Obama's Scheme to Regulate U.S. Into 'Net Neutrality' Nirvana Could Kill Broadband

The best use of the FCC in the modern world-or, indeed, the world of decades past-is to hold a pillow over its face until it stops twitching.



President Obama's bold proposal to respond, 20 years later, to the explosion of the dynamic, innovative online world by regulating Internet service providers like a government-crafted public utility from the 1930s spurred a response from the telecom industry: A screeching halt on investment in Internet access. "We are now starting infrastructure projects that we don't have any clarity or line of sight, in terms of what rules those will be governed under," AT&T Chief Executive Officer Randall Stephenson said, referring to the company's big-ticket investments in fiber-optic broadband networks around the United States. "That can have no effect other than to cause one to pause."

No doubt, Stephenson's announcement that his company will stop the expansion of broadband networks was intended as a "fuck you" to the president—AT&T already announced its opposition to the White House's plan to "reclassify consumer broadband service under Title II of the Telecommunications Act." There's also more than a little irony in the spat considering that AT&T was, for decades, a creature of the state, benefiting from the brief nationalization of the telecommunications industry in 1918 and favorable state and federal regulations that froze out competitors long afterward. But that doesn't erase Stephenson's threat, or the potentially chilling impact of new regulation on what has been a dynamic sector of the economy.

Holding off on investments is not an unexpected or illogical response to a shifting regulatory landscape. There's the damage done by heavy-handed regulation in and of itself, of course. Red tape tends to strangle. But changing the rules of the game, especially when they look like they're moving in a punitive direction, causes businesspeople to hold their money tight and keep their heads down, in hopes that they'll escape the wrath of the bureaucrats.

In a 2001 examination of decades of antitrust policy for the Cato Journal, George Bittlingmayer, now at the University of Kansas, wrote that "It turns out that whatever the ability of antitrust to lower prices and increase output in theory or in isolated circumstances, one actual effect of antitrust in practice may have been to curtail investment." In particular, he attributed low investment in the late 1950s and early 1960s to "aggressive antitrust and related initiatives."

Investors pulled in their horns to avoid notice.

For the Brookings Institution, Robert Litan addressed the Title II regulation that President Obama wants the Federal Communications Commission to inflict on Internet service providers, He pointed out that the regulation was intended for the old, monopolistic AT&T, and it's just not "appropriate to apply Title II regulation to ISPs, where there are at least two providers of access (wireline and wireless) in virtually all of the United States, and at least two providers of wireline access (cable and telephone) in nearly three quarters of the United States."

That is, Title II has a specific purpose, and it has nothing to do with Obama's annoyance that Netflix may have to pay for expanded access to paying consumers. In fact, Litan points out that Title II may still permit such charges.

Beyond that, he warns, there's a real risk that exposing ISPs to Title II regulation "could lay the foundation for imposing Title II regulation on some parties within the tech industry as well." Targeting the telecoms that everybody loves to hate (often for damned good reason) threatens to be the foot in the door allowing the FCC to sink its talons into all sorts of tech businesses. He points to the expanding application of pollution in Section 111(d) the Clean Air Act as an example of regulation creeping far beyond its intended purpose as regulators find openings to use their weapons in new and interesting ways.

So…the threat of regulation and aggressive regulatory oversight tends to chill investment. Title II regulation would likely still permit the stuff the president says he wants it to stop. And once unleashed, Title II is likely to follow in the footsteps of other regulatory regimes and engulf unexpected companies and whole industries. And that will probably discourage investment by people who have little or no connection with Randall Stephenson.

Note that businesses' reaction to the threat of regulatory whack-a-mole has nothing to do with their moral fiber or lack thereof. Randall Stephenson may be sulking because, this time, the bureaucrats' could turn their guns on him instead of on AT&T's less-connected competitors. But his qualities and those of his company have nothing to do with the jobs, businesses, and infrastructure not created because investors are frightened by an unfriendly regulatory environment.

The abuses that the FCC was established to mitigate were themselves creations of government. This is yet another example of government promising to fix things that it fucked up.

The best use of the FCC in the modern world—or, indeed, the world of decades past—is to hold a pillow over its face until it stops twitching. Once gone, it won't be available as a bludgeon for ignorant (or opportunistic) politicians to use to inflict damage on a world they don't understand (or don't respect).