More Regulatory Overreach at the FCC

Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy.  Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years.  Finally, imagine that industry charged  falling prices for both consumers and businesses.

But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has  outperformed  the rest of the economy on key measures such as customer satisfaction, investment, and price.  Moreover, at a time when President Obama is calling  for more innovation,   the wireless industry has produced more genuine new products and services than anyone else.

So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7,  the FCC issued an order forcing the  big wireless providers to sign ‘data-roaming’ agreements with smaller carriers.  In effect,  the smaller carriers can now tell their customers that they could have data service all over the U.S., free-riding on the mammoth investments by the big carriers. In addition, the FCC made it clear that it is willing to set the price for each data roaming agreement if it doesn’t like what the big carriers are offering–effectively reinstituting price regulation for the most dynamic sector of the economy.

This aggressive regulatory move by the FCC follow its enactment of confusing ‘net neutrality regulations’ in December 2010, an 87-page order that raises more questions than it resolves. And then coming down the road is the ‘bill shock’ regulation. In order to address the rather rare and fixable problem of a surprisingly high bill, this regulation would force providers to spend scarce investment dollars on revamping their billing system rather than  building out their networks. 

In many ways, enacting this series of regulations is like throwing pebbles in a stream. One pebble doesn’t make much of a difference, but throwing enough pebbles in the stream can dam it up.

Frankly, the degree of regulation that the FCC wants to impose is more appropriate to a failing industry rather than one which is demonstrably successful and growing.  Let’s just run through the performance of the telecom/wireless industry over the past five years.  According to the American Customer Satisfaction Index,  satisfaction with wireless service has increased by 14% over the past five years, by far the biggest  jump of any industry.

Now let’s look at investment. The data on investment is somewhat fuzzier than for satisfaction, since the government’s figures on industry investment only run through 2009, and merges the telecom and broadcasting industries.

But here’s what we see: In the telecom/broadcasting industry, real investment in equipment and software  is up 30% since 2005, despite the turbulence of the financial crisis. By contrast, overall private sector real investment in equipment and software is down 8% over the same period.

And then of course the price of wireless service keeps falling. The latest figures from the Bureau of Labor Statistics say that consumer wireless prices are down 6% since 2011, and business wireless prices are down a lot more.

Right now the FCC  has the good fortune to preside over one of the few growing industries in the economy.  If the commissioners genuinely want to  support  innovation and growth, they should stop throwing regulatory pebbles into the stream.

Comments

  1. Mark Michael says:

    Great post. So who’s going to tell the FCC to go pound sand w.r.t. the wireless industry? I’ve watched what’s-his-name, the head of the FCC, on TV. He’s totally confident he’s right; not a whiff of reconsideration of his approach to regulating telecom. I suspect only a change in the WH in 2013 along with an R Senate can stop this FCC foolishness & keep from throwing sand into the “stream” of the telecom industry.

  2. I’m no fan of regulations, but I’m less a fan of telcos. Without reciprocal roaming agreements, Verizon/ATT can effectively eliminate competitors from entering the market. The order doesn’t say that Verizon/ATT have to give the service away for free. In voice, the FCC requires that all carriers connect calls inbound/outbound to all other carriers. It is through this regulation that phone company ABC’s customers can call an ATT customer. Seems like that regulation may have a good purpose. Bottom line, the inter-network IS the marketplace. Companies cannot enter into that marketplace unless they can connect to the network.

  3. Well, wouldn’t it usually be the case that a growing, expanding industry attracts more regulatory attention than a shrinking, failing one? It looks to me like the FCC are attempting to level the playing field rather than force dominant players into bankruptcy.

Trackbacks

  1. […] I know. You’re skeptical. So read the whole thing. […]

  2. […] the telecom and wireless sectors is that even in a lousy economy it is doing well.  As Mike Mandel reports, the sector has had rising customer satisfaction, falling prices, enviable investment levels and […]

  3. […] It’s the view of an academic lawyer who has never visited that exotic place called the real world. Does she think that the management, boards, and investors of these companies will continue to fund massive  infrastructure projects in the tens of billions of dollars if Washington dangles them within “an inch of their life”? Investment would dry up long before we ever saw the precipice. This is exactly what’s happened economy-wide over the last few years as every company, every investor, in every industry worried about Washington marching them off the cost cliff. The White House supposedly has a newfound appreciation for the harms of over-regulation and has vowed to rein in the regulators. But in case after case, it continues to toss more regulatory pebbles into the economic river. […]

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