Throwing Cold Water on Innovation and Investment: FCC Pushes the Regulatory Envelope

By at 21 March, 2024, 2:26 pm

by Raymond J. Keating –

What is innovation? It’s the introduction of new and improved goods, services and methods to the marketplace. Of course, innovation in its various forms, and driven by private investment in assorted arenas – including in technology – is central to economic and income growth.

There’s not much controversial in this basic assessment.

Now, imagine that a business – or an entire industry – would need to get permission from government to innovate. That is, entrepreneurs, businesses and investors would need to get approval from politicians and/or their appointees to innovate – again, to bring new and/or improved goods and services to the market. Most people can see how that would be a significant threat to innovation. And if such a requirement were to be imposed on an industry that itself has become vital to entrepreneurship, business and consumers, the resulting ills – i.e., stagnation and decline – would spread across the economy. Indeed, U.S. competitiveness, especially at a time when we are in fierce competition and in a “race” with China in regard to 5G and beyond, as well as technological superiority in general, would be put at a serious disadvantage.

Supercharged Innovation and Investment Killer: Section 214

As bizarre as this all might appear, the Federal Communications Commission (FCC) is proposing to do exactly this. Specifically, the FCC is proposing to reclassify broadband internet service as a common carrier telecommunications service under Title II of the Communications Act. And one portion of this overreach is Section 214 regulations, which would require that broadband providers gain FCC approval to offer new networks and services, as well as to discontinue outdated services and transfer control of licenses.

Given the delays and inefficiencies inherent in government, and the fact that the whims of politics invade decisions made in government, the regulatory signals and realities clearly would disincentivize innovation. Such an intrusive, permission-driven system would be disastrous for all businesses, but especially the small businesses that are dominant in this sector.

Network upgrades, improvements and expansions would face vastly increased governmental costs and uncertainties. In turn, entrepreneurial activity – such as startup internet service providers – and the investment essential to such undertakings, as well as innovation within existing small providers, would be limited. Therefore, so would emerging and existing competition. Also, network security and integrity would be undermined due to increased uncertainty and reduced investment and innovation.

Small Business, Small Provider Impact

Expanding upon the impact on entrepreneurs and small businesses, it must be kept in mind that the technology sector of our economy overwhelmingly is populated by small businesses. Consider the breakdown by firm size of broad technology sectors that in one way or another are involved in or related to broadband services, and therefore, would be negatively affected by this FCC regulatory escapade. (U.S. Census Bureau data for 2021.)

This proposed act of gross federal regulatory overreach is part of the FCC’s desire to re-impose its misguided “net neutrality” regulations that were imposed from 2015 to 2018. But why? What’s the point?

Moreover, while the previous “net neutrality” rules were harmful enough in terms of their impact on investment, competition and innovation, at least the decision was made to preclude Section 214 restrictions. Back then, at least there was some sensitivity to harmful impacts on innovation.

In comments filed with the FCC in December 2023, SBE Council made several important points regarding these questions, making clear that the newer version of “net neutrality” – now being described as “Safeguarding and Securing the Open Internet”  regulatory expansion is in no way needed, and in fact, would be counterproductive. On the good news front:

● “Pro-investment, pro-innovation policies encouraged significant private investment in building the high-quality broadband networks that effectively withstood extraordinary use and pressure during the pandemic, and much better than other nations: ‘U.S. broadband networks were able to better accommodate the COVID-19 crisis traffic surge compared to other nations,’ according to a July 2020 report by the Internet Innovation Alliance. As noted in the report, “traffic ticked up between 20 and 40 percent” during the pandemic and ‘U.S. providers were able to maintain the same levels of service with almost no drop in performance.’ Furthermore, U.S. broadband prices have decreased over the past several years, according the 2022 Broadband Pricing Index.”

● “The broadband industry’s investment of more than $1.9 trillion in its networks (and ongoing investment of tens of billions of dollars directed toward expanding and improving high-speed internet access every year) is responsible for this record of achievement and success. In short, private investment has created significant value for consumers and small businesses. Moreover,  widespread, competitive high-speed internet is available to 97% of Americans (according to the FCC). Nearly all Americans – 99.2% – have access to broadband through at least one provider.”

Meanwhile, as for warnings regarding excessive regulation:

● “A December 2023 study published by the Phoenix Center documents the effects of the previous Title II regulatory threat, which reduced investment by $8.1 billion annually ($81.5 billion over a ten-year period) and ‘reducing employment in the information sector by about 81,500 jobs and total employment by about 195,600 jobs (many of them union jobs), reducing labor compensation by $18.5 billion annually.’”

Finally, as for the FCC’s foray into national security reasons for this regulatory expansion, this comes across more as political opportunism rather than substance given the fact that national security questions already are handled by other governmental bodies, for example, via the interagency Committee on Foreign Investment in the United States, the Interagency Committee for Assessment of Foreign Participation in the United States Telecommunications Services Sector, and the U.S. Department of Commerce.

In the end, SBE Council’s previous recommendation holds: “We urge the FCC to withdraw its current proposal. It is up to Congress to determine ‘net neutrality’ rules and Title II authority. Without that determination and certainty, the potential regulatory ping-pong when Administrations change will only drive uncertainty, the quality and stability of broadband networks, and ultimately harm the U.S. economy and competitiveness.”

Indeed, if we value innovation, the withdrawal of this FCC proposal is essential.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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