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).
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