Net Neutrality Rules, Overregulation Have Had Negative Economic Impact, McDowell Says
The FCC’s net neutrality rules are a good example of why too much regulation poses real risks for the economy, FCC Commissioner Robert McDowell said during a lunch sponsored by the Free State Foundation Thursday. McDowell spent more than an hour talking about the benefits and perils of regulation with Randolph May, president of the free-market-oriented group.
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"Here we are, five of us,” McDowell said. “I love my colleagues, but you have five unelected Washington bureaucrats overseeing perhaps about one sixth of the U.S. economy, having an indirect effect on the rest of the U.S. economy, because the rest of the economy rides on the rails of the Internet economy."
McDowell said that based on USTelecom’s scorecard, capital expenditures on telecom remained flat at $66 billion between 2010, the year the rules were approved, and 2011. “You can’t measure what didn’t happen, really, as a result of a regulation,” McDowell said. “Why was that [capital expenditure] frozen? Was it due to the Dec. 21st, 2010, net neutrality order or not?”
The U.S. has seen cap ex investments in telecom increase in other economic downturns, McDowell said. “Certainly interest rates were cheap, lots of liquidity in markets, so that’s probably not it. So what is it? Another thing that should have been driving that is the so-called spectrum crunch. That should be driving more cap ex for the construction of towers. So why did [cap ex] flatten out."
The FCC made a strong economic defense for its net neutrality rules in a filing at the U.S. Court of Appeals for the D.C. Circuit last month, arguing that rather than discourage investment, the rules have had a stimulative effect (CD Sept 12 p1). The court is expected to hear an industry challenge to the rules next year.
McDowell told us after the luncheon he would like to see economists look more closely at what is happening that led to the stall in infrastructure investment. While “$66 billion a year is a robust figure, we don’t want it to be a figure frozen, we want to see it grow,” he said. “It could be the regulatory uncertainty in general, it could be some other issue, or it’s just because of the FCC’s net neutrality order of late 2010. We don’t know. But the net neutrality order did not start a revolution in applications and content. That was already well under way.”
The net neutrality order also has led to the politicization of decisions about basic network management practices, McDowell said during the lunch. “What is reasonable network management?” he asked. “Reasonable network management is whatever three unelected bureaucrats say it is. None of us has an engineering degree … and a lot of these are business and engineering decisions.”
Asserting FCC oversight over net neutrality inevitably means uncertainty for industry, McDowell said. “That means from every two-year election cycle or every four-year election cycle investors, market players, aren’t quite sure what the rules are going to be,” he said. “It creates uncertainty so [they're] adjusting or tailoring their business plans to these two- or four-year cycles."
McDowell said he would like to see the FCC act more aggressively to get rid of other regulations that are no longer necessary. The commission has the authority to do more “sua sponte” forbearance and “take the initiative on our own to try to erase some of the rules and turn back some of the rules in the rulebook,” he said. Regulation “should be justified,” he said. “That’s why I like the idea of sunsetting [rules]. It would force the commission to reexamine rules every few years and see if they're really needed. It’s a really dynamic marketplace."
May asked McDowell a series of questions about the FCC’s policies on reviewing mergers, including whether it would make more sense for the Department of Justice to conduct the sole review, rather than the current regime of parallel reviews. “I'm not a bureaucrat who’s jealous about jurisdiction, so I think you raise an important point, which is how many layers of review should there be for these transactions and should there be more of just an antitrust review,” McDowell said. “I think that would be very worthwhile for Congress to take a look at.” He said it’s rare for federal regulators at the DOJ to disagree with those at the FCC: “Usually the end result is the same.” Federal review of the more complex transactions is “taking too long to get done,” McDowell said. “It is more and more becoming a cost of doing business that has to be baked into the cost of the deal and … those costs are then passed on to consumers.”