PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Small Business Thumbs Up for Ajit Pai as New FCC Chairman

By at 27 January, 2017, 3:38 pm

by Raymond J. Keating-

Significant changes were and are expected on a variety of policy fronts with the Obama administration gone, and the arrival of the Trump administration. Interestingly, one of the clearest shifts in regulatory policy is set to occur at the Federal Communications Commission (FCC).

As noted on its website, the FCC “regulates interstate and international communications by radio, television, wire, satellite, and cable in all 50 states, the District of Columbia and U.S. territories.” Under the former chairman, Tom Wheeler, appointed by President Obama, the FCC took an expansionist and activist view of the agency’s work, to say the least – indeed, in critical ways reaching beyond the powers granted to it by Congress.

Ajit Pai, a strong advocate for entrepreneurs and small business as a FCC Commissioner, has recently been appointed its Chairman. (Photo courtesy of Chairman Pai’s Twitter account.)

This regulatory overreach is set to be reined in and reversed under the new FCC chairman, Ajit Pai, appointed by President Trump. Pai has been an FCC commissioner since May 2012.

Over the last nearly five years, Pai has offered a consistent, clear and rational voice on what the FCC should and should not be doing, including the effects of its regulatory overreach – both attempted and realized.

On the new chairman’s bio page, Pai lays out five guiding principles for regulation:

1.)  “Consumers benefit most from competition, not preemptive regulation. Free markets have delivered more value to American consumers than highly regulated ones.”

2.)  “No regulatory system should indulge arbitrage; regulators should be skeptical of pleas to regulate rivals, dispense favors, or otherwise afford special treatment.”

3.)  “Particularly given how rapidly the communications sector is changing, the FCC should do everything it can to ensure that its rules reflect the realities of the current marketplace and basic principles of economics.”

4.)  “As a creature of Congress, the FCC must respect the law as set forth by the legislature.”

5.) “The FCC is at its best when it proceeds on the basis of consensus; good communications policy knows no partisan affiliation.”

This basic set of principles for government regulators should be embraced by every regulatory agency across the federal government, along with state and local level agencies. Print them out, frame them, and hang them in the office of every regulator in Washington, D.C., and across the nation.

Entrepreneurs, small business owners, investors, large businesses and consumers should be heartened by having a new FCC chairman espousing these sound principles. It’s also clear that these principles have informed Commissioner Pai’s positions and statements on the assorted issues dealt with by the FCC in recent years.

For example, in 2015, the Federal Communications Commission (FCC) decided to regulate the Internet like an old-style telephone monopoly/utility – reclassifying broadband Internet services as a regulated service under Title II of the Telecommunications Act. However, Congress never intended such broadband regulation. In February 2016, Commissioner Pai pointed out some of the ills of such regulation a year after being passed by the FCC, including on small businesses and investment:

Last February, I said that the FCC’s Title II decision was a 313-page solution that wouldn’t work to a problem that didn’t exist. I predicted that applying Title II to the Internet would decrease investment and slow down broadband deployment. I warned that the FCC’s intrusive regulations would signal an end to permissionless innovation. And I maintained that Title II would inject tremendous uncertainty into the broadband market. One year later, all of this has come to pass…

As predicted, the FCC’s decision is having a disproportionate impact on our nation’s smallest ISPs. Many of them have reduced investment in the communities they serve because of the FCC’s decision to treat the Internet like a 19th century railroad or 20th century water company. One of them, called Aristotle, told Congress last month: “Before the [Title II Order] was adopted, it was our intention to triple our customer base” and “cover a three-county area. However, we have pulled back on those plans, scaling back our deployment to three, smaller communities that abut our existing network.” Another, KWISP (a wireless ISP), delayed network upgrades that would have increased speeds from 3 Mbps to 20 Mbps for its 475 rural customers in northern Illinois. And Wisper ISP, which serves 8,000 customers around St. Louis, shelved plans to triple the number of new base stations it would deploy each month to provide broadband to new customers. I’ve heard similar stories from other small businesses over and over again. Remember, these are the companies many Americans rely on, or would like to, for competitive alternatives.

At larger ISPs, growth in broadband investment has also flatlined. That’s only happened twice before on a year-over-year basis: following the dot com bust in 2001 and after the Great Recession in 2008. Indeed, economist Hal Singer has shown that the Obama Administration has now overseen the first-ever reduction in year-over-year investment by major ISPs that happened outside a recession, one which “[j]ust happens to coincide with the Title II era.”

