Michael Mandel is chief economic strategist for the Progressive Policy Institute.
President Obama’s call this week to regulate the Internet as a public utility is like pushing to replace the engine of a car that runs perfectly well. The U.S. data sector — including wired and wireless broadband — is the envy of the world, administering a powerful boost to consumer welfare, generating high-paying jobs and encouraging tens of billions of dollars in corporate investment. Indeed, the prices of data-related goods and services have dropped by almost 20 percent since 2007.
Putting the Federal Communications Commission in charge of regulating broadband rates and micromanaging Web services, as the president proposes, would slow innovation and raise costs. It would be bad news for the economy. It would also be a serious misstep for the Democratic Party, marking a retreat from market-based, pro-competition policies pioneered by President Bill Clinton in the 1990s.
The issue here is how best to ensure an open Internet, in which big and small companies alike have unfettered access to customers. After the courts threw out the old open Internet rules in January, virtually all concerned parties agreed the United States needed strong regulations to prevent blocking or discrimination online, to require real transparency for network-management policies by Internet service providers and to ban paid prioritization that could divide the Internet into fast-lane “haves” and slow-lane “have-nots.”
The debate is over the best policy road to take in enacting these rules. One path — using Section 706 of the Telecommunications Act of 1996 — would allow the FCC to enact strong rules and penalize Internet service providers who impede anyone’s access to the bounty of the Web, while preserving the freedom to innovate and deploy new technologies.
The other road — which relies on Title II of the Communications Act of 1934 — would resuscitate decades-old public-utility regulations and enable the FCC (and a new layer of state agencies) to regulate prices and micromanage Internet services. This is the road back in time that the president endorsed.
Each year, the Progressive Policy Institute (PPI) prepares an “Investment Heroes” report identifying the companies that are investing the most in the United States. In 2013, the telecom and cable industry led the list with $46 billion in investment. Compare that with Europe, where Title II-style regulations have suffocated broadband innovation and investment. Indeed, even the president admitted in his announcement that “network investment remained strong” under the current rules.
This is not an industry that needs a new approach — and especially not a policy prescription borrowed from the failed monopoly-style regulations of the past. A PPI analysis of government statistics shows that the data sector has been the main force driving gains in consumer welfare since 2007. Consumption of data-related goods and services per person has risen by 48 percent since the recession started seven years ago. By comparison, the real per capita consumption of all other goods and services is up by only 0.9 percent over the same stretch. The number of computer and mathematical workers has risen by 35 percent since October 2007. These are high-paying jobs.
If Title II were the only way to enact strong open Internet rules and protect consumers, I would be the first to support it. However, the more reliable Section 706 approach, suggested as a possible source of regulatory power by the court that struck down the last set of open Internet rules, provides ample authority to pass effective, market-based rules that give us the best of both worlds — strong consumer protections within a pro-market framework. Indeed, many experts believe Section 706 provides a stronger foundation to restrict anti-competitive “paid prioritization” deals because Title II expressly allows for whatever counts as “reasonable” discrimination among utility services and customers.
Meanwhile, Title II goes far beyond simple open Internet protections and could impose thousands of obsolete or harmful rules and regulations on the entire Internet ecosystem (not just broadband companies, but potentially application and content firms as well). The president suggests these destructive rules could simply be waved away using the FCC’s power to “forbear” from applying its own rules. But that’s fool’s gold. Forbearance proceedings are lengthy and complex with uncertain outcomes, and they would provide yet another forum for special interests to litigate their pet issues. The unpredictability and chaos of extended forbearance cases could do as much damage to investment and the Internet economy as Title II itself.
Title II could turn out to be a tremendous drag politically for the Democratic Party as well. Putting the government in charge of Internet service will just make the Democrats the scapegoat when anything goes wrong. That’s not a good way to avoid a repeat of the 2014 election.
For economic, policy and political reasons, Title II is the wrong road for the FCC — and the wrong road for our country. The FCC would be wise to exercise its independent policymaking authority and ignore the president’s backward-looking misstep.