Competition—Not Net Neutrality Regulations—Should Determine the Future of Broadband

By Mark Jamison of AEI. 

"The internet, once an open frontier, is again at the center of a contentious debate over regulatory approaches, thanks to a Federal Communications Commission (FCC) proposal to once again impose its Title II authority on broadband providers. The nearly 30 year debate has been marked by partisan contention and regulatory oscillations. From a hands-off strategy during the Clinton and Trump administrations to the Title II regulation under Obama and various light-handed policies in between, the regulatory landscape has seen considerable flux.

At issue is who determines the future of broadband in the US: Will it be consumers and internet content providers choosing the broadband services that best meet their needs or will it be the FCC? As with any regulatory issue, it is crucial to assess the economic implications of the decision. The lessons from scholarly research are clear: Title II regulation, which was designed for monopoly telephone companies, would damage the American broadband ecosystem that consumers and businesses have come to depend on.

When the FCC relinquished its Title II control in 2017, the research available in top-tier economics journals was all theory based. In it, the predicted impacts of regulation depend on assumed marketplace conditions. Under various conditions, the regulations might hinder investment, lower economic efficiency, and be harmful to consumers, network providers, content providers, or some combination. But there are also conditions under which opposite effects occur. The models gave different results because they made different assumptions about whether providers were monopolies, how charges might be implemented, the network engineering, and the types and variety of content provided.

The somewhat mixed findings in the theoretical literature indicate that the FCC should favor ex post regulation over ex ante regulation, like Title II. Ex post regulation stops harmful outcomes without also stopping beneficial conduct. The mixed findings also point to the need for empirical investigations as their findings would reflect actual industry conditions.

The empirical literature emerged after the 2017 decision to end net neutrality regulations. The first study—conducted by scholars from Austria, Italy, and Germany—examined broadband development in 32 OECD countries from 2000 to 2021. It found “that net neutrality regulations exert a significant and strong negative impact on fiber investments.”

During the COVID era, additional empirical studies by US scholars Anna-Maria Kovacs and George Ford shed light on the comparative network performance across countries. Kovacs highlighted the benefits of the United State’s light-handed regulatory approach, finding that US download speeds exceeded those in Europe and across OECD countries for both fixed broadband and mobile broadband. Ford’s analysis revealed stable download speeds in the US, while countries with more regulation experienced statistically significant speed reductions during the pandemic.

The confluence of theoretical and empirical research findings strongly argues against the application of Title II to broadband providers. The theoretical research underscores the situation-specific sensitivity of net neutrality regulations, advocating for a judicious and flexible regulatory approach. Empirical evidence points to the negative impacts of heavy-handed regulation on fiber investments and broadband performance. The literature is nearly unanimous: Hands-off regulation is more effective than Title II like regulation.

Title II was designed for a different era and industry. It tried to address the needs of a 1930s telephone industry made up of government-protected monopolies, dominated by AT&T. Initially the FCC’s primary role in regulating telecommunications was to limit AT&T’s interstate long distance prices. Ostensibly, the prices would reflect the amount of money AT&T needed to be able to share revenue with local telephone companies while also being profitable. In reality, the numbers resulted from negotiations between the FCC, AT&T, and state utility regulators.

Today’s broadband industry is much different from the telephony of a century ago. Providers now compete, engage in market tests of new technologies and pricing systems, customize network features for diverse customer needs, and succeed or fail based on their abilities to profitably serve customers. Regulatory interference would stifle internet services’ dynamic evolution."