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It is Time to Unshackle the Communications Sector

Harold Furchtgott-Roth

I am often asked about how a more market-oriented Federal Communications Commission would improve the American economy. The answer cannot be quantified as a precise number such as 1% additional GDP.

But, as my research has consistently shown, the communications sector has contributed substantially to American economic growth. The result is not surprising given the growing importance of the Internet to the America. From the 1980s through the 2000s, the American communications sector was on a consistent path towards less regulation. That path ended several years ago. Of course, over-regulation of the communications sector is not the only reason for America’s recent economic lethargy, but it is a major contributing factor.

Here are three areas where a market-oriented FCC would improve the economy.

Exhibit A: “Don’t regulate the Internet.” For 20 years beginning around 1990, that was the battle cry of politicians of all stripes. No longer. In recent years, the FCC has thought of new ways to regulate the Internet primarily by claiming it is a “common carrier.” A common carrier is a business whose prices and service is subject to government regulation.

If that has a slightly dated ring to it, it is. One can visit Silicon Valley for months on end and never hear an engineer, designer, or investor say the words “common carrier.” Visit the FCC for one hour, and one will hear the magic words often. That is because “common carrier” is the shibboleth that gives the FCC the power to regulate the Internet and Silicon Valley.

A market-oriented FCC would not play the “common carrier” game with the Internet. Such regulation creates a world of losers. Businesses are rational. Confronted with excess regulation, they reduce investment and innovation. That applies to the Internet as well as any other activity. Regulated Internet services will have reduced investment and innovation. That is an enormous loss for the American consumer. And it is an enormous loss for America.

Exhibit B: Trust markets. An FCC detached from market thinking revels in non-market exercises. Witness today’s announcement that, after 9 months of secret bidding, a major wireless auction is more than $20 billion off target. For the past few years, the FCC has eagerly anticipated a “reverse auction.” This so-called “auction” establishes the federal government as the exclusive agent to transfer assets from private sellers, broadcasters, and sell them to private buyers, wireless companies. In the entire history of humanity, the structure and complexity of the FCC’s reverse auction has never been attempted.

There’s a reason. It won’t work. And it shows a profound mistrust and misunderstanding of markets.

Ordinary people have transferred goods and services to one another for millennia without benefit of government intermediaries. These transactions work. Every second, billions of dollars worth of goods and services are traded. That is the power of the market. Ordinary people don’t wait nine months for a government agency—even a well-intentioned one such as the FCC—to get the wrong result that a market could have done instantaneously. Spectrum can be handled with the same market principles, as I have often explained" target=”_blank.

Exhibit C: Don’t use the FCC to block mergers. Federal law does not instruct the FCC to review mergers. Never mind. For the past 20 years, the FCC has become the convenient agency to block mergers. Unlike antitrust agencies such as the Department of Justice or the Federal Trade Commission, the FCC does not need to go to court to block a merger. If an Administration wants to block or condition a merger that has no legitimate legal objections, the FCC can do, and has done, the dirty work. It is past time for the FCC to do no more than the law instructs.

Businesses in most American markets can merge if there is no economic harm. This situation leads to efficient mergers. Businesses in the communications sector, under the FCC review, are subject to unnatural conditions. The result is mergers that are only coincidentally economically efficient.

In a world filled with Lilliputian nations that trust regulations more than markets, America still has the greatest communications sector. Our communications sector is a shackled giant, unnaturally restrained from bringing greater and better services everywhere. How much will America and the entire world grow with a more market-oriented approach to the communications sector? America and the entire world would grow more with a market-oriented approach to the communications sector.

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