PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

4 Reasons Why Restoring Internet Freedom Is Good for Entrepreneurship and Small Business

By at 6 December, 2017, 9:08 am

by Raymond J. Keating-

The way Americans live, work and do business on a daily basis has been transformed by broadband Internet service. That includes new and improved products and services being supplied to consumers, not just locally but across the nation and around the globe; the ways products and services are bought and sold; how individuals and businesses communicate; how work is supplied and hiring is done; how businesses are started up and grow; how financial capital is supplied and accessed; and much more.

Quite frankly, it’s all darn exciting, especially from an entrepreneur’s perspective.

The Internet has advanced in breathtaking fashion thanks to private investment made possible in part thanks to a light regulatory touch by the federal government. Indeed, it was a moment of true bipartisan wisdom, when Democrats and Republicans made the right choice in terms of regulatory restraint, as illustrated in the Telecommunication Act of 1996.

However, in February 2015, the Wheeler Federal Communication Commission (FCC) voted to regulate the Internet – both wired and wireless broadband networks – as a utility according to legislation passed in 1934 meant for the Ma Bell telephone monopoly.

SBE Council explained at the time that “three Democrat commissioners voted (with the two Republican commissioners opposed) to move away from a set of light regulatory touch rules that have allowed the Internet to flourish in ways unimaginable not along ago, and instead adopt a highly-regulated model – at the urging, by the way, of President Obama – operated by politicians and their appointees who do not possess the knowledge or incentives to undertake such a monumental task. The innovation and investment that have made the Internet such a powerful tool for small businesses, for example, as both suppliers and consumers, now face real constraints due to the uncertainty and costs related to government dictating network business models, from managing to pricing network services.”

Fortunately, though, regulatory sanity has returned to the FCC. Under the leadership of Chairman Ajit Pai, the FCC is set to vote on December 14 to vote on the Restoring Internet Freedom plan and roll back the onerous and outdated regulations imposed by the previous FCC.

Returning to a light regulatory touch framework that far better reflects the inherent dynamism and experimentation of the Internet would be good news for entrepreneurs, small businesses and their employees, and consumers.

Consider 4 key benefits for entrepreneurs and small businesses:

1.) Investment and Innovation. Entrepreneurs understand business realities, including that innovation and growth are not possible without private investment. Great ideas – from entirely new products to improved goods and services to more efficient ways of getting things done – require access to debt and equity investment. Increased regulatory costs and/or uncertainties, such as those generated by the federal government, create additional costs and restrictions, along with widespread uncertainty, and thereby discourage investment.

Writing in The Wall Street Journal, FCC Chairman Pai explained, “Encouraged by light-touch regulation, private companies invested over $1.5 trillion in nearly two decades to build out American communications networks. Without having to ask anyone’s permission, innovators everywhere used the internet’s open platform to start companies that have transformed how billions of people live and work.”

That changed with the arrival on “net neutrality” regulation courtesy of the Wheeler FCC.  In SBE Council’s comments filed with the FCC in July 2017, Karen Kerrigan, president and CEO, wrote:

“Unfortunately, the warning and concerns of many, including SBE Council, regarding the dampening effect on investment as a result of Title II rules has come to reality.  Hal J. Singer, a principal at Economists, Inc. has tracked ISP investment since the FCC voted to impose Title II regulation on the Internet. In his latest analysis (March 2017), Singer reported that there was a decline of 5.6 percent relative to 2014 levels. As he notes in a blog post about his findings: ‘Of the twelve firms in the survey, eight experienced a decline in domestic broadband capex relative to 2014 – the last year in which ISPs were not subject to common carrier regulations. Across all twelve firms, domestic broadband capex declined by $3.6 billion, a 5.6 percent decline relative to 2014 levels.’”

Innovation is dependent on investment. Sound government policies provide a foundation upon which investment and innovation can grow in a robust manner. Rolling back Obama-era 1930s-style regulation of dynamic, 21st-Century, wired and wireless broadband networks will enhance incentives for investment in all kinds of innovations.

2.) Positives for Small Business. Make no mistake, Obama-era “net neutrality” regulations are not just about very large broadband service providers. They hit small providers.

In her comments to the FCC earlier this year, Kerrigan explained:

The previous FCC ignored the concerns and impact expressed by small ISPs regarding Title II rules.  As noted by Matthew Polka, president & CEO of the American Cable Association, in a media release about FCC Chairman Ajit Pai’s announcement in April 2017 regarding the reconsideration of the 2015 Open Internet rulemaking:

“For smaller ISPs, most of whom operate in more rural areas, the costs of these rules are real and substantial. Their customers also are being harmed as smaller ISPs have put off network investments and are deferring, and even halting, the development of new features and services. The 2015 rules have turned out to be all pain and no gain.”

For good measure, the entire industry loses out when investment and innovation suffer. Again, that means small business. Consider that, according to the latest U.S. Census Bureau data (2015), 84.1 percent of employer firms in the telecommunications sector have less than 20 employees, 95.1 percent with less than 100 workers, and 98.3 percent less than 500 employees.

It’s no surprise that small businesses suffer most, as study after study shows that burdens of government regulation fall far heavier on smaller businesses versus large firms. (For a broad take on the ills of over-regulation see SBE Council’s report Regulation: Costs, Incentives, and the Need for Reform.)

Rolling back these harmful regulations is good news for small business.

3.) Content Creators. Another group of entrepreneurs and small businesses either ignored or misled in this discussion is content creators. Of course, when we’re talking about content creators who use and benefit from advancements in broadband services, the universe of such individuals, businesses and industries are ever-expanding and changing. But each sector is dominated by small businesses.

Just consider some of the most obvious industries. For example, in the musical groups and artists sector, 93.4 percent of employer firms have less than 20 employees, as do 95.9 percent of firms in the sound recording industry, and 92.7 percent of firms in the motion picture and video industry. And these numbers only include employer firms, not self-employed individuals.

The good news for content creators in recent decades has been about advancements in broadband services allowing them to create, distribute and sell their products in ways that were unimaginable not too long ago. And by being able to directly reach consumers across the nation and around the world, countless creators have been able to succeed when in the past, they never would have been given a chance. Advancements in broadband services have been one of the most powerful tools of opportunity and success for creators.

By rolling back onerous regulations, broadband service providers, again, can be fully incentivized to invest and innovate, thereby better serving both sides of the market, that is, both content creators and content consumers.

4.) Consumers. In the free enterprise system, consumers serve as the final judge and jury as to what works and what does not. “Net neutrality” regulation replaces consumers with the views and decisions of political appointees. That never works out well, to say the least. Under a light regulatory touch regime, as we have seen, broadband service providers make investments and experiment with assorted business models in an effort to better serve their customers – again, for example, both content providers and consumers – in competitive, dynamic markets. The notion that government regulators should somehow impose regulations meant for a monopoly Ma Bell of the 1930s on ever-changing and evolving broadband networks of today and tomorrow should be absurd on its face.

Indeed, “net neutrality” regulation advocates have always been searching for a problem to regulate. And since there hasn’t been one, they chose to ignore how the market works and how consumers have come to enjoy tremendous advancements in the broadband arena. Instead, they have served up baseless hypotheticals to justify extreme government regulation. President Obama and the Wheeler FCC were willing to impose real and significant costs on broadband providers, small businesses, entrepreneurs, content creators and consumers based on such fictions. Thankfully, the Pai FCC is choosing to deal with economic, market, business and consumer realities. And that’s good news for small businesses, and everyone else.

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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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