Building on What Works: An Analysis of U.S. Broadband Policy

Abstract

Issued ten years ago, the FCC’s National Broadband Plan was in many respects a case study in regulatory humility. It recognized that broadband progress was “[f]ueled primarily by private sector investment and innovation”; that “government cannot predict the future”; that “the role of government is and should remain limited”; and that policymakers should thus focus not on imposing price controls or behavioral restrictions, but on “encourag[ing] more private innovation and investment.” This advice, which the FCC has generally followed, has fared well under the test of time. Ten years and hundreds of billions of investment dollars later, the broadband marketplace now offers consumers more choices and exponentially faster speeds than it did then.

Against that backdrop, this paper analyzes the asserted need for, and likely consequences of, four types of broadband regulation proposals in recent circulation: (1) facilities-sharing obligations; (2) retail price controls; (3) internet interconnection obligations; and (4) amorphous and open-ended ISP conduct rules like those the FCC imposed in 2015. For the most part, we see little merit to any of these proposals under current market conditions. None of them is needed to address any identifiable market failure, and each would impose significant costs, including the investment-chilling prospect of regulatory creep.

That said, government retains a critical role to play in the broadband marketplace. Market forces are unmatched in their power to bring the greatest benefit to the greatest number. But market forces by themselves will not help America close two stubborn and unacceptable digital divides: between rich and poor, and between urban and rural. These are real, universally acknowledged problems that call for real solutions. In particular, they call for expanded subsidy mechanisms—one directed to low-income subscribers and the other to broadband providers that commit to new infrastructure deployment in rural and other high-cost areas. But the challenge of closing these digital divides does not even logically support a call for more intrusive regulation of the broadband industry. To the contrary, such regulation would, if anything, make the underlying problems worse by placing a thumb on the scale against additional broadband investment.

Keywords: broadband, broadband policy, broadband regulation, investment incentives, economic regulation, net neutrality, interconnection, unbundling, unbundled, UNEs, price regulation, rate regulation, universal service, digital divide, municipal broadband

JEL Classification: K23, L43, L51, L86, L96, L98, O31, O33