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Rumor has it that the Federal Communications Commission (FCC) will release its draft Restoring Internet Freedom Order today, the day before Thanksgiving. If the draft order lives up to its advance billing, it will effectively restore the liberal regulatory framework that allowed our country’s online ecosystem to flourish from 1990 (approximately when the world wide web was launched) until late 2014, when the Obama FCC, led by then-chairman Tom Wheeler, decided that utility-style regulation would be better.
Keeping with the holiday season, I would like to describe at least five reasons that Americans should be thankful for renewed internet freedom.
1. More of the innovations you want
Why will more internet freedom mean more customer-driven innovation? One reason is that the successes or failures of a new idea will be determined by whether customers accept them rather than by whether FCC lawyers allow customers to see them. Even in the small span of time from the implementation of the FCC’s regulatory decision until now, some companies in the online ecosystem used the new regulations to stymie their rivals’ attempts at innovation.
Another reason is that small upstart content providers will have an opportunity to buy specialized network features that will help them compete with the big guys, such as Google and Facebook. Under the FCC’s regulatory scheme, internet service providers (ISPs) were largely prohibited from customizing network features, meaning that only the large content providers could afford to build their own networks and tailor network features to their service needs.
2. More of the network investment that you want
Why will internet freedom lead to more network investment? One reason is that the regulations increased the probability that ISPs would have to lease pieces of their networks to rivals, which is both a regulatory and financial burden.
Another reason is that the regulatory controls decreased ISPs’ abilities to adapt to changing market conditions and to create new service features that improve network value.
How much investment are we talking about? According to economist Hal Singer, capital expenditures by ISPs declined about $3.6 billion since the FCC’s regulatory decision. A rejuvenation of this investment that you want could also lead to jobs that you want.
3. More of the competition that you want
How will internet freedom lead to more ISP competition? Allowing ISPs to differentiate their services makes competing more profitable. Individual ISPs will be able to focus on particular types of customers, making customers better off. And according to research by economists Shane Greenstein and Michael Mazzeo, such differentiation could result in more ISPs per market, which would give customers even more choices.
4. More of the transparency that you want
How does today’s release of the draft order increase transparency? It is important to understand that regulatory transparency — by which I mean that citizens can watch how the agency makes its decisions, see the data that it uses, understand how the agency gets from its data to its conclusions, and review the agency’s legal authority to make the decision — is crucial for keeping regulatory agencies accountable.
Economist Scott Wallsten explains how the release of this draft marks an important increase in transparency:
“From the 1970s through the Wheeler FCC, the Commission did not release the text of the orders it would vote on until some undefined time after the vote under the guise of granting ‘editorial privileges’ to the bureaus. As a result, nobody on the outside could determine whether anything was changed between the vote and when the order was made public. Chairman Ajit Pai changed that practice. Now, the so-called ‘white copy’ — the draft text — of orders is released three weeks prior to a vote. This is an important change that enhances transparency” (parenthetical and figures omitted, hyperlink in original).
5. More of the sound economic reasoning that you deserve
How does this draft decision represent an improvement in economic reasoning at the FCC? Recently a small group of economists (I was one) summarized the economic research on these issues. We limited ourselves to economics articles in the top 300 journals and that used explicit economic models.
Because our goal was simply to set the economic record straight as best we could on net neutrality, we drew no policy recommendations. But it was clear that the scholarly literature was largely unsupportive of the FCC’s regulatory regime.
My personal thanks: I would like to thank each commissioner for his or her work on this issue. I believe they will have differences of opinion on the final order, but they have maintained the integrity of the process and given the country an FCC that it deserves.
Note: I provided consulting for Google in 2012 regarding whether the company’s search service is a public utility.
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