To drain the telecoms swamp, first stop filling it

by Steve Blum • , , , ,

The buzz around the incoming Trump administration’s telecoms policy is centering on Jeffrey Eisenach, a consultant to Verizon and apparently the man in charge of picking key staffers and, ultimately, commissioners at the FCC. He’s also been affiliated with the American Enterprise Institute – a conservative Washington, DC think tank – and in that capacity co-authored a white paper with a number of colleagues there that calls for drastically shrinking the Federal Communications Commission.

The paper is animated by a fear of regulatory overreach resulting from a federal court decision involving – surprise! – Verizon that affirmed that the FCC has broad authority under federal law to, among other things, “promote competition in the local telecommunications market” and “remove barriers to infrastructure investment”. It was that bit of the Communications Act – section 706 – that formed the legal basis for the FCC’s so far successful effort to regulate broadband as a common carrier service.

Broadly speaking, the paper proposes two remedies: rely on market competition among increasingly indistinguishable digital service providers instead of 20th century-style regulation based on outdated analog technology distinctions, and farm out FCC functions to other federal agencies that do similar things.

The problem with both approaches is that true competition – the sort where the classical invisible hand of the market restrains predatory behavior – does not exist in the U.S. telecommunications industry. The telephone, cable television and, ultimately, broadband sectors were built on a foundation of monopoly or near monopoly access to public goods, such as right of ways and spectrum, and protected and nurtured by regulators over the course of a century.

The FCC needs an overhaul. Its secretive decision making process, lobbyist and lawyer-centric culture and willingness to bend to political pressure creates destabilising uncertainty for businesses that rely on telecoms services (as opposed to providers who have the deep pockets and experience to play the Beltway game) and locks the public out of a meaningful role. There are any number of ways to fix it. But letting massive monopoly players do the job themselves, subject only to cursory review by generic bureaucrats, will only suck the digital economy further into the mire of a rent extraction swamp.