PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Biden EO on Competition Aims to Ratchet Up Regulation: A Look at Telecommunications

By at 31 August, 2021, 2:21 pm

 

by RAYMOND J. KEATING – 

The enormous benefits generated by tens of billions of dollars in annual investments made in broadband networks have been evident for many years now, but they have been truly driven home during this pandemic. As entrepreneurs, small businesses and workers have had to deal with an unprecedented scenario, and reliable, high-speed internet has made it possible for many to continue working, serving customers, and even reaching new markets and offering new and improved products.

Indeed, imagine the state of our economy without the estimated $80 billion a year invested in broadband networks, tallying up to some $1.8 trillion over the past 25 years, according to US Telecom.

But the Biden administration not only lacks appreciation for these and other beneficial private investments, but it manages to see – or more accurately, invent – ills in order to justify increased government regulation. In fact, President Biden’s “Executive Order (EO) on Promoting Competition in the American Economy” released in July actually tried to assert that more regulation of business would lead to more competition in the marketplace, including in telecommunications.

Various mistaken and/or misleading declarations were offered regarding broadband networks, namely, that Americans pay too much for broadband services and that telecommunications services are less innovative than they should be. For example, according to the EO:

● “In the telecommunications sector, Americans likewise pay too much for broadband, cable television, and other communications services, in part because of a lack of adequate competition.”

● “To promote competition, lower prices, and a vibrant and innovative telecommunications ecosystem, the Chair of the Federal Communications Commission is encouraged to work with the rest of the Commission, as appropriate and consistent with applicable law, to consider: (i) adopting through appropriate rulemaking ‘Net Neutrality’ rules similar to those previously adopted under title II of the Communications Act of 1934…”

The Actual Facts: First, the idea that American consumers, including small businesses, for example, pay too much for telecommunications services is an assumption detached from market realities. Contrary to political assumptions and assertions from the Biden administration, Americans pay less for increasingly innovative, faster, and improving broadband networks, both wireless and wired.

Consider the following from the “2021 Broadband Pricing Index” published by US Telecom, which reports that prices have dropped significantly while speeds have improved:

● “…the most popular tier of broadband service in 2015 is now priced 26.2% lower and offers 126% faster speeds in 2021 than in 2015.”

● “…the highest speed offerings in 2015 are now priced 39.2% lower and offer 77% faster speeds in 2021 than in 2015.”

● “…these broadband price reductions run counter to inflation, which has increased consumer costs overall by 12.1% over the same six-year period.”

● “When inflation is considered, the real price of the most popular tier of broadband service has dropped by 34.1% and the highest speed tier by 45.7% since 2015.”

● And for 2020 to 2021: “The BPI shows that the price of the most popular tier of broadband service declined by 7.5% in nominal terms, and when adjusted for economy-wide price inflation, the decline is nearly 9.3%. Further, the price of the fastest speed tier declined by 2.3% nominally, and 4.2% adjusted for inflation.”

● “The combination of pro-consumer pricing and speed trends indicates that facilities-based competition continues to deliver increasingly affordable options for high-quality, high-speed connectivity.” Jonathan Spalter, US Telecom CEO, summed up that “this continues a years-long story of declining prices and accelerating speeds that help unlock the full gamut of broadband-fueled opportunities for more Americans.”

Americans have experienced lower prices, improved service, and more options in the telecommunications/broadband marketplace. A surefire way of undermining that would be expanded regulation that undermines incentives for investing in further innovations.

The Fallacy of “Net Neutrality”

Net neutrality regulation, proposed by the Biden EO, would have government stepping in to dictate business models and pricing, thereby replacing consumers as final decision-makers, and in effect imposing 1930s-style utility regulation – as the Biden EO specifically cites title II of the Communications Act of 1934 – on dynamic, evolving, 21st-Century broadband markets.

Advocates for more regulation, again, adopt baseless assumptions about network providers, in particular that network providers work against their own customers – either content providers and/or consumers. That, of course, stands contrary to market incentives and sound business decision-making. Make no mistake, broadband service providers are fully incentivized to invest and innovate, thereby better serving both sides of the market, that is, both content creators – who, by the way, are overwhelmingly small businesses – and content consumers.

Intrusive net neutrality regulation would work to dampen investment, which would lead to less innovation, fewer choices and higher prices for consumers, including small businesses.

Big is Bad?

The Biden EO stands as part of the administration’s blind opposition to large businesses, that is, part of an effort to expand antitrust regulation across the economy. Of course, these assumptions ignore an assortment of facts, including that today’s large businesses – no matter the industry – were small firms in the past. Other than when aided by government, large businesses can only gain market share by serving customers well, and the only means for maintaining significant market share is to continue with quality service while also engaging in ongoing innovation. If not, current, emerging and future competitors stand willing to win over consumers.

Indeed, the operating assumption of the Biden administration seems to be that the American economy is mostly about large businesses that abuse consumers. Nothing could be further from reality. And that includes the telecommunications sector.

SMBs Dominate the Telecommunications Sector

According to the latest U.S. Census Bureau data (2018), consider the breakdown of the telecommunications sector by firm size:

That’s small business.

If serious about promoting entrepreneurship, investment, innovation and competition in telecommunications, the answer most certainly will not be found in more government interference and dictates, such as destructive and unnecessary net neutrality regulation.

Rather, it will be about providing a policy environment that allows entrepreneurship, investment and innovation to better flourish, such as via tax and regulatory relief. The Biden call for more regulation of telecommunications makes no economic sense and flies in the face of the realities of the marketplace.

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

 

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