Obama and the FCC: Bully Pulpit, Bad Policy

Like Theodore Roosevelt, Barack Obama knows that the presidency makes an effective bully pulpit — even when you have historically low approval ratings.

He showed that earlier this month when — in an unusually deep wade into the decision-making process at the supposedly independent Federal Communications Commission — the president came out four-square in favor of imposing “common carrier,” or public utility, regulation on America’s Internet service providers.

He also voiced support for an outright ban on what is called “paid prioritization,” under which providers of Internet content could pay for premium service in the delivery of their material to consumers.

If the goal was publicity, the statement was a success. It put the FCC’s efforts to regulate Internet access on the front pages, and depicted the president as standing firm (albeit against his own FCC chairman, who has been exploring more nuanced regulations).

In spite of its style points, the president’s policy fails on substance. Simply put, regulating the 21st century Internet under common carrier rules designed for railroads in the 19th century simply makes no sense.

With a stroke of a pen, the networks connecting millions of Americans to the world-wide web would be subject to thousands of regulations, requiring them to obtain FCC permission for the most basic of decisions. The nimble Internet we know would be slowed to the speed of government, and innovation level of a local water company.

The president’s call for an outright ban on paid prioritization, often referred to as Internet “fast lanes,” is also troubling, if not surprising. In comments last month, he criticized “the notion that some folks can pay a little more and get better service…”

But premium pricing is a profoundly routine practice in most markets. From airline travel to theater tickets to package delivery, premium service offerings are an established, and essential, part of the business.

Worse, rather than protect innovation, the government rules pushed by Obama would chill it. New and innovative business practices, pricing systems, and potentially even changes in service or technologies, would be subject to government approval or be banned entirely. The innovative Internet would be stymied — by government regulation, not the lack of it.

Nor would Obama’s regulations do much better at enhancing competition in the broadband marketplace. No barriers to entry are lowered, no costs reduced, no resources made more available. To the contrary, potential new competitors would find it tougher to get a foothold, as the rules would complicate efforts to differentiate their product from what is offered by the big guys.

For instance, a plan recently floated by Sprint for a low-cost, Facebook-only service was condemned as a “neutrality” violation, as was a plan by wireless provider MetroPCS to provide unlimited YouTube viewing on their wireless networks. Despite potential consumer benefits and pro-competitive effects, strategies such as these would likely be foreclosed under the president’s neutrality regime.

Of course, no one really knows what the full effect of the president’s plan for the Internet will involve. The designation of broadband firms as public utilities alone involves thousands of additional regulatory requirements. One of these is increased taxation, since broadband access would be subject to federal “universal service” fees, to pay for a variety of subsidies.

The economy is already hurting from the mere prospect of regulation. Just days after Obama’s statement, AT&T — which made more capital investments in the U.S. economy last year than any other non-financial firm — announced that due to the increased risks of regulation, it would have to “pause” its spending on fiber optic lines around the country. That means thousands of lost jobs, and delayed high-speed service for American consumers.

The president’s extreme position on the Internet regulation seemed to have taken even the agency’s chairman, Tom Wheeler, by surprise. In recent months, Wheeler has been riding a tiger, trying to reconcile demands by pro-regulation extremists and those advocating regulating under the current framework, and between those calling for a “fast lane” ban and those who would have the FCC review practices on a case-by-case basis. By stepping in, Obama has reduced the chances that Wheeler will be able to negotiate compromises to bridge the chasm among supporters of regulation.

That leaves the possibility that the FCC won’t be able to act at all to impose new regulation. That might be the best outcome of all.

 - James L. Gattuso is senior research fellow in regulatory policy in the Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Originally appeared in The Boston Herald