Thursday, September 24, 2015

A Most Shocking Display of Regulatory Overreach

Presidential candidate Jeb Bush has an op-ed in the Wall Street Journal entitled, “How I’ll Slash the Regulation Tax.” There is much in his piece with which I agree, including his conclusion: “Once we remove the burden of overregulation, America will once again reclaim its reputation for inventiveness, energy, and boundless opportunity.”
The use of “reclaim” was deliberate. Mr. Bush began his commentary by pointing out that, according to the World Bank, “the U.S. ranks 46th in the world in terms of ease of starting a business.”
In the course of his piece, Mr. Bush identifies a number of Obama Administration initiatives that he contends have “mired America’s free market in a flood of creativity-crushing and job-killing rules.” He concludes his list with this: “And in perhaps the most shocking display of regulatory overreach, it is regulating the Internet as a public utility, using a statute written in the 1930s.”
Well, Title II of the Communications Act of 1934, under which the Federal Communications Commission has now decided to regulate Internet providers as public utilities, is derived in all essential respects from the Interstate Commerce Act of 1887, which itself was enacted to regulate long-since deregulated railroads. So, in truth, Mr. Bush could have said, “using a statute written in the 1880s.”
But who’s counting? The fundamental point is that the public utility-like provisions of both the Interstate Commerce Act and the Communications Act, which the FCC now has applied to today’s broadband Internet providers, were included in those statues to prevent abuses by monopolistic carriers. This point is indisputable. And it is also indisputable – despite the FCC’s feeble attempt to suggest “gatekeeper” market power in the effort required by consumers to switch among providers – that broadband Internet services are offered in a largely competitive environment.
Most Americans can choose among several different broadband providers to access the Internet, including among four wireless providers that are carrying an increasing amount of broadband traffic. The fact that there are still pockets where this is not the case does not justify subjecting all Internet providers, in all areas of the country, to a public utility regulatory regime.
The extent to which Chairman Wheeler and his two Democrat colleagues are willing, perhaps even eager, to look backwards in time – as though looking through a rear view mirror – to justify their stringent approach to regulating Internet providers should be clear to all. At the very outset of its Court of Appeals brief, the FCC begins its defense of its Internet regulation order by stating: “The roots of the [Open Internet] debate can be traced back to 1980 and Computer II, … in which the Commission separate data-processing activities from the telecommunications services regulated under Title II in order to enable new information services to flourish free from the ‘bottleneck’ power of telephone companies.” [FCC Brief, at 10.] The agency’s brief declares the purpose of the Computer II regime, with its strict definitional separation of “telecommunications” and “information services” was “to establish a regulatory framework supporting development of the nascent information economy free from interference by the traditional providers of telecommunications services.” [FCC Brief, at 11.] Even a casual glance at the brief reveals the extent to which the Commission harkens back to 1980 in an effort to find support for its current order imposing Title II regulation on today’s Internet service providers.
But this backwards-looking approach is highly problematic. As you can see from the above (and you can read the FCC’s lengthy Computer II order and reconsideration orders for much more of the same), the Commission’s action in 1980 was clearly premised on the assumption that the “telephone companies” possessed “bottleneck” power and that information services were “nascent.” This may have been true then, but it is simply not true 35 years later. Today’s broadband Internet providers (there no longer are “telephone companies” in the sense the Commission used the term in 1980) operate in a competitive environment, and information economy providers like Google, Facebook, Twitter, eBay, and so forth are anything but nascent.
Above all, understood through the lens in which regulations ought to be properly assessed, whatever the case in 1980, in 2015 no demonstrable evidence exists of market failure or consumer harm justifying the Commission’s imposition of public utility regulation on Internet providers.
I am no expert regarding many of the Obama Administration’s regulations in other areas. But it doesn’t surprise me at all that Jeb Bush calls the FCC’s action perhaps the Obama Administration’s “most shocking display of regulatory overreach.”