Vote of Disapproval on Net Regs

Unfortunately, the Federal Communications Commission (FCC) moved ahead on September 23 with its misguided net neutrality regulations, publishing the rules in the Federal Register. The rules are now scheduled to go into effect on November 20.

But might the Senate move against these regulations before then?

U.S. Senator Kay Bailey Hutchison (R-TX), the ranking member on the Commerce Committee, is planning to push for a vote of disapproval to stop these regulations before they go into effect. In April, the U.S. House of Representatives voted by a margin of 240-179 to stop the FCC.

There are four fundamental problems with this regulatory move by the FCC.

First, the FCC lacks the legal authority to regulate broadband providers. In fact, last year, a federal appellate court tossed out an FCC attempt to sanction Comcast, noting that Congress never gave the FCC such powers.

Second, as the FCC has admitted, this is a "prophylactic" step, in that no vast effort exists by broadband providers to stop, undermine or deter certain Internet traffic. Considering that ISPs serve two markets - content providers and consumers - it's hard to figure out what the incentive would be to diminish service. If providers did so, they would only aggravate their own customers, driving them elsewhere, while also placing themselves at risk of broader public and political attacks. From the very start, the push for net neutrality regulation has been based on scary fantasies, rather than the real world.

Third, while net neutrality regulations are dressed up in nice rhetoric about keeping the Internet free and open and stopping ISPs from discriminating against certain Internet traffic, in reality, net neutrality is all about increased government regulation of and control over the Internet. In the end, political appointees will dictate pricing and network management models to private enterprises. It should be obvious that consumers and content providers benefit far more from broadband providers competing and testing their models in a dynamic online free market subject ultimately to the consumer, as opposed to turning ISPs into government regulated utilities.

Fourth, this regulatory overreach, the uncertainty that comes with it and the eventual government dictates serve as real disincentives for investing in broadband innovations and service. That would be bad news for all involved, including the small businesses that have benefited so much from the expansion of and innovations in broadband networks as consumers, content providers and telecommunications players.

Ironically, U.S. Senator David Rockefeller (D-WV) has said that opposition in the Senate to the FCC's actions would be bad for the economy. TheHill.com reported: "Rockefeller warned the tussle over the rules would lessen certainty for businesses in the midst of the nation's prolonged economic slump. ‘I fear their actions will do nothing more than impede the investment and innovation we need in our digital economy,' he said."

Of course, understanding the economics at work, it's the FCC's regulatory move that has created uncertainty, and will impede investment and innovation in the digital economy.

Senator Hutchinson had it right in observing: "Companies and industries that use broadband communications have flourished over the last decade without government intervention, yet the FCC has chosen to ‘fix' a problem that does not exist... Rather than imposing new, unnecessary regulations on one of the few thriving sectors of our economy, government should get out of the way, and allow new jobs and investment in broadband technologies."

The Senate needs to send a clear message in favor of maintaining a competitive, dynamic and innovative communications market by voting to stop the FCC's misguided effort laying the groundwork for a de facto government broadband takeover.

Unfortunately, though, even if the Senate takes such action, the President has promised a veto. That puts the issue of net neutrality regulation back in the courts, leaving the small business community and everyone else hoping that the courts will make clear that the FCC lacks the authority from Congress to regulate the Internet. In the meantime, we're all left with nothing but uncertainty due to more regulatory activism courtesy of the Obama administration.

_______________

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Michigan Lawmakers vs. FCC

While the FCC is heading down the path of stifling investment and innovation in telecommunications due to misguided regulatory proposals, state lawmakers in Michigan last week confronted this effort head on and overwhelmingly urged the FCC to refrain from such harmful actions.

On May 15, MultiChannel News reported: “The Michigan House of Representatives has adopted a resolution asking the FCC not to reclassify broadband as a Title II service. The resolution was introduced May 14 by Rep. Jeff Mayes and had more than 60 cosponsors from both parties. It has no force of law, but it was forceful in its language opposing Federal Communications Commission chairman Julius Genachowski's plan to apply a handful of Title II common carrier regulations to the transmission component of the Internet.”

The Michigan House Concurrent Resolution No. 57 declared the following:

Whereas, Due in large part to the unregulated efforts of private enterprise over the past 25 years, the development of the Internet has dramatically transformed the way Michigan citizens work, live and learn. The deployment of efficient, fast, and reliable broadband networks through-out Michigan has created thousands of jobs and economic benefits for local economies; and

Whereas, In order to encourage the growth and development of the Internet, the Federal Communications Commission (FCC) has historically followed a policy to refrain from regulating broadband Internet services as common carrier services under Title II of the Communications Act of 1934. As a result, the United States has been at the forefront of technological, business, and social innovation on the Internet; and

Whereas, On May 6, 2010, the Chairman of the FCC announced a policy to reclassify broadband Internet services as common carrier services so that they can be more tightly regulated, with a proposal to forbear from imposing certain common carrier obligations on broadband Internet providers; and

