With all the recent talk of net neutrality, it's easy to lose sight of the fundamental problem with broadband in America: the skewed ISP marketplace. At the heart of the issue is the FCC's antiquated regulatory approach that discourages infrastructure investment and distorts market functions.
America's two largest phone companies, AT&T and Verizon, recently filed forbearance petitions asking the FCC for relief from various regulations. Verizon is asking for the freedom to set prices on wholesale connections to competitive local carriers, and AT&T has requested exemption from certain FCC audit requirements and service quality reporting mandates.
The real question is, why should Verizon have to ask permission from bureaucrats to decide how much to charge for its products? And why must AT&T spend millions of dollars to fill out intricate paperwork just to prove to the FCC its product is good enough for customers?
Interventionists say this is because phone companies won't ensure service quality unless they are subject to government oversight. But this claim ignores market conditions. With competition intensifying between phone providers and new wireless networks on the verge of completion, the market will discipline any communications company that skimps on service or price. Sprint and Comcast have learned this lesson the hard way.
Because of the FCC's price caps and audit requirements, incumbent providers face substantial costs to comply with detailed accounting procedures. And price caps reduce the incentive to invest, ultimately hurting consumers. Instead of entrenching the status-quo through network price controls, government should reward private sector risk-taking by letting companies establish prices and service guidelines without government supervision.
As voice, video, and data all move toward IP-based transit, telephone and cable lines are converging. Soon, both will basically function as alternative vehicles for delivering the same set of services. But the FCC, oblivious to this paradigm shift in telecommunications technology, subjects phone companies to a totally different set of regulations from cable competitors. This is one of many examples of the FCC's unfair regulatory treatment toward competing broadband operators—Kevin Martin has imposed similarly unreasonable rules on cable companies, abrogating apartment TV contracts and barring cable providers from attracting too many subscribers.
Succeeding in the marketplace shouldn't be about dodging obsolete regulations, but about competing to offer consumers the best quality and value.
Whenever the topic of deregulating telcos is brought up, big-government types argue that FCC rules are justified because phone companies were supposedly given billions in public money after promising to build an advanced, national fiber optic network that never materialized. Yet this oft-repeated assertion is a myth. What actually happened is that during the 90s, state lawmakers relieved telcos from certain restrictions like price ceilings, and allowed companies to depreciate capital investment on an accelerated basis. Though eliminating unfair price controls and taxes may count as a book loss for government coffers, it's entirely different than granting public subsidies to private producers.
Baby Bells didn't secure taxpayer funds to build next-generation networks; rather, America owes its infrastructure wealth to private investment. To be sure, some in the communications industry have at times offered overly optimistic predictions, but the underlying argument against price controls holds true to this day. Infringing on the property rights of telecommunications companies curtails freedom and innovation.
Thanks to Verizon FiOS, fiber to the home is now reality for millions, and AT&T and Qwest are rapidly deploying advanced VDSL services like U-Verse. As cable competitors begin upgrading networks to a faster, newer standard (DOCSIS 3.0), further deregulation of telecommunications services is needed to foster network investment and faster connectivity.
Getting rid of burdensome audit rules and price caps is the first step towards stimulating broadband competition. Until then, network operators' hands will be tied in upgrading services to meet growing demand for bandwidth. For consumers, FCC rules are all pain, no gain.