This month, President Barack Obama urged the Federal Communications Commission to regulate the Internet under what is called “Title II of the Communications Act of 1934.” The call for Title II was immediately misunderstood and widely criticized. “Why should we tie the Internet to something set up 80 years ago?” the skeptics ask. It turns out there are several good reasons, and they get to the heart of how the Internet helps our economy.
The most important issue is simply the cost and speed of the Internet connections that Internet Service Providers offer to their customers. This has nothing to do with so-called “paid prioritization,” the question of fast lanes versus slow lanes. For most Americans, basic cost and speed is much more important. And it is easier to understand what is at stake.
The Internet has moved from a “nice to have” to a “need to have” in our society. Without a broadband connection, people have a hard time applying for jobs or getting vital medical and financial information. Top-quality college-level courses are available for free if you have a fast Internet connection – but not if you don’t. Internet access helps a person become economically self-sufficient, and it can help parents give their kids the knowledge and skills they need to survive.
Eighty years ago, the plain, old-fashioned voice telephone was the emerging “need to have” in our society. Without a phone at home, you were at a distinct disadvantage. Our economy had grown dependent on the telephone.
But there was a problem back then, and we face a similar problem now: It was much, much cheaper for a phone company (then) or an Internet Service Provider (now) to provide service in dense urban areas as compared to rural areas. For each rural subscriber, the phone company had to erect dozens of phone poles and string miles of wire. To make matters worse, there was almost never any competition to drive down prices in farm country. Many rural residents could simply not afford a phone.
But what was good for the phone companies was bad for the country as a whole. We needed to get nearly everyone wired or our economy would lag. So regulators came up with an idea called “
Universal Service”: Phone companies were required to charge all subscribers the same amount for a low, basic level of phone service. This meant that phone companies would slightly overcharge the many city dwellers while subsidizing those in rural areas. It distorted the market a little, but it meant that everyone could afford basic phone service. This worked splendidly and soon nearly everyone had a phone.
Without regulation or the threat of it, and without antitrust action, broadband access will get much worse in rural America. In theory, competition can solve the problem. But today there is very little competition among Internet Service Providers in the U.S. Each provider covers a patchwork of territory and most places have no more than two providers. Many parts of the U.S. have only one.
You don’t need a degree in economics to predict that without competition, prices go up and speeds fall. And indeed, almost everywhere in the U.S., broadband is slower and costs more than in most developed countries.
A recent study by New America Foundation (which is neither predictably liberal nor conservative) showed that America is falling behind. It found that a few cities like Chattanooga, Tennessee, have fast service at low prices, but in most of the U.S., it’s hard to do much better than $130 per month for a 150 Mbps home broadband connection. Meanwhile, in Paris, France (hardly a cheap place to live), “speeds of 100, 200 and 300 Mbps are available … for around $30/month.”
When the Internet was new, and no Internet providers had much market power, regulation was not needed. In fact, deregulation was needed (for example, the
Carterfone decision) to keep AT&T from strangling innovation. But those days are behind us, and the Internet Service Provider sector of the Internet is dominated by large corporations with considerable market power.
Comcast, Time Warner, AT&T and other providers are just doing what any smart corporation would do given a lack of competition, regulation or pressure of some other kind. The best solution would be to ensure robust competition among providers. That could be done under another regulatory concept called “comparably efficient interconnection,” which worked well until
it was demolished in the late 1990s.
Ironically, the fight against Internet regulation gets much of its support from Republicans in sparsely-populated rural states. But the residents of these states are the ones who will suffer most from high prices and poor speeds, once the providers are free of the threat of regulation. So much for self-interest.
It’s sad how easily we throw away the measures that protect us from economic disasters. Whenever something in our economy is working well, some people say that its success “proves” that regulations are no longer needed. But often it is the regulations themselves that ensure prosperity and growth, and once those regulations are repealed, disaster follows. For example, in the banking industry, the Glass-Steagall Act prevented the failure of systemically important banks for 66 years until its repeal in 1999. The framework introduced in the Telecommunications Act of 1934 gave us years of efficiency gains, price reduction and universal access to a vital technology.
So why turn to the Telecommunications Act of 1934 to regulate the Internet of tomorrow? Because large portions of it still apply. The economics of spanning sparsely populated areas with telecommunications networks haven’t changed much in the past 80 years, and neither have the challenges of too little competition.
David Brodwin is a Co-founder and board member of American Sustainable Business Council. This article appeared in U.S. News & World Report November 21, 2014.