Whereas, It is the judgment of the Michigan House of Representatives that using monopoly- era provisions of Title II of the Communications Act of 1934 to regulate the Internet will slow investment in Michigan's Internet broadband infrastructure and jeopardize future job growth; now, therefore, be it

Resolved by the House of Representatives (the Senate concurring), That we memorialize the President, the Congress, and the Federal Communications Commission of the United States to refrain from regulating Internet broadband services as common carrier services under Title II of the Communications Act of 1934…

The Michigan resolution is absolutely correct in critical areas. First, the private sector has driven Internet development that has transformed the way we live, work and do business. Second, broadband investment and innovation have provided a major boost to our economy and job creation. Third, the FCC refraining from regulating broadband Internet service as common carrier services under the Communications Act of 1934 has encouraged investment, innovation and development of the Internet. And fourth, imposing such broadband regulation, as called for by the FCC, would place broadband investment and related future job growth in real peril.

In fact, the only point that the Michigan resolution failed to mention specifically is how critical continued broadband investment and innovation is particularly to entrepreneurship and small business. Efficient, fast and reliable broadband networks have empowered the entrepreneurial sector in ways previously unimagined. Increased and misguided regulation – such as dictating pricing and operational models as proposed by the FCC – would inflict serious harm on entrepreneurs, small businesses and, therefore, the entire U.S. economy.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Now, it's the Internet

Health care, banks and financial services, energy, student loans, GM – now it’s the Internet. What a blow to innovation, investment, entrepreneurs and our economy.

It’s official, FCC Chairman sided with left-wing interests and the few big companies that fund them. He promised to listen to all voices, weigh the facts and be otherwise thoughtful in determining if or whether to move forward with Internet regulation. If, indeed, he did weigh the facts, he would have stayed away from the intrusive regulation he prefers (so-called “net neutrality”) as there is no evidence that the market has failed, or how the Internet and broadband is working.

[Read the May 6 Wall Street Journal article on the latest developments by visiting this page: http://online.wsj.com/article/SB10001424052748703961104575226583645448758.html?mod=WSJ_hpp_LEFTWhatsNewsCollection]

Can’t this Administration leave anything alone? Particularly what is working?

Karen Kerrigan, President & CEO

The Attack on Internet Investment and Innovation Continues

Members of Congress and the chairman of the FCC, buttressed by a variety of hard-core left-wing groups, seem intent on undermining investment and innovation when it comes to broadband access and the Internet.

When teaching graduate students, I hammer home the point that foundational to economics are incentives. In a Public-Sector Economics class a key question is: How are the incentives to take risks, invest, start up and expand a business, innovate, invent, and create jobs affected by public policies, such as regulation, taxes, and government spending?

The forces pushing for net neutrality regulation fail to consider – or choose to ignore – the impact that government regulation of broadband pricing and operational decisions will have on incentives for investment and innovation on the broadband front.

On April 14, for example, ComputerWorld.com reported:

The powerful chairman of a U.S. Senate committee will push for additional authority for the U.S. Federal Communications Commission to enforce Net neutrality rules and implement its new national broadband plan, if it's needed following a court ruling against the agency this month. The decision by the U.S. Court of Appeals for the District of Columbia Circuit to throw out the FCC's attempt to enforce Net neutrality rules against Comcast puts the entire broadband plan, released last month, at risk, said Senator Jay Rockefeller, a West Virginia Democrat and chairman of the Senate Commerce, Science and Transportation Committee. But Rockefeller urged FCC Chairman Julius Genachowski to move ahead with the broadband plan and Net neutrality rules anyway. "In the near term, I want the agency to use all of its existing authority," he said.

Senator Rockefeller not only is telling the FCC to ignore a U.S. Court of Appeals decision, but to ignore Economics 101 as well. After all, if the government decides to dictate pricing, business model, and operational decisions for an entire industry – and in this case, an industry among the most dynamic on the planet – that obviously will send up a red signal regarding investment and innovation in that industry. The incentives to invest will be diminished.

Some of the consequences of this economic reality were estimated in a new study from Coleman Bazelon of The Brattle Group, Inc., titled “The Employment and Economic Impacts of Network Neutrality Regulation: An Empirical Analysis.” What this study effectively does is to attach real-world estimates to the reality of altered economic incentives. The Brattle Group report projected that if net neutrality regulations under consideration by the FCC were implemented revenue growth in the broadband sector would slow by one-sixth over the coming decade; job losses in broadband would top 14,000 in 2011, building to more than 340,000 by 2020; and economy wide job losses would exceed 65,000 in 2011, reaching 1.45 million by 2020.

It also is noted in the study: “Mobile broadband is expected to be the source of most of the broadband growth over the next decade. Consequently, it would bear the largest share of the economic burden of network neutrality regulation.”

Fortunately, some in Congress seem to grasp the ills that promise to accompany net neutrality regulation, as well as the state of current law.

