Ex Ante Maimed: How the FCC Mis-regulates Broadband Networks
Will more regulation improve broadband networks? That is the central question asked in a new economic study released by Jeffery Eisenach of the American Enterprise Institute titled, “Broadband competition in the Internet ecosystem.” More specifically, Eisenach examines decisions in its net neutrality order and other proceedings of the Federal Communications Commission (FCC) to regulate the broadband industry on the ground that competition in broadband markets operates differently from competition in other Internet markets. By analyzing the core characteristics of broadband networks – dynamism, modularity, network effects, and multisidedness – which he says are “remarkably similar” to other information technology industries, Eisenach concludes that modern antitrust principles, not ex ante regulation, should apply to broadband networks.
When it comes to competition policy, broadband service providers are treated vastly different from other IT industries. Why is this? Eisenach explains that broadband is regulated differently from other IT markets in part because it is analyzed differently.
“Although important unsettled questions remain about how best to police competition in such markets, it is generally agreed that analysis of such markets should deemphasize the traditional “structure-conduct-performance” paradigm and assess the consequences of potentially harmful conduct on a case-by-case basis. Thus, high levels of concentration in IT markets such as handsets, operating systems, search engines, and social networks are not regarded as signals of market power (or at least not market power sufficient to justify ex ante regulation), but the FCC often still utilizes anachronistic measures of concentration to justify regulation of broadband markets.”
Those who favor this regulatory treatment often justify it by explaining that broadband networks are uniquely at the “core” of the Internet while content, applications and devices are at the “edge.” Eisenach sees this metaphor as misleading and does not believe it justifies differential policy treatment. For purposes of competition analysis, Eisenach explains, it is no longer possible to distinguish between the competitive characteristics of broadband markets and other IT markets, and accordingly, there is no basis for asymmetric regulatory treatment. Therefore, “ex ante oversight of competition by the FCC should be replaced by the same ex post enforcement framework that applies to the rest of the Internet ecosystem.”
Policymakers should examine the FCC’s approach towards competition in the broadband industry and advocate the hands-off approach that has worked so well in recent years. It will be essential to apply the proper regulatory framework, as a failure to do so risks stifling incentives to innovate and will lead to broad implications for the economy at large.
Read the entire study here.