The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 “Open Internet” Order
- Author(s): Thomas Hazlett, Joshua Wright
- Date Posted: 2016
- Law & Economics #: 16-41
- Availability: Full text (most recent) on SSRN
In 2015, the Federal Communications Commission imposed common carriage regulation on broadband Internet service providers (ISPs) under Title II of the 1934 Communications Act. The action reversed what the FCC had, by 1999, called a “thirty-year tradition of ‘unregulating’ the data services market.” The premise for the regime shift included the FCC’s arguments that previous common carrier rules imposed by regulators had yielded economic gains. The Commission specifically noted market responses to (a) 2010 “net neutrality” rules (overturned by a federal court in 2014), (b) mobile licenses (AWS-3) auctioned by the FCC in January 2015, when Title II regulations were about to be imposed; (c) Title II regulation of mobile phones from 1994 to 2009; and (d) Title II rules applied to telephone carriers offering DSL services until 2005. Though the Court of Appeals for the D.C. Circuit recently upheld the Commission’s rules, it did so over Judge Williams’ well-reasoned dissent (United States Telecom Ass'n 2016, 700). Judge Williams was particularly critical of the FCC’s disregard for economic evidence. He strongly disagreed with the FCC’s conclusion that, “[a]s a factual matter, the regulatory status of broadband internet access service appears to have, at most, an indirect effect (along with many other factors) on investment." Specifically, he characterized support for the Commission's conclusion as “weak” and “superficial” This debate is far from settled, as industry participants will likely petition the Supreme Court for certiorari and lobby for legislative reform. This paper subjects the FCC’s data and interpretation to critical scrutiny and finds Judge Williams’ criticism warranted: Making adjustments for inflation or general economic trends eliminates the positive output effects asserted by the FCC. Moreover, contrary to the Commission’s assessment of the empirical evidence, mobile services and broadband markets have shown notable growth in response to deregulatory events reducing Title II requirements.