choice of broadband. Also, speed is not a good measure of quality, and consumers value a range of parameters in the broadband packages they buy, including price, security, durability, customer service and so on.
Many companies that once looked like monopolies turned out not to be. Their power, apparently due to their vast scale or technological superiority, was overstated. New technologies and competition arose to supplant them. In 2005, antitrust authorities denied the merger of Blockbuster and Hollywood Video, claiming that there would not be enough retail competition for DVD rentals.
But today, we get movies online via Netflix, Hulu, Amazon, and numerous other options. Competition in the video market has eroded the dominance of cable in pay television, with a third of its market share lost to the internet. That’s normal turnover in our economy. Only 12 percent of Fortune 500 firms from 1955 still exist, and broadband providers didn’t exist then. Today, larger internet economy and platform companies such as Google, Facebook, Apple, and Amazon.their value dwarf them.
During the period of the 2015 rules, network investment dropped about 5 percent, as companies delayed or canceled their plans for infrastructure deployment. Getting more competition, not regulation, is clearly what is needed to promote more internet access and consumer protection.
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