Congratulations on your confirmation as Chairman of the Federal Communications Commission. As economists who study and write about communications policy and regulation, we agree with your comment during your confirmation hearing that “the role of the FCC has evolved from acting in the absence of competition to dictate the market, to promoting and protecting competition with appropriate oversight.” The economic evidence on this point is clear: in all but a few areas, communications networks no longer have the characteristics of natural monopolies, and should no longer be regulated as public utilities. Indeed, the convergence of the communications sector into the dynamic, intensely competitive Internet ecosystem is now virtually complete.
We write because we believe these economic facts have important implications for some of the key challenges facing you and the Commission in the months and years ahead.
To begin, the emergence of robust competition does not obviate the need for consumer-welfare focused, economically-informed antitrust oversight where residual monopoly power remains. Further, in areas such as consumer protection, public safety, spectrum management, and universal service, government involvement – whether by the Commission or by other appropriate state or Federal agencies – will continue to be appropriate. Even in these areas, however, economic analysis and market-based approaches can lead to better policy outcomes. The question, in other words, is not whether there is a role for government, but what specific policies should be pursued to maximize consumer welfare now and in the future.
This letter addresses this question in three parts. First, we summarize the economic evidence with respect to the overall competitiveness and performance of the communications sector. Next, we discuss the implications of the current competitive landscape for three major areas of policy: (a) regulation of IP networks and interconnection; (b) vertical issues, including net neutrality; and (c) spectrum policy. Third, we offer a few broader observations about the importance of allowing markets to supplant regulation in defining the future of the communications sector. References to a sampling of studies that provide empirical support for the conclusions below are attached.