The ComputerWorld.com report, for example, noted:

But while Rockefeller and several other Democrats on the commerce committee urged the FCC to move forward with the broadband plan and its attempt to formalize Net neutrality rules prohibiting broadband providers from selectively blocking Internet content, several committee Republicans suggested the FCC has little authority to move forward in either area…

A light regulatory approach to the Internet by the FCC in the past has promoted innovation, said Senator Kay Bailey Hutchison of Texas, the senior committee Republican. The FCC should resist calls to reclassify broadband as a common carrier-type regulated service, she said…

Genachowski declined to say if the FCC was considering reclassifying broadband as a common carrier service. The agency's lawyers are looking at the options for moving forward with Net neutrality rules, he said. After the recent Comcast decision, the FCC does not have the authority to reclassify broadband as a common carrier service, even though the commission deregulated broadband in series of decisions in the past decade, said Senator Mike Johanns, a Nebraska Republican.

And what about small businesses? They obviously benefit enormously from broadband investment and innovation, for example, by empowering them to access information; reach customers nationally and globally; boost competitiveness; enhance efficiency, productivity and mobility; and expand communications.

A leading left-wing group pushing for net neutrality regulation is the Free Press, and it has a very different notion about net neutrality and small business. On an April 28 blog posting, the group actually asserted that small businesses “will be the most vulnerable if strong Net Neutrality rules aren’t enacted,” and that “Net Neutrality will spur investment and job growth for small businesses.”

Really?

To make such claims, of course, one has to turn economics on its head. The assumption must be that the added costs and uncertainties that come with government interference and control over business decisions actually would spur business investment. It is simply absurd.

But absurd is actually what should be expected from a group like the Free Press. As reported in an extensive analysis by Americans for Prosperity Foundation, the Free Press is nothing less than an ardent foe of free enterprise. The group has called for “a revolutionary program to overthrow the capitalist system”; declared support to “limit” and “perhaps even eliminate” advertising; and noted their “broader struggle for democracy, social justice, and, dare we say it, socialism.”

On net neutrality regulation, Robert McChesney, co-founder of Free Press, declared last year: “But the ultimate goal is to get rid of the media capitalists in the phone and cable companies and to divest them from control.”

So, a pro-socialist, anti-free enterprise group somehow knows what’s best for small business and the economy? I don’t think so.

Groups like the Free Press are all about giving government more control over the economy, and obviously that includes broadband networks and the Internet. That would be extremely bad news for small businesses and the rest of the economy.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Internet Regulation will Cause Retraction in Investment and Hurt Small Business

On January 14, SBE Council filed comments regarding new Internet regulations being proposed by the Federal Communications Commission (FCC). SBE Council's President Karen Kerrigan wrote that the regulations would undermine investment, innovation and economic recovery. The proposed “net neutrality” regulations are “risky and unwarranted” wrote Kerrigan. She also asserted that such interference will work against the FCC’s priority of bringing broadband access to every American.

“SBE Council strongly believes ‘net neutrality’ regulations are a dangerous risk to the dynamism of the Internet, and will have unintended consequences for entrepreneurs who innovate within this space, and those who benefit from its use,” wrote Kerrigan in comments filed on behalf of the organization.

Access to broadband has been a critical development for small businesses. Still, many small firms and self-employed individuals do not have access to broadband, or have not yet adopted high-speed Internet services. That is why SBE Council is highly engaged in initiatives that support broadband investment and encourage adoption. Kerrigan believes the new regulations would hurt investment, and therefore deployment to those small businesses and communities without access.

“The U.S. economy will move more quickly to recovery if policy leaders and the private sector work together to advance pro-growth, pro-opportunity measures that bring the benefits of broadband to all Americans,” wrote Kerrigan in her comments.

According to Kerrigan, the proposed FCC Internet regulations are “dramatic, far-reaching and risky.”

She wrote: “In the face of overwhelming evidence that the telecommunications market is vibrant, competitive and succeeding, the FCC is embarking on a whimsical and costly regulatory track where no intrusion is necessary. There is no reason for the FCC to radically depart from the restraint that previous Commissions and Administrations have shown toward the Internet.”

Kerrigan wrote that “the competitive and innovative spirit driving Internet openness will be forever changed by new FCC regulation. Complex government rules and uncertainty will hurt investment. A government-driven market -- where regulation and industrial- policy politics rule decisions -- will harm innovation, entrepreneurship and consumer choice. It will also put small players in this industry at a competitive disadvantage.”

Kerrigan urged the FCC to maintain its “pro-investment model.” A radical departure from current policy, she argued, adds uncertainty and risk for investors.
Kerrigan urged the FCC to withdraw the proposed “open Internet” regulations, and instead focus on completing a collaborative “national broadband plan” that will help bring opportunity to more Americans and small businesses.

More than 12,000 comments have been filed in response to these proposed Internet regulations that will be developed by the FCC.