And in a November 2015 House hearing, Commissioner Ajit Pai spelled out the FCC’s misguided regulatory adventurism:

Unfortunately, the Federal Communications Commission has not been as focused on promoting the digital revolution. The decision to regulate Internet service providers like Ma Bell of yore is a case in point. But that’s not the only problematic decision. The FCC has also impeded the IP Transition, making it harder for carriers to leave behind the copper networks of yesterday and focus on building next-generation networks. Last year, the Commission gave itself the authority to micromanage broadband networks, requiring carriers to seek permission before discontinuing almost every network feature no matter how little used or old fashioned. This summer, the Commission decided to slow copper retirement and let our staff flyspeck every change a carrier makes to its business model in the name of enhancing competition in the already competitive voice market. And it looks like we’re headed in the same direction with the special access market: Even though we haven’t analyzed the troves of marketplace data we’ve collected, the Commission has already singled out four carriers for re-regulation. That will divert even more capital away from next-generation networks and back toward 1.5 Mbps special access services that are 17 times slower than the FCC’s definition of broadband.

Commissioner Pai also pointed out that regulatory obstacles can and do exist at all major levels of government: “The Internet isn’t an abstraction. It’s a physical network of networks that requires massive investment to deploy and constant adjustment to manage. Telephone companies, cable operators, wireless providers, and others have invested more than $1.4 trillion over the last 18 years to trench conduit, lay fiber, erect towers, install equipment, and build out those networks that connect us all. Before shovels even hit the dirt, Internet service providers must navigate a dizzying array of federal, state, and municipal obstacles. This comes at a cost: Every week spent negotiating with a municipality for access to local rights of way is another week that consumers must wait for faster service and another week that work crews must sit idle. Every dollar spent complying with outdated regulations is a dollar that could have been better spent deploying next-generation technologies.” He concluded: “If we want faster broadband, if we want lower prices, and if we want more competition, we need to remove barriers to infrastructure investment and technological innovation.”

Again, Pai highlighted that increased regulation means greater uncertainty, higher costs, and reduced investment: “These regulatory roadblocks are bad for consumers, bad for infrastructure investment, and bad for our nation’s economic competitiveness. After all, networks don’t have to be built. Risks don’t have to be taken. Capital doesn’t have to be invested. When the FCC makes it less attractive for companies to connect the American people, those companies will find other places to put their money.”

On January 17 of this year, Pai made clear his distaste for the Wheeler FCC’s attempt at midnight regulation, in this case regarding free data: “This time the midnight regulations come in the form of a Bureau-level report casting doubt on the legality of free data offerings—offerings that are popular among consumers precisely because they allow more access to online music, videos, and other content free of charge.  This report, which I only saw after the FCC released the document, does not reflect the views of the majority of Commissioners.  Fortunately, I am confident that this latest regulatory spasm will not have any impact on the Commission’s policymaking or enforcement activities following next week’s inauguration.”

And on October 27, 2016, Pai’s statement regarding the FCC’s “Section 257 Triennial Report to Congress Identifying and Eliminating Market Entry Barriers For Entrepreneurs and other Small Businesses” again raised problems with FCC regulation hurting smaller firms:

Section 257 of the Communications Act requires the Commission to report to Congress every three years on the regulations it has prescribed to eliminate “market entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services and information services, or in the provision of parts or services to providers of telecommunications services and information services” as well as any such statutory barriers that the Commission recommends be eliminated.

            In this report, the Commission touts many actions that I agree have been helpful to small businesses, including AM radio revitalization and accelerating wireless infrastructure deployment.  On the other hand, it also discusses many initiatives that I believe have harmed, not helped, small businesses.  For example, the Commission’s Title II Order disproportionately burdens smaller broadband providers that do not have the same resources as their larger competitors to comply with additional regulation.  As such, I fail to see how Title II regulation eliminated a barrier to entry into the broadband marketplace.  To the contrary, it erected an additional barrier to entry.  As I’ve said before, monopoly rules designed in the monopoly era will inevitably move us in the direction of monopoly, not additional competition.

These statements, along with many others, point to a welcome change in regulatory emphasis at the FCC under the new commissioner, which will translate into an improved environment for investment and innovation. That, in turn, is welcome news for small businesses that operate in the telecommunications sector – consider that 83.1 percent of employer firms in telecommunications have less than 20 workers and 94.8 percent less than 100 employees – as content providers, and as consumers of so many broadband services that serve as invaluable tools for entrepreneurial ventures.

Here’s to greater regulatory common sense at the FCC now that Chairman Pai is leading the commission.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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